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Almost every commercial transaction starts with negotiations. Whether these negotiations are short or long, the principles of the law of contract will apply. It is normal for negotiations to break before the parties make the deal. Some of the causes could be lack of understanding between the parties, or parties may just choose the end them after getting a different operations. While some negotiations take time and expenses to prepare, the law does not have any cure for such matter. This paper aims to discuss issues of preliminary agreements. The paper will stretch on whether such agreements have chances of binding the parties or stand no ground. Furthermore, the paper will also discuss issues of contract performance. Lastly, the paper will go through some of the rules that regulate advertisements.
Both Lianne and Mary were negotiating a potential contract. Lianne asked Mary to prepare a quote. Mary made the quote, and they both continued to exchange opinions about the contract. However, the parties fail to reach a deal, and the negotiations break. Mary the seeks to enforce the quote that she prepared.
The central dispute in this question is whether the price quote made by mary upon the request of Lianne can become a binding agreement. More importantly, whether preliminary agreement intended to form part of the main agreement can become a binding agreement.
While courts may try to enforce a contract with gaps to give justice an innocent party, the law of contract does not know any solution for a contract that lacks the fundamental elements (McKendrick, 2012). In a simple interpretation, (Furmston, Tolhurst and Mik, 2010) explains that the court cannot create a contract where it does not exist. It is upon the parties to make the management and bring it to the law for enforcement. On the other hand, there is no point to presume that the formation of all contract takes the stated process. Sometimes, the parties may negotiate for days or months. Parties exchange offers and counter-offers, and at some point, they even break the contracts into some parts and agree on one part at a time. Whatever form it takes, the law would require such negotiations to be in good faith (Barasnevicius Quagliato, 2008). It is in the spirit of good faith in negotiations that brings about the meeting of mind, and the meeting of mind brings an intention to make a binding agreement.
The law of contract presumes that a contract under negotiation lacks an intention to create a legal bond (Perillo, 2014). On the other hand, parties may agree on some matters and even sign preliminary negotiations. However, as the negotiations prolong, the parties break, and all the negotiations come to an end. Such matter becomes hard when one party pushes to enforce the preliminary agreement while the other party seeks to set everything aside (Hwang, 2017). Unfortunately, there are no provisions in the law that advice on the right action for such matters. It is upon the court to employ its mechanisms on deciding on the balance of the interests.
In overall, courts have classified preliminary agreements into two categories. In (Beale, Bishop, and Furmston, 2008), the first category of a preliminary agreement is the one that that parties prepare as they await the final agreement. Despite that, this agreement holds the essential terms that would form part of the main agreement (Miller and Jentz, 2010). That is, the remaining terms are less important in the full performance of the contract. Further, this agreement holds all the elements of the agreement such as offer and acceptance, consideration and the assent of the parties. When such preliminary agreement comes to court in dispute as to its enforcement, the court fills the gaps to give it a legal force (Beale, Bishop, and Furmston, 2008). However, the court may still dismiss it if it has a clause that denotes a reliance on the contemplated agreement.
Like category one of preliminary agreement, a category two is made as the parties await the formation of the ultimate agreement (Beale, Bishop, and Furmston, 2008). The difference come in the contents of the two. Unlike the first one, the second category involves a preliminary agreement which has some but not all material terms of the awaited agreement. Besides, the agreement may be lacking the meeting of the mind as to the consideration. However, the agreement may still be a fact binding but only to where the parties have agreed to negotiate in good faith (Beale, Bishop, and Furmston, 2008). Nevertheless, a duty for negotiating in good faith does not create an obligation that parties should create the ultimate agreement. At the same time, category II preliminary agreement may impose liabilities like covering the cost of agreement preparation. An example of these is the letters of intent and expanded contract quotation.
Apart from that method, England courts employ an objective approach. This method was recently applied by Lord Clarke in (RTS Flexible Systems Limited v. Molkerier Alois Muller Gmbh & Company KG, 2010). The judge that the determination of a binding agreement depends upon what the parties have demonstrated their assent. That is, the court does not look at the parties’ subjective state of mind. Instead, the court looks at the contract in general and the consideration of the parties’ communication either by words or conducts. If their communication presents an objective conclusion that the parties manifested their intention to form legal relations, and both sides agreed to all the essential terms, the court will enforce the contract.
One of the applications of the rule of dividing preliminary agreements into two categories was applied in the recent New York case (Stonehill Capital Mgt., LLC v. Bank of the West, 2016) This was a category one case. The defendant accepted the claimant’s bid for a loan but withheld the transfer alleging that the parties had not executed a written agreement. The claimant’s claim succeeded.
In (Arcadian Phosphates, Inc. v. Arcadian Corp, 1989), the court demonstrated a category II preliminary agreement. The claimant alleged that the memorandum that outlined the Defendant’s sale of a fertilizer business amounted to a binding agreement. The memorandum only had some terms, but the parties had not agreed on other terms. When the claimant sued for damages for breach, the court concluded that the preliminary agreement was not binding as it lacked some of the material terms.
