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Business Management
Study Manuals

Diploma in
Business Management

PRINCIPLES OF
BUSINESS LAW

The Association of Business Executives

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The Association of Business Executives

5th Floor, CI Tower • St Georges Square • High Street • New Malden
Surrey KT3 4TE • United Kingdom
Tel: + 44(0)20 8329 2930 • Fax: + 44(0)20 8329 2945
E-mail: [email protected] • www.abeuk.com

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Diploma in Business Management

PRINCIPLES OF BUSINESS LAW

Contents

Unit Title Page

Introduction to the Study Manual v

Syllabus vii

1 Nature and Sources of Law 1
Nature of Law 2
Historical Origins 5
Sources of Law 8
The European Union and UK Law: An Overview 11

2 Common Law, Equity and Statute Law 21
Custom 23
Case Law 24
Nature of Equity 30
Application of Principles of Equity 32
Equity and Common Law 34
Classification of Equity 35
Legal and Equitable Rights 36
Nature of Statute Law 37
Interpretation of Statutes 39
Codification and Consolidation 43
Appraisal of Statute Law 44
Delegated Legislation 44

3 The Administration of Justice 47
Organisation of the Courts 48
Administrative Justice 59
Public International Law 70
Judges and Juries 71
Organisation and Role of the Legal Profession 73

4 The Law Relating to Associations 79
The Concept of Corporations 81
Corporations in Law 81
Companies 83
Companies in Law 91
Unincorporated Associations 111
Partnerships 111

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Sticky Note
Marked set by andy

Page 235

220 The Sale of Goods 1: The Contract, Property and Title

© ABE and RRC

 A right to bid may be expressly reserved by or on behalf of the seller; however, if
such a right has not been duly reserved, it is unlawful for the seller to bid himself,
or for anyone else to do so on his behalf. Likewise, it is unlawful for the
auctioneer knowingly to accept such a bid. If such does occur, the buyer can
treat the sale as fraudulent.

(c) Standard or printed terms of contract – the "battle of the forms"

You will be familiar with the almost universal practice of having standard conditions of
sale or purchase printed on the back of business documents. They present lawyers
with fascinating problems, and their users with often unexpected results! The problem
revolves around whose standard terms govern the contract, the seller's or the buyer's?

What happens is this:

 A buyer sends off a request for a quotation, with her terms of purchase on the
back. This document usually has no contractual effect; it is merely a request for
information.

 The seller replies, giving the price on the front, and his conditions of sale on the
back. This constitutes an offer to sell on his terms.

 The buyer then sends in an order for the goods, with once again her conditions
of purchase on the back. These are invariably different from the seller's, hence it
amounts to a rejection of the offer followed by a counter-offer.

 The seller replies with an "acknowledgement of order" with his sale terms on the
back. So we then have a rejection of the counter-offer, followed by a counter-
counter-offer. (As you know from earlier study units, there can be no contract
until offer and acceptance coincide.)

This process can go on ad infinitum, with neither side having the faintest idea of the
legal realities of the situation. But, finally, the seller will despatch the goods and the
buyer will accept them. Only when trouble then arises do people start to query whose
conditions govern the contract.

The short answer is that it is the terms printed on the last piece of paper to be sent
off before the goods were finally despatched or accepted as the case may be, which
govern the contract. But that is an oversimplification. If it was clear from the
circumstances as evidenced by the written documentation that the parties intended to
contract on the basis of one set of conditions or the other, then this would override any
subsequent standard printed terms on the back of the parties' paperwork.

In Butler Machine Tool Co. Ltd v. Ex-Cell-O Corporation (England) Ltd (1979), the
sequence of events went very much as outlined above. In the Court of Appeal, Lord
Denning MR had this to say:

"There are yet other cases where the battle depends on the shots fired on both
sides. There is a concluded contract but the forms vary. The terms and
conditions of both parties are to be construed together. If they can be reconciled
so as to give a harmonious result, all well and good. If the differences are
irreconcilable, so that they are mutually contradictory, then the conflicting terms
may have to be scrapped and replaced by a reasonable implication .... But I
think the documents have to be considered as a whole. And, as a matter of
construction, I think the acknowledgement of the 5th June 1969 is the decisive
document. It makes it clear that the contract was on the buyer's terms and not
the seller's terms."

(The acknowledgement referred to by Lord Denning was a "tear-off" acknowledgement
of order slip attached to the buyer's standard order form.)

Page 236

The Sale of Goods 1: The Contract, Property and Title 221

© ABE and RRC

(d) Unsolicited goods

At common law if unsolicited goods are sent to a person, this constitutes an offer to
sell. His/her use of them, or any conduct which renders the goods impossible to
restore to the sender in substantially the same condition, amounts to an implied
acceptance. The price must then be paid; however, the Unsolicited Goods and
Services Act 1971 substantially amends the common law rules, as follows.

