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Introduces commercial law, its history and development alongside its principles. Also explains African and Islamic commercial law as distinct legal systems for commercial dealings. The slides also introduce the Sale of Goods Act (UK, 1979)

Introduces commercial law, its history and development alongside its principles. Also explains African and Islamic commercial law as distinct legal systems for commercial dealings. The slides also introduce the Sale of Goods Act (UK, 1979)


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Introduction to Commercial Law.pptx

  1. 1. LA372 COMMERCIAL LAW Lecture 1: Introduction to Commercial Law Lyla Latif, PhD
  2. 2. Content Definitions and Purpose of Commercial Law History and Development of Commercial Law Scope of Commercial Law Commercial Law under Different Legal Systems Sources, Content and Principles of Commercial Law Overview of Contract Law and its Applicability to Commercial Law Introduction to Sale of Goods
  3. 3. Definitions • Benson explains that commerce is an evolving process of interaction and reciprocity which is simultaneously facilitated by and leads to an evolving system of commercial law. • Interaction by whom? (Buyer and Seller, 3rd Party?) or (Through enforcement and the judicial process? • Reciprocity in what sense? Offer, Acceptance, Consideration, Incorporated terms: of delivery and implied terms? • Evolving system? Customs, Law, Jurisprudence, Markets: through globalisation and digitalisation? • Hayek emphasised that commercial law has evolved out of traditions and practices as part of customary law developed through a process of trial and error relating to the rules of property and contract. • Which traditions and practices? Mercantile law? • Why the rules of property and contract? Sources of commercial law, basis or foundation for interaction, reciprocity and negotiations, sets out terms and binding aspects
  4. 4. Definitions • According to Goode, commercial law is the branch of law which is concerned with rights and duties arising from the supply of goods and services in the way of trade. • Rights and duties of whom? Buyer and Seller, and sometimes a 3rd party/intermediary • Supply of which goods and services? Determined by statute, e.g., SOGA 1979, HP Act 1964, IP, digital currency, NFTs, petroleum, aircrafts, timber, textiles, leather etc • What sort of trade? Legal business through permanent establishments or online marketplaces. This explains the scope of commercial law to encompass all business transactions and trade. • Sealy and Hooley describe commercial law as the law of commerce, which includes commercial transactions.
  5. 5. Definitions • Gutteridge emphasises that commercial law applies to contracts for the sale of goods and also to the carriage and insurance of goods and contracts which finance the carrying out of contracts of sale. • All these definitions do not define commercial law. Instead, they set out its scope and purpose.
  6. 6. Purpose Lord Devlin in Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439 at 444 explained the purpose of commercial law: “The function of commercial law is to allow, so far as it can, commercial men to do business in the way they want to do it and not to require them to stick to forms that they may think to be outmoded.” 1. Freedom of contract and party autonomy 2. Flexibility: problems with legal certainty
  7. 7. Is there a Commercial Law? A response by Goode, p.1299 • "Does commercial law exist? • Are there unifying principles which bind the almost infinite variety of transactions in which businessmen engage, marking these off from other types of contract? … • If by commercial law we mean a relatively self-contained, integrated body of principles and rules peculiar to commercial transactions, then we are constrained to say that this is not to be found in England. • The law affecting business transactions is not a seamless web, nor is it a jigsaw in which, with careful study and some luck, all the pieces can be fitted neatly together to make a harmonious whole. Rather it is a collocation of ill-assorted statutes bedded down on an amorphous mass of constantly shifting case-law. • But if we view commercial law as the totality of the law’s response to the needs and practices of the mercantile community, then, indeed, commercial law exists and flourishes in England, adapting itself constantly to new business procedures, new instruments, new demands.” (ibid.)
  8. 8. History of Commercial Law • Emergence of a class of professional merchants. • Need for law as a language of interaction. • lex mercatoria (the Law Merchant) voluntarily produced, voluntarily adjudicated and voluntarily enforced. • Partly based on Roman commercial law, but the majority of it was formulated by the merchants themselves. • Law Merchant was customary law. • Law Merchant comprised of business practice based on common usage, which became norms. As these norms became more precisely specified, they were increasingly recorded in writing. These written laws were not statutory codes. • These written laws were characterised as commercial instruments and as contracts. • Law Merchant developed, the merchants formed their own courts to adjudicate disputes in accordance with Law Merchant. • Decisions were enforced by the threat of boycott sanctions.
