LST2BSL Introduction to Business Law and Ethics:553857


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Mikaela owns and runs a cake shop, and often sources ingredients from a business called Tower Flours. One day, she calls Tower Flours to ask about their almond flour. She speaks with Ricky:
‘Lots of my clients request gluten-free cakes’, says Mikaela. ‘Is your almond flour gluten-free?’
‘Yes, of course,’ Ricky replies.
Mikaela agrees to order 40 kilograms of almond flour, and shortly after the conversation, Ricky emails her an online order form with the type and amount of flour already entered. Mikaela fills out the rest of the online order form and submits it. The order form does not mention anything about the almond flour being gluten-free.
Mikaela uses the almond flour to bake a cake for the wedding of Dan and Jacob. Dan, who has coeliac disease, has a severe reaction to the cake. It turns out that the almond flour used in the cake was not gluten-free, as it had been processed and packaged with machinery also used for wheat flour.
Dan and Jacob had not specifically requested a gluten-free cake when dealing with Mikaela, but they had asked for almond flour. They now want to sue her for breach of contract.
1. Was it a term of the contract between Mikaela and Tower Flours that the almond flour would be gluten free? (5 marks)
2. Was there an implied term in Dan and Jacob’s contract with Mikaela, that their wedding cake would be gluten-free? (6 marks)
After the complaint about Dan and Jacob’s cake, Mikaela makes a sign to put up in her cake shop. She positions the sign on the wall next to the counter where customers are served.
Kimiko comes to Mikaela’s shop to place an order for a cake. They discuss all of the details: Kimiko orders a round, chocolate cake covered with blue and purple coloured icing. While finalising the order Kimiko sees the sign, which says: We accept no responsibility for breach of any warranty.
Kimiko comes back a week later to collect and pay for the cake. After leaving with the cake Kimiko discovers that it has blue and green icing. This makes it inappropriate for the function she was planning to use it for – a sports team celebration. Kimiko wants to complain to Mikaela but isn’t sure whether or not the sign prevents her from doing so.
3. Was the icing colour a condition or a warranty of the contract? (3 marks)
4. Is Mikaela still responsible for the icing being the wrong colour on Kimiko’s cake? (6 marks)



A contractual term is a representation that gives the parties duties and responsibilities that they should adhere to. Failure to undertake these duties invites liability under the law of contract. Puffs which are made during negotiation of contracts are not terms because they do no exude intention to be legally bound.

Question 1


The major issue presented in this question is whether the statement agreed between Mikaela and Towers flour is a term as defined under the law of contract. The statement in question was made when Mikaela and Tower flour agreed that the almond flour will be gluten free.


The main rule is that a statement that has been made before a contract was entered into is a mere presentation because it has not been made in written form expressly in the agreement. The court in Duffy v Newcastle United Football Co. Ltd.[1] insisted that the a term of a contract must be expressed in written form. However, Birch v Paramount Estates Ltd[2] reached a divergent position by pronouncing that oral statements can be terms in an enforceable contract provided that they are inevitable to ensure that all parties do their obligations as envisaged in the contract. Therefore there are basic rules that have formed governing statement made prior to contract formation and their capability of being referred to as terms of a contract.  The leading rule is that that was created in Heilbut, Symons & Co v Buckleton[3] is that the intention of the parties should be looked at keenly to see if there is a consensus ad idem (meeting of the minds). The main reason that the contract was entered to must be because of the statement. This has been echoed in Bannerman v. White[4]  where court agreed that the statement must have actually persuaded a party to the contact and the decision that was made to concede to the agreement is premised on that statement.  Time is also an important determining factor and this applies the maxim that equity will help the vigilant and not that person who sleeps on his right. In Routledge v Mckay[5] cautioned that a contract should be entered into immediately the statement has ben made or without unreasonable delay for it to be a term. But the case of Schawel v Reade[6] appears to disagree by stating that even in circumstances where there is unreasonable delay a statement may be a term if it is demonstrated that it creates inevitable duties and obligations for the parties.


Despite the fact that the statement in Mikaela agreement with Tower flour was made orally it may be term of the contract by applying the legal rules above because it is the bedrock of the agreement. It is true that that the intention of the parties form the agreements and all the material facts that the agreement the almond flour should have ben gluten free. Tower flour agreed that the flour was gluten free and because Mikaela had a prior request that gluten free flour was a preference of most of his clients. The parties would not have made an agreement if there was no consensus ad idem regarding the gluten free flour.


The conclusion is that the statement in contention here is a term of a contract


Question 2


The issue is whether an implied term can be inferred from the agreement made by Mikaela and his clients that the wedding cake will be gluten free.


