The Legal Obligations of Parties in Various Business Transactions

Introduction Law provides the framework for the regulation of business relationships and hence is imperative for any business activity forming an important part of business environment. In the given assessment the interplay of law and business has been is depicted while analyzing the legal obligations of parties in various business transactions. Task 1

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  1. Sole trading

Sole trading is where a person starts his personal business without any collaboration with others. Fewlegal formalities to operate the business in sole trading and the owner hastotal controlover the business and hence he gets the entire profit. In order to set up as a sole trader one must register with the HM Revenue & Customs (Elearn,. 2000).

  1. Partnership

In UK it is governed by the Partnership Act of 1890. Section 1(1) of the Act defines it as ‘the relationship between two or more people with the aim of profit Companies A company, as an artificial person (Elearn, 2000), is able to act only through its agents. The registration and establishment of a company is governed by the Companies Act of 2006. Section 9 of the Act provides that the memorandum of association must be delivered to the registrar together with an application for registration of the company. Section 4 of the Act provides for public and private companies.

  1. Private Limited Companies

Private companies have Ltd after their name. They are typically smaller than public companies. Shares in a private company can only be bought and sold with permission of the Board of Directors, hence shareholders have limited liability.

  1. Public Limited Company

A public company can sell shares to the public and to financial institutions and have their shares traded on the Stock Exchange. In order to create a public company the directors must apply to the Stock Exchange Council (Dennis M. Daley, 2011).

  1. Franchising

A franchise grants permission to sell a product and trade under a certain name in a particular area. The person taking out the franchise puts down a sum of money as capital and is issued with equipment by the franchising company. Franchise contracts need to comply with general principles of contract law and take account of Data Protection Act, Unfair Contract Terms Act, Sales Agency Regulations, Transfer of Employee (on transfer of business) Regulations, Third Party Rights Act. The main areas of legislation that affect businesses are:

  1. Employment law- It aims at protecting the health, safety and rights of employees. The law governing employment in UK comprises of Disability Discrimination Act, 1995; Employment Rights Act, 1996, Sex Discrimination Act 1975, Race Relations Act 1976, Employment Protection Act 1978, etc.
  2. Consumer Protection- It aims at making sure that businesses act fairly towards their consumers especially since consumers are sometimes in a much weaker financial position (Elearn, 2000). Consumer Protection issues are dealt with when complaints are made to the Director-General of Fair Trade which is investigated by theOffice of Fair Trading.
  3. Competition law- It aims to ensure that fair competition takes place in each industry (Elearn.,2000). TheCompetition Act 1998and theEnterprise Act 2002are the most important statutes relating to competition law.

Task 2

  1. This is the case of family loan, a financial debt a person owes to a relative. In the majority of cases, the agreement is extremely informal with no contract or interest. As the contract between Asma and her brother complies with the basic requirement of contract under English Law, she has an obligation to pay.
  2. Since Gavin has promised to pay Asma A£200 for her work after the work was done, he can refuse to pay it later and Asma has no claim over it. This is because a promise cannot be based upon consideration that was provided before the promise was made (Jerome C. et el, 1908).
  3. As Franz has engaged Asma to organise a NAZI themed party where the uniforms and symbols expressing racial bigotry would be used which would be against public policy, Asma can avoid the contract. Pearce v Brookes(1866) LR 1 Ex 213, A contract ispactum illicitumif its object is or entails the commission of a crime or a delict; if its purpose is in other respects immoral or if it is detrimental to the national interest or contrary to public policy. The contract between Franz and Asma will be against Public policy as it will promote racism. Hence, Asma can discontinue her services. Although the effect of a void contract is to put the parties to the position in which they were before they entered the contract, Franz but he has no claim over the deposits he made to Asma and hence she is not bound to return it.
  4. In the given illustration since the contract expressly provided that “prompt payment of instalments is of the essence to the contract and failure to comply would entitle Pulse Plc to terminate the agreement” (Jerome C. et el 1908),. Therefore, the failure to pay the third, fourth, and fifth instalments timely and the sixth becoming six weeks overdue, amounts to a breach of condition by Asma. Therefore, the termination of the contract by Pulse Plc is valid. It is an established principle that the following constitute a repudiatory breach of contract justifying termination at common law[1]:

(1) a breach of condition (as opposed to warranty); (2) a refusal to perform, known as “renunciation”; and (3) a sufficiently serious breach of an intermediate/innominate term. The present case deals with breach of condition. If any term of the contract qualifies as a condition, i.e. a vital term, then breach of it, the contract can be terminated. Provided the term is a condition, the innocent party will be entitled to terminate the contract, no matter how minor the consequences of the breach. Prompt payment of the instalments was a condition in the contract and not a warranty, therefore, Asma can be sued for breach of contract by Pulse Plc. Moreover, since it was expressly mentioned in the contract, the right to terminate has arisen pursuant to a clause in the contract itself and therefore, Asma can be sued for the breach of it. Task 3 A basic overdraft facility is offered by all major Banks in theUK. However, whether this facility is offered free ofinterest or is subject to an average monthly balance figure or is at the bank’s overdraft lending rate, varies from bank to bank, A customer is said to be overdrawn without authorisation when he/she exceeds their authorized overdraft limit. This results in the customer being charged one or more fees, together with a higher rate of lending on the amount by which they have exceeded their authorized overdraft limit. This practise of charging fees on a daily basis by the Banks is sometimes considered to constitute unfair terms.