  9. 9. Reasons for Establishing Merchant Courts a. Royal courts did not consider disputes from contracts made in another nation. Also royal court judges were not conversant with technical commerce matters and lacked knowledge of commercial custom and practice b. Government courts would not honour any contractual agreement which involved the payment of interest c. Common law courts would not consider books of accounts as evidence despite the fact that merchants held such records in high regard d. Merchant courts were known for their speed and informality. These characteristics were needed because business required merchants to complete their transactions fairly quickly to move on to the next with minimal disruption to business
  10. 10. Development of Commercial Law 1/3 • By the 14th century, Law Merchant was codified (Carta Mercatoria) and governments began to systematically enact the law. For example, the Statute of the Staples of 1353. • Dispute resolution became competitive across merchant courts and several other courts established in England. Merchants’ courts remained available for commercial disputes up until early 1600s and then cases began to be gradually shifted to government courts. • With the absorption of Law Merchant as part of common law, Law Merchant was no longer a separate identifiable system of law but rather was part of the law of the realm. This meant that decisions given in merchant courts could be reversed and merchants were bound to submit to the jurisdiction of the common law courts and subject to those court’s procedures. Lord Coke’s dictum that: ‘though one may be bound to stand to the arbitrament yet he may countermand the arbitrator…as a man cannot by his own act make such an authority power or warrant not countermandable, which by law and its own proper nature is countermandable’.
  11. 11. Development of Commercial Law 2/3 • Law Merchant became less universal and more localised under state influence. English common law courts either refused to admit custom into law, or custom was required to satisfy onerous admissibility tests. • The origins of a business practice had to be demonstrated to be truly ‘ancient’ (precedent) and the practice had to be consistently employed for a long period in order to be considered as law. English common law restricted the use of business practice as a source of common law. • BUT • Common law courts’ hold (state capture) on commercial law by the late 19th century came under significant competitive threat. • Common law courts began to lose international business disputes to other nations’ courts. • Commercial arbitration was also on the rise and all traders, merchants, architects, engineers, estate agents and auctioneers took up the practice of inserting arbitration clauses resolving disputes by the application of business practice.
  12. 12. Development of Commercial Law 3/3 • After common law court system gained control of the market for disputes, it reverted back to not recognising business practice. Instead, a rigid definition of custom was established that it be consistent with state law. Lord Lloyd in Kleinwort Benson Ltd v Lincoln City Council [1998] 4 All ER 513 at 549: “In the field of Commercial Law ... the custom of merchants has always been a fruitful source of law”. But: Customs are only recognised on condition that it is reasonable, universally recognised in the business sector concerned as binding, and not inconsistent with the express/implied terms of the contract. Distinguish from market practice (recurring practice but not regarded as binding) and trade practice (recurring practice established through the relationship between contracting parties). • The commercial sector and commercial law are now regulated as part of contractual agreements subject to contract law.
  13. 13. Scope of Commercial Law What constitutes commercial law?  Sale of Goods  Agency  Hire Purchase and credit sales  Leases  Negotiable Instruments (Promissory notes, bills of exchange, commercial credit, guarantees)  Barter  Non fungible exchanges  Transactions governed by Islamic law
  14. 14. Commercial Law under Different Legal Systems • Secular legal systems (comprising state law, common law or civil law) • Religious legal systems (Islamic countries and rabbinical courts in Israel). • Indigenous laws but these are subordinated to state law. These religious and indigenous laws also set out aspects of commercial law.
  15. 15. Islamic Commercial Law Source: Derived from the Qur’an and Sunnah and rulings from the four schools of Sunni Islamic thought (madhabs). Islamic commercial law is referred to as fiqh muamalat (jurisprudential principles setting out the law of transactions). Governs: Contracts, sale, partnerships, rentals (ijarah), safe custody (wadiah) and agency (wakala) Preliminaries: Based on offer and acceptance (ijab and qabul), maturity (rushd) and sanity, concept of legal personality to reflect principles and prohibitions. Principle based: Risk sharing (profit/loss), asset backed and not asset based, notion of khiyar (option). Prohibitions: Commercial transactions not permitted in dealing that relate to prohibited acts (haram), interest based/bearing (riba), uncertainty (gharar), speculation (maysir), deception (taghrir), inequality (ghubn), duress (ikrah). Relevance: Islamic banking, financial instruments and credit facilities practised beyond Muslim majority countries. Part of dialogue on SDG17 to support financing SDGs, in particular climate action through Islamic bonds.