Under the common law principles of contract law terms in contract are either express or implied. A term in in contract is implied by law where a legal statute or provisions outlines the implied terms but it is implied by fact if the parties in contention would have obviously nodded to concede to it if it was brought to each parties attention during the negotiation. The ‘official bystander test’ primarily provided in the case of Shirlaw v Southern Foundries[7] states that a term will be implied by fact if an ordinary and reasonable man would agree that the statement obviously capable of being an express term. Similarly in Attorney General of Belize v Belize Telecom Ltd[8] the court said that an implied term is one that can also be an express term if it was agreed by the aporties while entering the contract.Another important test is the ‘business efficacy test’ encapsulated in Moorcock[9] that states that a term is implied fact by it are important to ensure that the business runs efficiently. A similar proposition to the business eficcay test was made in the case of Trollope and Colls Limited v North West Metropolitan Regional Hospital Board[10] has noted that an implied term is inferred a contract cannot run according to the intentions of the parties without the inclusion of such a term. On the other hand, a term is implied by trade usage if it was common practice in the business to be have in a certain way towards the client.[11]


Gluten free cake is the central idea that attracts clients to Mikaela’s business and therefore it is obviously expected that he would use gluten free flour to make his cakes. It an implied that Mikaela should use gluten free because according to the official bystander test an ordinary and reasonable person would know that Mikaela’s business is prominent for gluten free cake.  Additionally, according to the business efficacy test, gluten free cake will ensure that that Mikaela’s business moves on at peace without any confrontation with the clients.  Because of custom and trade usage it can be said that the gluten free cakes is a is a term that can be included in the express terms as a main terms of the contract because of the infection that most customers are likely to suffer if  is not adhered to.


The conclusion is that the gluten free cake that was ordered by Dan and Jacob is an implied term in the agreement made with Mikaela.

Question 3


The issue is whether the blue icing color that Kimiko instructed Mikaela to put in the cake was a condition or warranty under contract law.


A condition in a contract is a term that is premise of the entire contract. It is a fundamental term in a contract that defines the main obligation of the parties. A condition is also defines as a term that goes to the root of the contract and hold the entire contract. The breach of a condition brings to an end the entire contract. A condition has famously been defined the landmark ruling of Poussard v Spiers and Pond[12]  where Poussard agreed through a contract that she will be singing opera for the defendant in the case. However, because of illness that took five days she could not do as the contract stipulated. The defendant entered into agreement with another singer and Poussard sued for breach in court. The court ruled that Poussard was in breach of a condition because she could not be able to perform the main contractual obligation that holds the contract. Therefore, a condition is the heart of a contract. A Warranty on the other hand is a term in a contract has no a great significance to the agreement. They are statements that show minor preferences that should be included in a contract. In Wills v Amber[13]  the court agreed that a warranty is term that cannot bring an agreement to an end because the party claiming breach does not have anything major to lose.


The main term in the agreement was that Mikaela should bake a cake according to the choice of Kimiku. The condition in this case was therefore that Mikaela should bake the cake.  The blue icing n they cake was minor decoration on the cake that although Mikaela did not abide to it will not have any significant effect on the contract. There was only a minor difference in the expectation of the parties.


The conclusion in the case is that the icing in the cakes is only a warranty and not a condition.

Question 4


The issue is whether Mikaela will be liable after failing to observe the blue icing requirement even with the exclusion clause being present in his premises.


A breach warranty does not usually affect the contract to great extent. At the outset, it does not lead to a termination of the agreement. As was decided in Wills v Amber[14] a breach of a warranty calls for the court to order the party that has breached the warranty to pay damages for the breach. An exclusion is only applicable if it is reasonable and has been brought the the attention of the party before the agreement has been made.


Mikaela has breached the warranty but the contract will not be terminated because it will be unjust and unfair to do so because he has performed all the major contractual obligations.


The conclusion is that Mikalea has breached a warranty and he will have to pay to damages.









Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10

Bannerman v. White (1861) 10 CBNS 844

Birch v Paramount Estates Ltd (1856) 16 EG 396

British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd  [1973] EWCA Civ 6

Duffy v Newcastle United Football Co. Ltd. [2000] All ER (D) 892

Poussard v Spiers and Pond [1876] 1 QBD 410

Routledge v Mckay [1954] 1 WLR 615

Schawel v Reade [1913] 2 IR 81

Shirlaw v Southern Foundries [1939] 2 KB 206

The Moorcock (1889) 14 PD 64

Trollope and Colls Limited v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601

Wills v Amber [1954] 1 Lloyd’s Rep 253

[1] [2000] All ER (D) 892

[2] (1856) 16 EG 396

[3] [1913] AC 30

[4] (1861) 10 CBNS 844

[5] [1954] 1 WLR 615

[6] [1913] 2 IR 81

[7] [1939] 2 KB 206

[8] [2009] UKPC 10

[9] (1889) 14 PD 64

[10] [1973] 1 WLR 601

[11] British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd  [1973] EWCA Civ 6

[12] [1876] 1 QBD 410

[13] [1954] 1 Lloyd’s Rep 253

[14] [1954] 1 Lloyd’s Rep 253