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Keenan and Riches’ business law
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Sarah Riches & Vida Allen
BUSINESS LAW
Keenan & Riches’
Ninth edition
CASE
N A V I G AT O R
POWERED BY
Ninth
edition BUSINESS LAW Keenan & Riches’ Riches & Allen
Keenan & Riches’ BUSINESS LAW
Cover photograph: Getty Images/Pete Gardner
Do you want to give yourself a head
start come exam time?
Visit www.mylawchamber.co.uk/riches to
access answers to the questions in the book
to test yourself on topics covered. You’ll
also fi nd legal updates to help you impress
examiners and lecturers with knowledge of
the latest developments.
Worried about getting to grips with
cases?
Case Navigator offers unique online support
that helps you improve your case reading
and analysis skills in Business Law.
Cases contained within this resource are
highlighted throughout this book.
The LexisNexis element of Case Navigator is
only available to those who currently
subscribe to LexisNexis Butterworths
online.
CASE
N A V I G AT O R
www.pearson-books.com
Business Law, now in its ninth edition, is a manageable, well trusted
and reliable text specifi cally designed for non-law students studying
law for the fi rst time. Maintaining the direct and accessible approach
which has made this book so popular, Riches and Allen provide
user-friendly explanations of the law in a highly practical and
engaging style immediately equipping you with a good understanding
of key legal concepts.
Now thoroughly revised and updated, the new edition includes
key changes to the law on:
• The Consumer Protection from Unfair Trading Regulations 2008
• Companies Act 2006
• The Employment Equality (Age) Regulations 2006 Amendment
Regulations 2008
The coverage of tort law has also been expanded and
restructured in this edition to better match how the topic is covered on
business law courses.
The new text design and handy cross-references allow you to fi nd the information you need quickly and
easily while the use of extensive cases and diagrams make sometimes complex points in the law easier to
understand. Learning aids popular in previous editions have been retained and include:
• Learning objectives highlight key points you should understand as you progress through each chapter
• Self test questions allow you to assess for yourself whether your knowledge is up to scratch
• Case summaries are included throughout to give you the key facts, legal principle
and context underlying important cases
• End of chapter specimen examination questions provide valuable examples of the typical types
of question you may face in an exam enabling you to better prepare for assessments
Sarah Riches is Director of Planning and Policy at the University of Bolton
and has many years’ teaching experience.
Vida Allen is Principal Lecturer in Law at Kingston University
where she teaches business and company law.
‘This book is comprehensive in coverage and provides a well rounded introduction to
business law. It is clearly written and likely to become a ‘must have’ text for all business
law students.’ Indira Carr, Professor of Law at the University of Surrey
CVR_RICH9642_09_SE_CVR.indd 1 20/3/09 12:11:39
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Keenan and Riches’
BUSINESS LAW
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Also available:
Smith and Keenan’s
LAW FOR BUSINESS
Smith and Keenan’s
ENGLISH LAW
TEXT AND CASES
Smith and Keenan’s
COMPANY LAW
Smith and Keenan’s
COMPANY LAW
WITH SCOTTISH SUPPLEMENT
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Ninth Edition Keenan and Riches’
BUSINESS LAW
Sarah Riches and
Vida Allen
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. .
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
First published in Great Britain under the Pitman Publishing imprint in 1987
Second edition published 1990
Third edition published 1993
Fourth edition published 1995
Fifth edition published 1998
Sixth edition published under the Longman imprint in 2002
Seventh edition published 2005
Eighth edition published 2007
Ninth edition published 2009
© Mary Keenan, Sarah Riches and Vida Allen 2009
The rights of Denis Keenan, Sarah Riches and Vida Allen to be identified as authors of
this work have been asserted by them in accordance with the Copyright, Designs and
Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of
the publisher or a licence permitting restricted copying in the United Kingdom issued by
the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
All trademarks used herein are the property of their respective owners. The use of any
trademark in this text does not vest in the author or publisher any trademark ownership
rights in such trademarks, nor does the use of such trademarks imply any affiliation with
or endorsement of this book by such owners.
Crown Copyright material is reproduced with the permission of the Controller of HMSO
and the Queen’s Printer for Scotland.
Law Commission Reports are reproduced under the terms of the Click-Use Licence.
ISBN: 978-1-4058-9964-2
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Riches, Sarah.