  16. 16. African Commercial Law Source: King, chiefs, tribal law, aristocracy at the apex of political sphere, titled nobility, clan corporates Principles: Associational rights and obligations [the terms, for instance, of ingress into and egress from the association and the rights of survivorship over property], corporate existence as family group or clan, pulled resources as joint stock to be subsequently divided into individual stock under a common leader, ‘a mirror of accepted usage among a given people’, ‘practices habitually followed by people in a relevant community’, duty of good faith, principle of collective responsibility, principle of caveat emptor Contracts: Oral: credit sale for regulars, barter in advance on condition of oath before chief priest to fulfil the bargain [limited to geographic locations].
  17. 17. Sources • Law Merchant [Roman Law, Customary Law: business practice, common usage, norms] • Common Law • Contract Law • Property Law • Acts of Parliament [SOGA, Consumer Credit Act, Unfair Contract Terms Act, Consumer Rights Act] • Case Law • Equity [courts cautious of allowing equity to permeate too deeply into commercial law principles, but willingness is there: rescission, specific performance, estoppel when conditions met]
  18. 18. Content Essentials of Contract Law and express terms incorporated
  19. 19. Principles • Reciprocity (give and take: OAC) • Objectivity (subjective intentions and man on the bus) • Impartiality (free from influence) • Simplicity (clear and concise) • Certainty (unambiguous so that legal implications are foreseeable) • Predictability [clear and consistent] • Flexibility [to give business efficacy and accommodate evolving practices] • Party Autonomy [freedom of contract, sanctity of contracts, facilitate business transactions] • Reasonable Expectations • Fairness of Exchange [mercantile law required that exchanges be entered into fairly. Fraud, duress or other abuses of the will or knowledge of either party in an exchange meant that the transaction would be invalidated by a merchant court]
  20. 20. Principles Summarised: Lord Goff: ‘our only desire is to give sensible commercial effect to the transaction. We are there to help businessmen, not to hinder them: we are there to give effect to their transactions, not to frustrate them: we are there to oil the wheels of commerce, not to put a spanner in the works or even grit in the oil.’ Sets out the importance of freedom of contract.
  21. 21. Freedom of Contract Lord Toulson in Prime Sight Limited (A company Registered in Gibraltar) (Appellant) v Edgar Charles Lavarello (Official Trustee of Benjamin Marrache a Bankrupt) (Respondent) [2013] UKPC 22: “Parties are ordinarily free to contract on whatever terms they choose and the court’s role is to enforce them. There are exceptions and qualifications, but these too are part of the general law of contract. In Greer v Kettle Lord Maugham referred to fraud, illegality, mistake and misrepresentation. Similarly, […] a court may refuse in some circumstances to enforce a contract on grounds of public policy (a topic closely related to illegality) […]” [para 47]. Lays out importance of reasonable expectations.
  22. 22. Reasonable Expectations Lord Steyn’s observation that contract law (and commercial law) should respect the “reasonable expectations”. In First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCLC 1409 at 1410: “A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected. It is not a rule or a principle of law. It is the objective which has been and still is the principal moulding force of our law of contract. It affords no licence to a judge to depart from binding precedent. On the other hand, if the prima facie solution to a problem runs counter to the reasonable expectations of honest men, this criterion sometimes requires a rigorous re-examination of the problem to ascertain whether the law does indeed compel demonstrable unfairness.” Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443: “A second policy is that in commercial dealings the reasonable expectations of honest, sensible business persons must be protected….” (Cranston J, para [42]). RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14 “reasonable expectations” relevant in applying objective test of whether a binding contract had come into existence.
  23. 23. Tensions: Certainty versus Flexibility • There are also some tensions in Commercial Law regarding its principles: for example, with certainty and flexibility. • Commercial parties need the law to be certain/predictable so they can plan accordingly. However, at the same time, there needs to be a sufficient degree of flexibility to ensure that the law can adapt to changing business practices. • Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443: “These rules [on contract formation] take effect against the background of legal policies recognised in the case law. One such policy is the need for certainty in commercial contracts, a policy which since Lord Mansfield's time has run as a thread through the jurisprudence…” (Cranston J at para [42]). • Vallejo v Wheeler (1774) 1 Cowp 143 “In all mercantile transactions the great object should be certainty…” (at 153). • Lord Hoffmann in Re BCCI (No.8) [1997] 4 All ER 568 at 578: “In a case in which there is no threat to the consistency of the law or objection of public policy, the courts should be very slow to declare a practice of the commercial community to be