Business Law and Ethics: Contractual Terms and Warranties Analysis

This document presents a comprehensive solution to a business law and ethics assignment, addressing key issues related to contract law. The assignment analyzes a scenario involving a cake shop and its suppliers and customers, examining the nature of contractual terms, including whether the gluten-free nature of almond flour constitutes a term of the contract. It also explores the concept of implied terms, determining whether a gluten-free cake was an implied term. The solution further differentiates between conditions and warranties, specifically regarding cake icing color, and assesses the consequences of a breach of warranty. The analysis incorporates relevant case law and legal principles to support the conclusions, offering a detailed understanding of contract formation, terms, and remedies for breach of contract. The document provides a clear and concise breakdown of the legal issues, rules, applications, and conclusions for each question.

BLST2BSL Introduction to Business Law and Ethics
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Question 1
Issue
The central issue is to determine whether the gluten free almond flour is considered to be a term
for the enacted contract or not.
Rule
When the two parties’ i.e. offeror and offeree are negotiating the enactment of contract, then the
statements represented by the parties in this pre-contractual stage would be called as terms of the
contract. Terms is considered to be an essential part of contract because the decision of forming a
contract depends on accuracy of these statements. Importance of terms can be viewed from the
fact that if the statement (term) which was cited by one party to another serves as basis for
enacting a contact and it is found to be incorrect, then in such cases the innocent party has the
right to go back to pre-contractual stage and to sue the other party for breaching the underlying
term1. In such cases, the innocent party can recover the damages. Hence, it is pivotal to
determine that in which cases the statement would be classified as term for the contract.
 Imperativeness of statement
When the decision of enacting a contract is based on the correctness of the cited statement, then
it would be considered as term of contract. The testimony in this regards is highlighted in the
Bannerman v White2 case.
 Timing
1 Michael Lambiris, Laura Griffin, First Principle of Business Law (Oxford University Press, 9th ed, 2016) 212.
2 Bannerman v White (1861) CB (NS) 844
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When the time lag between stating the statement by one party and decision making regarding
enacting the contract of another party is very minimal, then in such cases the statement would be
categorized as a term. This is evident from the decision announced in Routledge v McKay3 case.
 Competency/ requisite knowledge of party
According to the judgment of Harling v Eddy4 case, it has been found that the party must be
enough capable to check the accuracy of the statement. This is also evident from Oscar Chess v
Williams5 case.
 Form of the statement
The honorable court would take a note of whether the statement is extended through oral or
written mode. It is because, in case of written form, the statements which are not mentioned in
the written form would not be considered as terms. The decision in the Birch v Paramount6
Estates case is the testimony of this.
Application
It is apparent from the case facts that Mikaela is running a cake shop and purchases the necessary
ingredients from Tower Flours.
Mikaela wanted to purchase gluten free almond flour from Tower Flour. Rickey the
representative of Tower Flours was discussing with Mikaela and said that their almond flour is
gluten free. Mikaela agreed to purchase 40kg of almond flour from them. It is fair to conclude
3 Routledge v McKay [1954] 1WLR 6115
4 Harling v Eddy [1951] 2KB 739
5 Oscar Chess v Williams [1957] 1 All ER 325
6 Birch v Paramount Estate (1956) 167
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that gluten free nature of almond flour is term for the contract based on the below highlighted
facts:
 Mikaela specifically asked for gluten free almond flour (Imperativeness of statement)
 Mikaela enacted the contract with Tower Flours when she got to know through Rickey that
their flour is gluten free (Limited/minimal timing gap)
 When Mikaela asked for gluten free almond flour from Tower Flour, they are having
requisite knowledge to check whether their flour is gluten free or not. (Competency of party
to find accuracy of statement)
It can be said that gluten free almond flour is pivotal for Mikaela and she would not order 40kg
flour from Tower Flours if their flour is not gluten free. Further, she will not enact contract with
Tower flours if this term is not present.
Conclusion
It can be concluded that gluten free nature of almond flour is considered to be term of contract
enacted between Mikaela and Tower Flour.