If the goods are sent to the recipient with the intention that she should acquire them,
and the recipient has no reasonable cause to believe that they were sent for the
purposes of her using them in a trade or business, and she has not agreed to either
acquire or return them, then she may use and deal with them as if they were a gift.
The rights of the sender are extinguished, provided

(i) That for the six months from the date of receipt, the sender has not repossessed
them, and the recipient did not unreasonably refuse to allow him to do so or,

(ii) That no less than 30 days before the six-month period expires, the recipient
notifies the sender that the goods were unsolicited, and during the 30-day period
after giving notice, the sender has not repossessed the goods, or been
unreasonably prevented from doing so.

Remember the distinction between void and voidable (i.e. avoidable) contracts.

Formalities

There are no particular formalities required for a sale of goods. Section 4 provides that
"subject to [this and] any other Act, a contract of sale may be made in writing (either with or
without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may
be implied from the conduct of the parties".

Note the words "this and", which I have emphasised and put in brackets. They are
redundant, and refer to a similar provision of the 1893 Act which was repealed in 1954. The
draughtsmen of the Act have slipped up here!

"Other Acts" to which the provision is subject are, for example:

 The Consumer Credit Act 1974, which requires certain credit agreements to be in
writing and in a certain form

 The Merchant Shipping Acts 1894 - 1979, which require that a registered ship can be
transferred only by means of a bill of sale, in prescribed form, and duly registered.

Parties

A contract for the sale of goods can be bilateral or multilateral. Throughout, the Act talks
about only two parties, but there is no difficulty in applying the provisions to situations where
there are three or more parties.

 Section 3(1) states that "the capacity to buy and sell is regulated by the general law
concerning capacity to contract and to transfer and acquire property". The section
goes on to spell out the general law as relevant with regard to contracts with minors
and others incompetent to contract.

 Section 3(2) states that "where necessaries are sold and delivered to a minor or to a
person who by reason of mental incapacity or drunkenness is incompetent to contract,
he must pay a reasonable price for them".

 In Subsection (2) above, "necessaries" means "goods suitable to the condition in life of
the minor or other person concerned and to his actual requirements at the time of the
sale and delivery".

Page 470

Negotiable Instruments 2: Cheques 455

© ABE and RRC

An IOU, as generally understood, is not a promissory note, since it does not strictly contain
any promise to pay, and in this form it does not constitute a negotiable instrument.

Necessity of Delivery

"A promissory note is inchoate and incomplete until delivery thereof
to the payee or bearer": Section 84.

No precise form is necessary for a promissory note, but the essential feature is that there
must be an unconditional promise in writing to pay a certain sum in money. In a similar
manner to a bill of exchange, the note must not be made payable on a contingency, although
a note may contain a pledge of collateral security with authority to sell or dispose thereof.

Liability of Maker

Section 88 specifies that:

"The maker of a promissory note, by making it:

(1) Engages that he will pay it according to its tenor.

(2) Is precluded from denying to a holder in due course the existence of the payee
and his then capacity to endorse."

Joint Notes

"A promissory note may be made by two or more makers, and they may be liable
thereon jointly, or jointly and severally, according to its tenor": Section 85(1).

Joint liability is not the individual liability of each of the makers but the collective liability of
them all together. Thus a joint note is good against the makers jointly. Should one of the
makers of a joint note die or become bankrupt, his/her estate is freed from all liability, and
the liability falls entirely on the remaining maker or makers. Again, all the parties of a joint
note must be sued together. If any party is not included in the action he/she will be released
from liability. Should judgment be obtained against one or some of the parties, whether that
judgment is satisfied or not, then the other or others will be released.

Joint and Several Notes

Section 85(2) defines a joint and several note:

"Where a note runs 'I promise to pay' and is signed by two or more persons it is
deemed to be their joint and several note."

Joint and several liability is the liability of all the makers together collectively and of each of
them separately. In other words, where a note is a joint and several one, made by two or
more makers, the note is good against all the makers jointly or against each one of them
separately, for the full amount of the note. If one of the makers to a joint and several note
dies or becomes bankrupt his/her estate is not freed from liability. Again, it is not necessary
for the holder of a joint and several note to sue all the parties together; the holder can sue
the parties singly or in any way he/she pleases and the remedy against them is not satisfied
until "twenty shillings in the pound" (i.e. the full amount) has been recovered.

Page 471

456 Negotiable Instruments 2: Cheques

© ABE and RRC

Application of Bills of Exchange Act 1882

Section 89 provides as follows:

"(1) Subject to the provisions in this part and, except as by this section provided, the
provisions of this Act relating to bills of exchange apply, with the necessary
modifications, to promissory notes.

(2) In applying those provisions the maker of a note shall be deemed to correspond
with the acceptor of a bill, and the first endorser of a note shall be deemed to
correspond with the drawer of an accepted bill payable to drawer's order.

(3) The following provisions as to bills do not apply to notes; namely, provisions
relating to:

(a) presentment for acceptance;

(b) acceptance;

(c) acceptance supra protest;

(d) bills in a set.

(4) Where a foreign note is dishonoured, protest thereof is unnecessary".

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