conceptually impossible. ... Rules of law must obviously be consistent and not self- contradictory ... But the law is fashioned to suit the practicalities of life and legal concepts like 'proprietary interest' and 'charge' are no more than labels given to clusters of related and self-consistent rules of law. Such concepts do not have a life of their own from which the rules are inexorably derived.” • Goff J in Clough Mill v Martin [1984] 3 All ER 982 at 987: “In every case, we have to look at the relevant documents and other communications which have passed between the parties, and to consider them in the light of the relevant surrounding circumstances, in order to ascertain the rights and duties of the parties inter se, always paying particular regard to the practical effect of any conclusion concerning the nature of those rights and duties. In performing this task, concepts such as bailment and fiduciary duty must not be allowed to be our masters, but must rather be regarded as the tools of our trade”.
  24. 24. Tensions: Good Faith 1/2 • There is no duty of good faith in Commercial Law. • Walford v Miles [1992] 2 A.C. 128 “the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations”. • Monde Petroleum SA v Westernzagros Limited [2016] EWHC 1472 (Comm): Salter J: “There is no general doctrine of "good faith" in English contract law. A duty of good faith is implied by law as an incident of certain categories of contract (for example, contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one). However, in all other categories of contract … such a duty will only be implied where the contract would lack commercial or practical coherence without it and where all the other requirements for implication are met…” [249]. • Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland [2013] EWCA Civ 200 the court had recently reiterated that English law does not recognise any general duty of good faith in matters of contract. • TSG Building Services plc v South Anglia Housing Ltd. [2013] EWHC 1151 (TCC): General reluctance of courts to recognise instances where a term needs to be implied in fact. Express terms will be upheld but applied restrictively. Good faith not a general duty in contract law.
  25. 25. Tensions: Good Faith 2/2 • MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789: “The judge [Leggatt J] drew support for his conclusion from what he described as an increasing recognition in the common law world of the need for good faith in contractual dealings. The recognition of a general duty of good faith would be a significant step in the development of our law of contract with potentially far-reaching consequences and I do not think it is necessary or desirable to resort to it in order to decide the outcome of the present case. There is in my view a real danger that if a general principle of good faith were established it would be invoked as often to undermine as to support the terms in which the parties have reached agreement. • Arnold v Britton [2015] UKSC 36, [2015] AC 1619: The danger is not dissimilar to that posed by too liberal an approach to construction, against which the Supreme Court warned in.” So in English commercial law, good faith has not gained acceptance except in very specific instances (nature of certain commercial relationships or where parties expressly stipulate this in their contract). • Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, 439, the court prefers to develop "piecemeal solutions in response to demonstrated problems of unfairness", although it is well- recognised that broad concepts of fair dealing may be reflected in the court's response to questions of construction and the implication of terms.
  26. 26. Overview of Contract Law and its Applicability to Commercial Law • A contract is an agreement giving rise to obligations which are enforced or recognised by law. • Commercial law is pegged on agreements between parties and such agreement to be enforced and recognised must be drafted as contracts. • When drafted as contracts, commercial negotiations and agreements must clearly set out the incorporated terms binding parties. These terms must be entered into willingly with full comprehension otherwise the contract risks vitiation. • An understanding on what constitutes an offer and acceptance, payment of consideration, its variation, delivery terms and termination is necessary to negotiate commercial transactions.
  27. 27. Introduction to Sale of Goods Source: Sale of Goods Act, 1979 Scope: Sets out the rules on formation of contract, formalities, subject matter of contract, price, implied terms, rights and responsibilities, delivery, remedies for breach, passing of property and risk, nemo dat consequences and exceptions Applicability: To a contract of sale (section 2).
  28. 28. What is a Contract of Sale? A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price [sec 2]. It follows that this is essentially a transaction in which one side promises to transfer the ownership of goods and the other pays the price in money. This, therefore, excludes: • cases where there is no money price and • situations where what is sold is not goods but land or what is often called intangible property, that is, property interests which cannot be physically possessed such as shares, patents, copyrights and so on. The requirement in s 2 of SOGA that there must be a money price in a sale means that an exchange of a cow for a horse is not a sale.