Question 2
Issue
The issue is to determine whether gluten free cake would be considered as implied term for the
Dan and Jacob’s contract enacted with Mikaela or not.
Rule
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The terms which are not express or highlighted in the contract would be called implied terms.
These terms are assumed to be silently present in the contract and it has been understood that
both the parties are aware of these terms coupled with mutual agreement. Mutual details or
information are not specified at the time of enacting contract but underlying relationship between
the parties is the key parameter to assume that these are present in the contract. In other words,
the terms which is mainly understood and essential aspect of creating contract then it would be
called implied terms as per common law stipulation7. These kinds of terms are more observed in
the commercial business transaction contract, where the parties are mutually agreed with the
implied terms. The pre-requisite is that they should perform their respective contractual duties
without harming rights of another party. The decision in the Liverpool City Council v Irwin8 case
is the witness of this aspect9.
Application
It is apparent that Dan and Jacob did not mention about the almond flour bring gluten free and
just mentioned that the cake must contain almond flour. Also, based on the information provided,
they did not tell Mikaela about the disease and the possible implications of using flour containing
gluten. Hence, when Dan and Jacob ordered wedding cake from Mikaela, it can be assumed that
she was not aware about the cake to be made using gluten free almond flour. Hence, it would not
be called implied term of the contract as one party did not know about the term and hence did not
extend agreement about the same.
Conclusion
7 Ewan McKendrick, Contract Law: Text, Cases, and Materials (Oxford University Press, 4th ed, 2014) 12-17
8 Liverpool City Council v Irwin [1976] 2 All ER 39
9 Ibid. 1.
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Based on the above discussion, it can be said that gluten free cake is not an implied term for the
given enacted contract.
Question 3
Issue
The issue is to comment whether cake icing color is a condition or a warranty of the contract.
Rule
Terms are categorized under condition or warranty. Term would be called as condition when the
contract would not form if the term is not satisfied as highlighted in Poussard v Spiers10 case.
The innocent party can declare the contract void and recover the damages when a condition is
breached. Warranty is not that much imperative for contract and thus, breach of warranty would
not result in revocation of contract as evident from Bettini v Gye case11. However, the party can
recover the damages from defaulting party.
Application
Kimiko asked for some specific icing color which was not provided when he went to receive the
cake. Icing color is an important part of cake but it does not have high attribution for the cake
and also, Kimiko accepted the cake with different icing color and hence, it can be said that icing
color is warranty for the contract.
Conclusion
10 Poussard v Spiers (1876) 1 QBD 410
11 Bettini v Gye (1876) 1 QBD 183
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As per above, it can be concluded that icing color is warranty and not a condition.
Question 4
Issue
The issue is to find whether Mikaela is responsible for wrong icing color on Kimiko’s cake or
not.
Rule
As per the decision extended in Bettini v Gye12 case, breach of warranty would not lead to
revocation of contract. However, the innocent party has the legal rights to claim for the damages
from the defaulting party. However, the imperative aspect to note is that the service provider
must inform the customer regarding the possibility of breach of warranty. This is known as
exclusion clause. This would extend the freedom to the respective party to enter or not to enter
into contractual relation13. This is essential even though the respective clause is highlighted and
the customer can easily notice the same. Hence, this is the core responsibility of the service
provider to inform the customer regarding exclusion clause14.
Application
12 Bettini v Gye (1876) 1 QBD 183
13 Paul Davies, JC Smith’s the Law of Contract (Oxford University Press, 3rd ed, 2016) 424
14 Ibid.1.
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It is apparent that color icing is not as per the request of Kimiko and thus, breach of warranty has
incurred in this case. Therefore, it can be said that Kimiko has the legal rights to recover the
damages from Mikaela. This would be valid even though Kimiko read the breach of warranty
clause highlighted in the shop as it is the responsible of Mikaela to bring the attention of Kimiko
towards the sign of breach of warranty. Hence, Mikaela fails to complete their duty.
Conclusion
It can be concluded that Mikaela fails to complete her duty and thus, breach of warranty has
incurred by placing wrong icing color. Hence, Kimiko has the rights to recover the damages
from Mikaela.
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