Keenan and Riches’ business law. – 9th ed. / Sarah Riches and Vida Allen.
p. cm.
Rev. ed. of: Business law / Denis Keenan, Sarah Riches. 7th ed. 2005.
Includes index.
ISBN 978-1-4058-9964-2 (pbk.)
1. Business law–England. 2. Business law–Wales. I. Allen, Vida. II. Keenan, Denis J.
Business law. III. Title. IV. Title: Business law.
KD1629.K44 2009
346.4207–dc22
2009000630
10 9 8 7 6 5 4 3 2 1
13 12 11 10 09
Typeset in 9.5/12pt Minion by 35
Printed by Ashford Colour Press Ltd., Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.
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Guided tour xii
Preface xvii
Legal study skills xviii
Case names, citations and law report abbreviations xxi
Acknowledgements xxiv
Table of cases xxv
Table of statutes xxxviii
Table of statutory instruments xli
Table of European and other legislation xliv
Part 1 INTRODUCTION TO LAW 1
1 The nature of law 3
2 Law making 12
3 Resolving disputes 45
Part 2 BUSINESS ORGANISATIONS 71
4 Classification and survey of types of business organisation 73
5 Non-corporate organisations – sole traders and partnerships 97
6 Companies 147
Part 3 BUSINESS TRANSACTIONS 201
7 Introduction to the law of contract 203
8 Types of business contract 266
9 The terms of business contracts 279
10 Contracts for the supply of goods and services 302
11 Business and the law of tort 330
12 Criminal liability in business 358
13 Credit 380
14 Consumer protection 401
Part 4 BUSINESS RESOURCES 419
15 Business property 421
16 Employing labour 452
Index 567
v
Brief contents
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Contents
. .
Guided tour xii
Preface xvii
Legal study skills xviii
Case names, citations and law report
abbreviations xxi
Acknowledgements xxiv
Table of cases xxv
Table of statutes xxxviii
Table of statutory instruments xli
Table of European and other
legislation xliv
Part 1
INTRODUCTION TO LAW 1
1 The nature of law 3
Learning objectives 3
Classification of law 3
The common law 6
Equity 6
Some basic principles of legal liability 8
Law of property 9
Self-test questions/activities 10
Specimen examination questions 10
Website references 11
2 Law making 12
Learning objectives 12
Causes of legal change 12
Legal change and the changing world 12
Law reform 13
The sources of legal change 14
Law-making processes 15
Legislation 15
Case law (judicial precedent) 22
European Community law 24
Human rights 36
Self-test questions/activities 42
Specimen examination questions 42
Website references 43
3 Resolving disputes 45
Learning objectives 45
Legal services 45
The legal profession 45
Other legal personnel 48
Other sources of information and advice 48
Methods of dispute settlement: the courts 50
Criminal courts 50
Civil courts 56
Other important courts 62
Tribunals 62
Alternative dispute resolution 64
Ombudsmen 66
Regulators 66
Self-test questions/activities 68
Specimen examination questions 68
Website references 68
Part 2
BUSINESS ORGANISATIONS 71
4 Classification and survey of
types of business organisation 73
Learning objectives 73
Classification of business organisations 73
Natural and juristic persons 75
Survey of types of business organisation:
advantages and disadvantages 78
Commencement of business 78
Raising business finance – generally 79
Raising business finance – securities 80
Charges 80
Guarantees 81
Mortgages 83
Mortgages of personal property 85
Mortgages of choses in action 85
Liability of the proprietors 86
Continuity 87
Publicity and external control of the
undertaking 88
vii
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Taxation and national insurance 90
Planning 93
Self-test questions/activities 95
Specimen examination questions 96
Website references 96
5 Non-corporate organisations –
sole traders and partnerships 97
Learning objectives 97
The sole trader 97
Formation of the business 97
Dissolution 99
Debt recovery 99
Bankruptcy procedure – generally 101
The petition 101
Schemes of arrangement under the Deeds
of Arrangement Act 1914 102
The interim order and voluntary arrangement
under the Insolvency Act 1986 102
The effect of a bankruptcy order – generally 103
Committee of creditors 105
The public examination 105
The family home 105
Proof of debt 106
Mutual dealings – set off 106
Carrying on the business and disclaimer 107
Transactions at an undervalue and
preferences 107
Payment of the creditors – preferential
payments 108
Protection of employees 108
Trade creditors 109
Deferred creditors 109
Discharge of the bankrupt 109
The ordinary partnership 111
Definition and nature of a partnership 111
The sharing of profits as evidence of
partnership 114
Types of partners 114
Membership of the firm 117
The firm and the firm name 117
The relationship between partners and
outsiders 118
Partners’ powers 118
Liability of incoming and outgoing partners 122
Relationship of partners within the
partnership 123