The Office of Free Trading found that banks earn around a third of their personal current account (PCA) revenues from unarranged overdraft charges (UOCs) that are difficult to understand, not transparent and not subject to effective customer control. The principal issue to be decided by Andrew Smith J. in the OFT v. Abbey National [2009] UKSC 6 was whether the relevant charges were subject to the fairness test under UTCCR. Andrew Smith J. held that the relevant terms were in “plain intelligible language” except in certain specific and minor respects. The banks did succeed in establishing that the charges were not unenforceable penalties at common law. On appeal to the Supreme Court, the decision was again in favour of the banks. The Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an investigation into whether they were fair. The Court held that UOC are subject to the test of fairness. Therefore, the terms that provide for these charges do not represent unfair terms. All that is required is the terms must be fair. The current proposals for reform of unfair terms in contracts legislation are:-

  • The law must be simplified because it is often criticised for its complexity.
  • To be “transparent” a term must be (1) in plain, intelligible language; (2) readily available to the consumer;
  • To be “prominent” a term must be presented in such a way that the average consumer would be aware of the term. The more unusual or onerous the term, the more prominent it needs to be.
  • The Department for Business, Innovation and Skills should hold discussions with the Office of Fair Trading and other regulators about the mechanics of preparing guidance. Subject to these discussions, it should ensure that in deciding whether a term is transparent or prominent, the courts may have regard to guidance.
  • The legislation should specifically state that terms on the grey list are assessable for fairness. The price main subject matter exemption should be read subject to this provision.
  • The legislation should state that terms of the grey list are assessable for fairness, unless they are exempted by other provisions of the legislation.

Task 4

  1. The possible claims of nuisance that may be brought against Victor are:-
  1. Ursula, who owns a manor nearby can claim nuisance against Victor as the peace of Sunday has been ruined by the noise and activity due to Victor’s activities. She is no longer able to host lavish Sunday lunch parties as her dining room looks straight onto the field with the result that the visitors to the car boot sale could stare at her and her friends as they sit at the table. She can bring a claim for private nuisance against Victor. Nuisance is indirect and unreasonable interference with the enjoyment of property.
  2. Moreover because a number of visitors’ cars park on the grass verges outside the villagers’ houses due to Victor’s business and one resident, Dennis, has frequently been unable to visit his grandchildren in the neighbouring village because of the cars parked in front of his drive, he can also bring an action for private nuisance against him.
  3. Since the villagers of Alverstoke are also upset due to the volume of traffic generated by the car boot sale and because one street in the village is blocked for most of Sunday, they can bring a claim for public nuisance against Victor. Public nuisance has been defined inAttorney-General v PYA Quarries Ltd, (1957) 2 QB 169, every person is guilty of an offence at common law, known as public nuisance, who does an act not warranted by law, or omits to discharge a legal duty,
  1. The possible claims that might be brought against Moira are:
  1. As she has set up a Sausage and Burger Bar in a caravan which is permanently parked just outside the entrance to the field. The members of the locality can bring an action for nuisance against her.
  2. Nat and Olive who have rented a cottage to the entrance so that Olive, could finish her latest novel in the peace and quiet of Alverstoke, have complains about the noise and particularly the smell of frying onions from the burger bar. They too can bring an action for private nuisance. However, this cannot be concluded decisively as they do not own the house. This is because nuisance is unreasonable indirect interference with the use of one’s property. But since Nat and Olive had rented the cottage and it was under their control they can bring an action against Victor.
  3. The bursting of large drums of cooking oil which resulted in the oil trickling into a stream in Victor’s field which flew into a lake in the grounds of Ursula’s Manor, affecting it badly and killing all the fish stocked in the lake by her, will make Moira liable for negligence. This is because Moira stored the large drums of cooking oil outside the caravan, and went out for shopping. The sun’s heat caused one of these large drums to burst resulting in the damage. This is a case of negligence as Moira had a duty to take care and she committed a breach of that duty. According to the principle of taking reasonable care in order to avoid injury to the neighbour laid down by Lord Atkin in Donoghue v Stevenson [1932] UKHL 100, Moira had a duty to take care. Since Moira had a reasonable duty to take care which she breached resulting in damage, she is liable for negligence.
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The Legal Obligations of Parties in Various Business Transactions. (2017, Jun 26). Retrieved December 9, 2022 , from

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