  29. 29. Contract of Service: Contract for Work and Materials • It is clear that there are many contracts in which goods are supplied as part of a package which also includes the provision of services. • Some are treated as contracts of sale, others are treated as a separate category called contracts for work and materials. • In some cases, it is possible to say that the property transfer element is so predominant that the contract is clearly one of sale; in others the work element is so large that it is obviously work and materials. • In Lee v Griffin (1861), a contract by a dentist to make and fit dentures for a patient was said to be a contract of sale on the ground that at the end of the day there was a discernible article which was to be transferred from the dentist to the patient. • On the other hand, in Robinson v Graves (1935) it was said that a contract to paint a portrait was one for work and materials because ‘the substance of the contract is the skill and experience of the artist in producing a picture’. These tests appear irreconcilable.
  30. 30. Goods • Section 61(1) of SOGA states that goods: Includes all personal chattels other than things in action and money, and in particular ‘goods’includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. • A question of great practical importance is whether computer software is goods. If it is supplied on a disk, it would seem that the disk is goods, but software suppliers often simply install the software and nothing physical changes hands. Indeed, the suppliers usually seek to retain the intellectual property rights and simply grant a licence. • In the Court of Appeal in St Albans C and DC v International Computers Ltd (1996), Sir Iain Glidewell said, obiter, that, if not goods, software should be treated like goods for the purpose of the implied terms as to quality. However, it is a possible argument that the software supplier is really providing a service and is only under a duty of care. • Contrast this with Computer Associates UK Ltd v The Software Incubator Ltd [2018] EWCA Civ 518
  31. 31. Goods: Existing or Future • These can be existing or future goods (sec 5) • Existing: goods which exist, are owned or possessed by the seller • Future: goods to be manufactured or acquired by seller after the making of the contract of sale • Goods which have perished (sec 6) - 3 conditions: [1] contract for the sale of specific goods, [2] without knowledge of the seller [3] perish at the time contract is made- contract is void • Goods perishing before sale but after agreement to sell (sec 7) - 3 conditions: [1] agreement to sell specific goods, [2] goods perish without fault on the part of seller or buyer and [3] perish before risk passes to buyer - agreement is avoided. • Must be movable goods.
  32. 32. Price: Rules under Sec 8 for a Contract of Sale 1. May be fixed by the contract 2. May be left to be fixed in a manner agreed by the contract • In May and Butcher Ltd v R (1934), Lord Dunedin said: ‘With regard to price it is a perfectly good contract to say that the price is to be settled by the buyer.’ • In May, there was a contract for the sale of tentage at a price to be agreed between the parties. The parties failed to agree and the House of Lords held that there was no contract. The argument which was accepted was that s 8(2) only applied where there was no agreement as to the price so that its operation was excluded where the parties had provided a mechanism for fixing a price which had not worked. This decision has never been overruled and is still in theory binding. Nevertheless, the courts have not always followed it. • In Foley v Classique Coaches (1934), the plaintiffs sold land to the defendants who agreed as part of the same contract to buy all their petrol from the plaintiffs ‘at a price to be agreed between the parties in writing and from time to time’. The transfer of the land was completed and the defendants later argued that the agreement to buy the petrol was not binding as the price was uncertain. There is therefore a good chance that a court will hold, where the parties do not agree, that they intended the price to be a reasonable one. 3. May be determined by the course of dealing between the parties 4. If 1-3 not agreed, buyer pays a reasonable price
  33. 33. Price: Rules under Sec 9 for an Agreement to Sell Goods 1. May be fixed by the valuation of a third party and if the third party cannot conduct valuation, agreement is avoided - condition: goods have not been delivered and appropriated by the buyer - if so done, buyer must pay a reasonable price 2. A party who is disappointed with the valuation will have an action against the valuer if it can be shown that the valuation was negligent. This was clearly accepted by the House of Lords in Arenson v Casson (1977), a case involving the sale of shares in a private company at a price fixed by valuation.
  34. 34. 6 Considerations Relating to the Contract of Sale 1. Such a contract can be express [made in writing, orally or partly in writing and partly orally] or implied from the conduct of the parties (sec 4) 2. There may be a contract of sale between one part owner and another. 3. A contract of sale may be absolute or conditional. 4. Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale. 5. Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell. 6. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.
  35. 35. Next Lecture: The Nature of Goods