Dissolution 128
Ordinary limited partnerships 133
Limited liability partnerships 134
Reform: a partnership with legal personality 137
Model form of ordinary (or unlimited)
partnership deed 139
Self-test questions/activities 144
Specimen examination questions 145
Website references 146
6 Companies 147
Learning objectives 147
Types of registered companies 147
Public and private companies 148
Formation 149
Pre-incorporation contracts 150
The company’s constitution 151
Articles of association 158
Financing the company 161
The issue of shares and debentures 167
Procedures for issuing shares to the public 168
Regulation of the securities market and
of admission to it 168
Offers of unlisted securities 170
The remedy of rescission 170
Membership 170
Meetings, resolutions and annual return 172
Protection of minority interests 176
Directors and secretary 178
Powers of directors 185
Duties of directors 185
Company insolvency and corporate rescue 188
Liquidation 189
Alternatives to liquidation: company rescue
procedures 192
Administration 192
Self-test questions/activities 198
Specimen examination questions 199
Website references 200
Part 3
BUSINESS TRANSACTIONS 201
7 Introduction to the law of
contract 203
Learning objectives 203
Business contracting – generally 203
Nature of a contract 204
Types of contract 204
Contents
viii
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Contents
Essentials of a valid contract 205
Agreement 205
Consideration 215
Privity of contract 221
Intention 225
Form 227
Capacity 229
Genuineness of consent 231
Mistake 231
Misrepresentation 235
Duress and undue influence 239
Legality 240
Competition policy 244
Discharge of contracts 249
Remedies 254
Limitation of actions 260
Self-test questions/activities 261
Specimen examination questions 264
Website references 265
8 Types of business contract 266
Learning objectives 266
Contracts for the supply of goods 266
Contracts of bailment 268
Employment contracts 268
Contracts of agency 268
Contracts concerning land 272
Contracts for financial services 272
Standard form contracts 273
Self-test questions/activities 277
Specimen examination questions 277
Website references 277
9 The terms of business contracts 279
Learning objectives 279
Certainty of terms 279
Puffs, representations and terms 281
Types of contractual terms 282
Express and implied terms 283
Exemption clauses 286
Unfair Contract Terms Act 1977 290
Unfair Terms in Consumer Contracts
Regulations 1999 296
Reform 298
Fair Trading Act 1973 299
Self-test questions/activities 299
Specimen examination questions 300
Website references 301
10 Contracts for the supply of
goods and services 302
Learning objectives 302
Sale of goods 302
Definition 303
Formation 303
The implied terms 303
Transfer of property in the goods 309
Sale by a person who is not the owner 312
Performance of the contract 315
Remedies 318
Supply of goods and services 321
Implied terms in contracts for the supply
of goods (Part I) 322
Implied terms in contracts for the supply
of services (Part II) 323
Manufacturer’s liability in contract 324
Reform and guarantees 327
Self-test questions/activities 328
Specimen examination questions 329
Website references 329
11 Business and the law of tort 330
Learning objectives 330
Tortious liability 330
Basis of tortious liability 330
Proof of damage 331
Causation 331
Specific torts relevant to business 332
Defective goods 337
Defective services – generally 342
Lawyers 344
Accountants and auditors 344
Valuers and surveyors 346
Other torts relevant to business 347
Defences 352
Remedies 354
Limitation of actions 355
Self-test questions/activities 356
Specimen examination questions 356
Website references 357
12 Criminal liability in business 358
Learning objectives 358
Criminal law and the supplier of goods
and services 358
Unfair commercial practices 359
Product safety 362
ix
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Safety and quality of food 365
Other criminal liability for the supply of
goods and services 367
Criminal liability – generally 367
Other crimes relevant to business 368
Stock exchange frauds 373
Self-test questions/activities 377
Specimen examination questions 378
Website references 379
13 Credit 380
Learning objectives 380
Types of credit 381
Consumer Credit Act 1974 388
Agreements covered by the Act 389
Licensing of credit and hire businesses 391
Seeking business 391
Signing credit or hire agreements 392
Cancellation 393
Credit reference agencies 394
Liability of the supplier and creditor 394
Termination and default 397
Self-test questions/activities 399
Specimen examination questions 400
Website references 400
14 Consumer protection 401
Learning objectives 401
Who is a consumer? 401
Why do consumers need protection? 402
Consumer protection institutions 403
Different approaches to consumer protection 407
Consumer protection case study – package