Editor's Notes

  • RE fell, commercial activities in Europe - non-existent
    Change with agri boom – enough food, people could trade with it and move to different areas – development of towns – towns became cities – led to emergence of professional merchants

    Significant barriers –
    language, culture, geography, no direct communication – difficult to establish trust – middlemen required (agency) who could bring about an exchange.
    Local contradictory laws and business practices – disputes
    Need for a language on interaction to interact, reciprocate and negotiate

    As a result, uniform set of codes began to develop – lex mercatoria

  • Merchant law was autonomous – merchants resolved their own disputes
    As government became more centralized, more positivist – it ventured into developing its own laws on trade and set up courts to address merchant disputes. Carta mercatoria that was there, gov referrred to it by enacting staples

    Because gov taking central role, competition came in

    With time law merchant was absorbed as part of English common law

    Coke: law merchant is nit cast in stone, it can be rejected even if accepted by all merchants – it is not above state law
  • Business practice – key to CL n brought back
  • Goode – supply of goods and service in the way of trade
  • India, Chad, Mali – cross border exchanges – own rules and enforcement, militia
  • Khiyar gives the buyer protection since seller is more aware of defects and should be upfront and honest – option on stipulation – both b and s agree to a period of detecting defects, option of inspection – contract can be executed but if b has purchased without inspection, to be given time to inspect after contarct

    Haram: Sale, purchase, distribution etc of alcohol
    Gharar: Eg sale of harvest from a farm that has not been sowed yet or a car whose manufacturing process hasn’t started, or lamb meat when sheep have not been procured by the seller
    Maysir: buying stock under speculation that the market price will be high
  • Commercial law as practiced in Africa prior to colonial rule limited – largely because unwritten and disrupted due to colonization

    Fragmented accounts taken from understanding of African customary law from family and land law to create these accounts

    Largely based on barter and later legal currency (cowrie shell) when the Muslims engaged the north African and east African coast in the 8tth century

    Principles: corporate principles coz they traded not as individuals but as a group backed by their clan, this established customs – business practice with the group – good faith, collective respon and caveat emptor
  • What does this mean?
  • How do you resolve the tension: see the case law
  • Start below
  • Tailor – buy a suit – its tight, he agrees to modify = sale with element of service – not purely a service
    Mechanic – service my car, fits in new parts – not a sale
    Both parties can divide the transaction into 2
  • Price is essential – it underpins the contract – must agree on it otherwise disputes.