holidays 410
Enforcing consumer rights 415
Self-test questions/activities 417
Specimen examination questions 418
Website references 418
Part 4
BUSINESS RESOURCES 419
15 Business property 421
Learning objectives 421
Generally 421
Fixtures and fittings 421
The lease 422
Pure personalty and chattels real 422
Pure personalty – choses in possession
and choses in action 422
Easements and profits 423
Securities 424
A licence 424
Access to land 425
Restrictive covenants 426
Legal estates in land 426
The rights and duties of an occupier
of land 429
Intellectual property and its protection 431
Data protection 443
Computer misuse 449
Freedom of information 449
Self-test questions/activities 450
Specimen examination questions 450
Website references 451
16 Employing labour 452
Learning objectives 452
Employer and employee 452
Independent contractors –
self-employment 454
The contract of employment 455
The contract of employment: special
situations 465
Rights and duties of the parties to the
contract 466
Health and safety at work 502
Discrimination 518
Disability discrimination 535
Termination of the contract of employment 540
Discriminatory dismissal 551
Redundancy 551
Other methods of termination of the
contract of service 556
Rights and remedies on dismissal 561
Self-test questions/activities 564
Specimen examination questions 565
Website references 566
Index 567
Contents
x
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. .
Visit the Business Law, 9th Edition mylawchamber site at
www.mylawchamber.co.uk/riches to access valuable learning
material.
FOR STUDENTS
Do you want to give yourself a head start come exam time?
Companion website support
● Use the selected answers to self-test questions in the book to test yourself on each topic
throughout the course.
● Use the updates to major changes in the law to make sure you are ahead of the game by knowing
the latest developments.
Struggling with some of the core concepts in Contract Law?
Online Study Guide
This study guide includes a series of interactive problem solving exercises to help you revise
key topics in Contract Law. The study guide is available in Blackboard, WebCT and
CourseCompass
Case Navigator*
Worried about getting to grips with cases?
This unique online support helps you to improve your case reading and analysis skills.
● Direct deep links to the core cases in Business Law.
● Short introductions provide guidance on what you should look out for while reading the case.
● Questions help you to test your understanding of the case, and provide feedback on what you
should have grasped.
● Summaries contextualise the case and point you to further reading so that you are fully prepared
for seminars and discussions.
Also: The regularly maintained Companion Website provides the following features:
● Search tool to help locate specific items of content
● E-mail results and profile tools to send results of quizzes to instructors
● Online help and support to assist with website usage and troubleshooting
For more information please contact your local Pearson Education sales representative or visit
www.mylawchamber.co.uk/riches
*Please note that access to Case Navigator is free with the purchase of this book, but you must register with us for access.
Full registration instructions are available on the website. The LexisNexis element of Case Navigator is only available to those
who currently subscribe to LexisNexis Butterworths online.
C A S E
POWERED BY
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Guided tour
. .
xii
Business contracting – generally
Once the businessman has decided on the particular
form of business organisation that suits his needs, he
can concentrate on his main purpose: establishing and
building up the business. This will involve acquiring
premises and equipment, taking on employees, buying
raw materials and stock, marketing the product or service and meeting orders. Underpinning all these business
transactions is the presence of a contract.
Most people think that a contract is a formal written
document which has been signed by the parties in the
presence of independent witnesses. If all contracts took
this form, there would be little room for argument about
whether the parties had entered into a legally binding
agreement, the obligations they had undertaken or the
consequences of failing to carry out the terms of the
agreement. In practice, however, few contracts are like
this. The vast majority of contracts are entered into
without formalities. The parties may even be unaware of
the legal significance of their actions. Think about the
agreements you have made over the past week:
■ buying a newspaper;
■ taking the bus or train into work or college;
■ agreeing to complete an assignment by a particular
date;
■ getting a cup of coffee at breaktime;
■ arranging to meet a friend for lunch.
Can all these transactions be classed as contracts? You
probably feel that some of them were never intended to
have legal consequences. So, what then is a contract?
When is a contract formed? What are the obligations of
the parties to a contract? What happens if either party
breaks the agreement? The answers to these questions
are provided by the law of contract.
The foundations of the present-day law of contract
were laid in the 19th century. This period in our history
saw the rapid expansion of trade and industry, and,
inevitably, an increase in the volume of commercial disputes. Businessmen turned to the courts for a solution.
Gradually, the judges developed a body of settled rules
which reflected both the commercial background of the
disputes from which they arose and the prevailing beliefs
of the time. The dominant economic philosophy of the
19th century was laissez-faire individualism – the view
that the state should not meddle in the affairs of business
and that individuals should be free to determine their
own destinies. This philosophy was mirrored in the law
of contract by two assumptions: freedom of contract and
equality of bargaining power. The judges assumed that
everyone was free to choose which contracts they entered
into and the terms on which they did so. If negotiations
could not produce an acceptable basis for agreement,
203
Chapter 7 Introduction to the law
of contract
Learning objectives
After studying this chapter you should understand the following main points:
■ the distinction between a contract and other types of non-binding
agreement;
■ the essential elements of a binding contract;
■ the factors which may affect the validity of a contract;
■ the ways in which the obligations under a contract may be discharged;
■ the remedies available for breach of contract.
Learning objectives
Located at the start of each chapter the
Learning objectives highlight the key
points you should understand following
your reading of the chapter
Case Summaries
Summaries and commentary of selected
cases throughout highlight the key facts,
legal principle, and context underlying
important cases
Chapter 9 The terms of business contracts
The division of terms into conditions and warranties
was included in the original Sale of Goods Act 1893
(now the Sale of Goods Act 1979, as amended). In
s 11(3) a condition is described as a stipulation ‘the
breach of which may give rise to a right to treat the contract as repudiated’, while a warranty is a stipulation ‘the
breach of which may give rise to a claim for damages
but not a right to reject the goods and treat the contract
as repudiated’. In recent years, the courts have recognised that it may be impossible to classify a term neatly
in advance as either a condition or a warranty. Some
undertakings may occupy an intermediate position, in
that the term can be assessed only in the light of the consequences of a breach. If a breach of the term results in
severe loss and damage, the injured party will be entitled
to repudiate the contract; where the breach involves only
Express and implied terms
Another way in which the contents of a contract can be
classified is according to whether the terms are express
or implied.
Express terms
Express terms are the details of a contract which have
been specifically agreed between the parties. They may
be contained wholly in a written document or ascertained entirely from what the parties said to each other.
In some cases, the terms may be partly written and
partly verbal.
283
Poussard v Spiers (1876)
Madame Poussard was engaged to appear in an operetta from the start of its London run. Owing to illness,
she was not available until a week after the show had
opened and the producers were forced to engage a substitute. They now refused Madame Poussard’s offer to
take up her part. It was held that the obligation to perform from the first night was a condition of the contract.
Failure to carry out this term entitled the producers to
repudiate Madame Poussard’s contract.
Bettini v Gye (1876)
Bettini, an opera singer, was engaged by Gye to appear
in a season of concerts. He undertook to be in London
at least six days before the first concert for the purpose
of rehearsals. He arrived three days late and Gye refused
to accept his services. It was held that the promise to
appear for rehearsals was a less important term of the
contract. Gye could claim compensation for a breach of
warranty but he could not repudiate Bettini’s contract.
2 Warranties. A warranty is a less important term: it
does not go to the root of the contract. A breach of
warranty will only give the injured party the right to
claim damages; he cannot repudiate the contract.
The difference between a condition and a warranty is
illustrated by the following cases.
Cehave NV v Bremer Handelsgesellschaft
mbH (The Hansa Nord) (1975)
A clause in a contract for the sale of citrus pulp pellets
stipulated that shipment was ‘to be made in good condition’. Part of one consignment arrived in Rotterdam in
a damaged condition and the buyers rejected the whole
cargo. The defects were not particularly serious because
some time later the buyers bought the very same cargo
at a considerably reduced price, which they then proceeded to use for their original purpose. The Court of
Appeal held that the clause in question was an intermediate term. The breach was not so serious that it entitled
the buyers to reject the whole cargo. It could be dealt
with by an award of damages.
Harling v Eddy (1951)
A heifer was put up for sale by auction at Ashford Cattle
Market. The sale was subject to the auctioneer’s printed
conditions of sale which stated that the auctioneer did
not guarantee the condition of the animals sold. The
appearance of this particular heifer was so poor when
she entered the auction ring that no one was prepared to
make a bid for her. The auctioneer then stated that there
was nothing wrong with her and he would guarantee her
in every respect. The heifer was sold to the claimant but
was dead from tuberculosis within three months. The
minor loss, the injured party’s remedies will be restricted
to damages. These intermediate terms have become
known as innominate terms.
95), published in 1979. The provisions of Part I, which
came into force in January 1983, consist of two sets of
implied terms. The first set applies to contracts for the
transfer of property in goods, the second set to contracts
for hire.
Contracts for the transfer of property
in goods
The first set of terms, detailed in ss 2–5 (see below), are
implied into contracts for work and materials and barter,
under which a person acquires ownership of goods. The
Part 3 Business transactions
322
Figure 10.2 Remedies under the Sale of Goods Act 1979 after 31 March 2003
are to the 1982 Act, as amended by the Sale and Supply
of Goods Act 1994, unless otherwise indicated. We will
now examine the provisions of the Act in more detail.
Implied terms in contracts for
the supply of goods (Part I)
Part I of the Act was based on the recommendations of
the Law Commission contained in its Report on Implied
Terms in Contracts for the Supply of Goods (Law Com No
Figures and diagrams
Illustrative figures and diagrams can be
found throughout chapters to strengthen
your understanding of complex legal
processes and areas in Business Law
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Guided tour
xiii
Chapter 8 Types of business contract
269
Figure 8.1 A typical hire agreement form
Copyright © Consumer Credit Trade Association (original size A4)
Realia
Documents are reproduced throughout
to give you a sense of how the law looks
and feels in practice, offering you real
examples encountered in the business
world
the contract that the parties did not intend the term to
be enforceable by a third party’.
Variation and rescission of the contract (s 2)
The effect of this section is to restrict attempts by the
contracting parties to alter (vary) the contract or cancel
(rescind) it without the agreement of the third party.
Where a third party has a right under s 1 to enforce a
term of a contract, the contracting parties may not, by
agreement, rescind or vary the contract in such a way as
to extinguish or alter the third party’s entitlement, without the third party’s consent if:
■ the third party has communicated to the promisor
his/her acceptance of the term; or
■ the promisor is aware that the third party has relied
on the term;
■ the promisor can reasonably be expected to have
foreseen that the third party would rely on the term
and the third party has in fact relied on the term.
Acceptance may be in the form of words or conduct,
but if the acceptance is sent by post, the ‘postal rules’ will
not apply and the acceptance will only be effective when
received by the promisor.
The principle that variation or rescission of the contract can only be made with the third party’s consent
will not apply in the following circumstances:
■ Where there is an express term in the contract allowing the contracting parties to vary or rescind without
the third party’s consent.
■ Where, on the application of the contracting parties,
a court dispenses with the requirement of consent
because the third party’s whereabouts are unknown
or he is incapable of giving consent because of mental
incapacity or it cannot be ascertained whether he has
relied on the contractual term. This power is exercisable by either the High Court or county court.
Defences, set-off or counterclaims available
to the promisor (s 3)
This section applies where the third party is seeking to
enforce a contractual term against the promisor. It sets
out the defences, set-offs and counterclaims available to
the promisor in any proceedings by the third party. The
following principles apply:
1 The third party’s claim will be subject to all the
defences and set-offs which would have been available to
the promisor in an action by the promisee arising from
or in connection with the contract and relevant to the
term the third party is seeking to enforce (s 3(2)).
Part 3 Business transactions
224
Example 1
The contract is void because of mistake or illegality, or
has been discharged because of frustration, or is unenforceable because of a failure to observe necessary formalities. In these circumstances the third party will not be
able to enforce the term because the promisee would
not have been able to enforce the contract.
Example 2
A and B enter into a contract for the sale of goods,
whereby the purchase price is to be paid to C. B delivers
goods which are not of satisfactory quality in breach of
the statutory implied term contained in s 14 of the Sale of
Goods Act 1979. In an action for the price of the goods
brought by C, A will be entitled to reduce or extinguish
the price because of B’s breach of contract.
2 The contracting parties may include an express term
in the contract to the effect that the promisor may have
available to him any matter by way of defence or set-off
in proceedings brought by the third party or the promisee (s 3(3)).
Example 1
A enters into a contract with B whereby A will pay C
£1,000. C already owes A £400. A has a set-off to a claim
by C and need only pay £600.
Example
A agrees to buy B’s car for £3,000, with the purchase
price to be paid to C. B owes A money under a completely unrelated contract. A and B agree to an express
term in the contract for the sale of the car that allows
A to raise in any claim brought by C any matter which
would have given A a defence or set-off in a claim
brought by B. So if C brought a claim for the purchase
price, A would be able to set off the money owed by B.
3 The promisor will also have available to him any
defence or set-off, or any counterclaim not arising from
the contract, but which is specific to the third party
(s 3(4)).
Examples
Located throughout, practical examples
illustrate the outcomes to possible
scenarios, demonstrating how the law
operates in the real world
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. .
Guided tour
xiv
Part 2 Business organisations
144
1 Joseph David Soap wishes to set up in business
on his own as a carpenter, having acquired a small
business connection from John Smith. Which of the
following trading names, if any, would require Joe
to comply with the provisions of the Companies
Act 2006?
(a) David Soap;
(b) J D Soap & Co;
(c) Joe Soap;
(d) Joe Soap Carpentry (formerly John Smith’s);
(e) J D Soap;
(f ) Chipaway;
(g) Dave Soap.
2 Your friend, Fred, intends to go into business on
his own as a timber merchant under the name of
‘County Council Supplies’. What could happen to
Fred if he does this?
3 Old John Brown has been in business as a furniture
remover in Barchester since 1975. Last year young
John Brown moved to Barchester and has started up
a furniture removal business in his own name. Can
old John Brown stop him?
4 Adam Smith, a grocer, comes to you for advice on
his finances. What advice would you give him in
terms of each of the following questions which he
asks you?
(a) ‘Times have been very hard for me lately.
I owe so many people so much money. I could
probably pay my creditors, say, half of what I
owe them but no more. Is there a way of doing
this, given that I understand that a builder to
whom I owe £1,000 appears to have gone to
court to make me bankrupt?’
(b) ‘Anyway, I have tried to make my family safe.
Last week I gave my wife the family home
and on the same day sold her two terraced
houses in Barchester worth £40,000 for £500.
Yesterday I also paid my brother off. I owed
him £1,000 from when I started up so he should
have it. My creditors can’t upset these deals,
I take it.’
(c) ‘I have not paid John, my driver, for a month and
I doubt whether I can now. I wish I could have
helped him but I guess he will have to go down
with all the other creditors. That’s the position,
isn’t it?’
(d) ‘Of course, even if they make me bankrupt I shall
rent another shop and go on trading. Nothing
can be done about that, can it?’
5 Joe is a solicitor employed by Bloggs & Co. There
are two partners, Harry and Ian. Ian is intending to
retire and it has been decided that Joe should
replace Ian as a partner, with Harry carrying on
as a partner.
Explain to each of Joe, Harry and Ian what steps
each should take to protect himself as a result of the
changeover.
6 Cliff has been asked by his friends, Don and Eric,
to help them set up an antiques business. Don and
Eric want Cliff to lend them £5,000 and they say they
will give Cliff one-third of the profits instead
of interest on the loan.
What are the dangers to Cliff in such an
arrangement and how can he overcome them?
7 Fred is a new partner in Gee & Co, a firm of interior
designers. In discussion at a recent meeting of the
partners Fred was told that the office building at
which the firm is based is not partnership property.
Explain to Fred:
(a) what is meant by the expression ‘partnership
property’;
(b) what effect it will have on him if the office
building is not partnership property;
(c) how it can be that an asset which is used in
the firm’s business is not in fact partnership
property.
Self-test questions/activities
3 Tom and Harry are shop assistants and short of
cash. They decide to borrow from the till. Tom leaves
a note in the till and replaces the money the
following day. Harry neither leaves a note nor does
he replace the money. The employer has discovered
what has happened and wishes to dismiss Tom and
Harry but does not wish to incur liability.
Advise the employer.
Part 4 Business resources
566
http://www.berr.gov.uk/whatwedo/employment/
workandfamilies/flexible-working/index.html For
family-friendly developments, see Department for
Business, Enterprise & Regulatory Reform website.
http://www.berr.gov.uk/whatwedo/employment/
employment-legislation/employment-guidance/
page19310.html For guidance on payments and awards,
see Department for Business, Enterprise & Regulatory
Reform website.
http://www.cipd.co.uk Also useful in the above area, the
Chartered Institute of Personnel and Development.
http://www.direct.gov.uk/en/Employment/Employees/
Pay/index.htm On the National Minimum Wage, the BERR
interactive website on NMW.
http://www.lowpay.gov.uk The Low Pay Commission.
http://www.ico.gov.uk The Information Commissioner’s
Office is an independent supervisory authority that reports
directly to Parliament.
http://www.ico.gov.uk/home/for_organisations/topic_
specific_guide/employment.aspx For the Employment
Practice Code.
http://www.equalityhumanrights.com On equal pay and
equality in employment generally, the Commission for
Equality and Human Rights.
Website references
Visit www.mylawchamber.co.uk/riches
to access selected answers to self-test questions in the
book to check how much you understand in this chapter.
Use Case Navigator to read in full some of the key cases
referenced in this chapter:
Johnson v Unisys Ltd. [2001] 2 All ER 801.
Post Office v Foley; HSBA Bank v Madden [2000] 1 All ER (D) 550.
Fairchild v Glenhaven Funeral Services Ltd and others; [2002] 3
All ER 305
Barber v Somerset County Council [2004] 2 All ER 385
C A S E
POWERED BY
Self-test questions and activities
Located at the end of each chapter,
self-test questions allow you to test
your understanding of topics following
your reading. Answers will be available
on the companion website at
http://www.mylawchamber.co.uk/riches
Website references
Annotated web references can be
found at the end of each chapter,
directing you to useful and
relevant resources on the web
Chapter 6 Companies
5 As Secretary of Ouse Ltd write a memorandum for
the Board explaining the differences between raising
finance:
(a) by an issue of shares;
(b) by an issue of unsecured loan stock;
(c) by an issue of debentures secured by a floating
charge over the company’s asets; and
(d) by an issue of preference shares.
6 (a) How is the voluntary winding-up of a company
brought about?
(b) What decides whether a voluntary winding-up is
controlled:
(i) by the members, or
(ii) by the creditors?
7 In relation to corporate insolvency distinguish
between an administrator and a liquidator.
199
1 (a) How may and when must a company change
its name?
(b) Dodgy Computers Ltd is registered for the
purpose of acquiring the business of John
who has been trading under the name of
‘Supercomputers’. The company will operate the
business under that name.
What statutory rules must the company comply
with and what are the consequences in terms of its
contracts if it fails to comply with them?
2 Although the directors have the general power to
manage the company, power to carry out certain
functions is given to the shareholders either in
general meeting or by written resolution. State
and explain these shareholder powers.
3 John holds shares in Derwent Ltd and wishes to
retire and dispose of his shareholding for cash. Dick
and Harry are the other two shareholders but they
cannot afford to pay for the shares. John is thinking
of selling his shares to his brother and Dick and
Harry do not want this.
Explain to Dick and Harry how the company might
purchase John’s shares and outline the procedure to
them.
4 Corporate insolvency: a case study
Trent Ltd is a small company. John and Paul are the
shareholders and the company’s overdraft with the
Barchester Bank plc is secured by a floating charge
on the whole of the company’s
undertaking.
Problems have arisen within the company. Trent
Ltd is over-borrowed and has declining margins. The
company has started to run short of cash. It is
struggling to pay its bills and may fail in the near
future.
Nevertheless, John and Paul intend to carry on
business through the company. The bank and other
creditors are pressing for payment. John and Paul
seek your advice on resolving the present difficulties.
Matters to be addressed:
(a) The consequences for John and Paul of
continuing to trade through the company in its
present state.
(b) The suitability of a company voluntary
arrangement or administration and the steps to
be taken.
(c) The last-ditch possibility of a winding-up,
preferably without the involvement of the court.
Discuss procedures.
(d) Explain to John and Paul what steps the
Barchester Bank can take.
(e) Explain the steps that unsecured creditors can
take.
Specimen examination questions
Specimen examination questions
Located at the end of each chapter,
specimen examination questions
provide useful examples of the sort of
questions you could be faced with in
your exams, and can be used to assist
you in your exam preparation
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