In contrast, an England court had a different opinion to that of the New York ruling in just a concluded matter (Global Asset Management, Inc. v. Aabar Block S.A.R.L, 2017). In fact, this case almost favors the case of Mary and Lianne. Both cases are a matter where negotiations continue in the email after the disputed preliminary agreement. In this case, Global had exchanged an agreement that read in part “WITHOUT PREJUDICE—SUBJECT TO CONTRACT,” on On 23 April 2015. Later on June 6th, 2015, Aabar accepted to transfer the right to Global subject to sending a letter with the offer and proof of funds. Global adhered to these terms on On 9th May 2015 when they emailed the requirement but added another offer as the 9th may offer. On the following day, Aabar responded by canceling the negotiations and rejecting all the offers. Global sort to enforce the first preliminary negotiation. Global businesswon the case at a lower court, but the court of Appeal overturned the reasoning of the lower court. In short, the court of Appeal relied on corrected the mistakes of the lower court. These were two mistakes. One was disregarding the consequent communication. The other one was applying (Perry v Suffields Ltd, 1916) That is, once parties demonstrate a complete contract, the court should disregard any further negotiations that seek to set aside the contract without both parties’ consent.
By analysis, the quote was unbinding. If the case was in New York, the claim would still fail as the case falls under category II. That is, Lianne and Mary had not agreed to essential terms. It was just a quote and parties continued to exchange offers and counter-offers. On the other hand, the case would still fail in an England court. By the look at the decision of the court of Appeal in (Global Asset Management, Inc. v. Aabar Block S.A.R.L, 2017), the court of Appeal will employ the same mechanism of looking at the subsequent communication. Also, it would apply the rationale of (Perry v Suffields Ltd, 1916).
Contract law requires parties to do as what they agreed in the contract (Ashcroft and Ashcroft, 2011). When one party completes the performance that deviates from the expected performance, the doctrine of substantial performance falls into place (Kubasek et al., 2016). In enforcing such contracts, courts deal with each case differently. However, where deviation does not affect the essential terms of the contract, the court allows the guilty party to get the payments but less the amount of work that it did not perform. If the deviation affects the essential terms, the entire contract is set aside, and the innocent party claims the damages for the breach (Miller and Cross, 2010).
The doctrine of substantial performance was which suits Lianne and Mary was confirmed in (Young v Thames Properties Ltd, 1999). The defendant had hired the claimant to construct a car park. The scalpings were supposed to be 100mm deep, but the defendant constructed it as 30mm deep. Also, the claimant had used the wrong grade of tarmacadam for the top surface. The defendant refused to pay him. The judges concluded that the defendant to pay the claimant the contract price but subtract the amount for the failures.
Mary can only receive the contract price less the sum that would balance with the unprovided performance as she had agreed to provide Lianne.
Regarding advertisements, governments believe that customers have various rights while dealing with businesses. Some of these are a fair and honest dealing and privacy of their information (Parkinson and Parkinson, 2015). Therefore, various governments across the world have enacted laws and statutes for the protection of the interest of the customers as well as the interests of the society (Hill-Smith, 2015).
Among other principles, governments expect advertisements to promote and adhere to ethical principles (Ullah and Hussain, 2017). These rules require the advertisers to refrain from offensive advertisements. That is, they should ensure that the contents of their advertisements are truthful and they are not misguiding or deceiving consumers (Cawley, Avery, and Eisenberg, 2013). In overall, the rules of advertisement that aim to protect customers touches more on privacy and consumer laws.
Among other countries, Australia various regulations that each business should adhere to. In brief, all advertisements conduct stay under the umbrella of federal legislation, state agency rules, and self-regulated rules. One of the main federal laws is the competition and consumer act of 2010. This statute forms the core regulatory principles for every business operating in Australia or anticipating to operations in Australia. It is a fundamental principle that every business planning to use advertisements would provide only provide appropriate and relevant information. That is, no information would mislead or intended to deal with the customers unfairly. The businesses should be careful while using puffery information, and should avoid words that customers would interpret them as genuine offers. While working to protect the interests of the customers, Australia has agencies like the Australia Competition and Consumer Commission (ACCC). This agency works as an independent authority given the mandate to implement ACL.
Another issue that the government has greatly focused on is the issue of spam or the junk emails. These are regulated in the (Spam Act, 2003). A spam is an email or a message sent to the customer as a promotion of a product or service. The message can be sent either to the customer’s phone or email. Unlike standard emails, spam emails can be harmful to the customer if not regulated. Some can be viruses, offensive messages or even fraudulent activities.
For any business that opts to use spam messages, it has to cooperate with the Spam act. Some of the provisions of the act are that the sender must always seek the customer’s consent. Besides, businesses should identify themselves to the customers. Also, the messages should have a toll-free numbers or options that customers can use to unsubscribe from future emails.
On the issue of customer privacy, Australia has the (Privacy Act, 1988). This statute works to protect customers data and information for those businesses that hold customer information such as banks. The statue demands that all businesses will customer information should be transparent and open when dealing with that data (Behboudi and Hasanabad, 2014). Any organization dealing with customer’s personal data should have its own privacy policy. Among the rules of the policy, the business should have provisions for holding the customer as anonymous or use a pseudonym to prevent identification of that customer from the public. The organizations should also allow customers to access or correct the information held by those organizations (Craig, 2013). Apart from these statutes, the government also allows the organizations to make self-regulatory rules to care for issues that the statutes may not reach.
Reference List
Ashcroft, J. and Ashcroft, J. (2011). Law for business. Mason, Ohio: South-Western Cengage Learning.
McKendrick, E. (2012). Contract law. 1st ed. Oxford: Oxford University Press.
Craig, B. (2013). Cyberlaw. 1st ed. Boston: Pearson.
Furmston, M., Tolhurst, G. and Mik, E. (2010). Contract formation. 1st ed. New York: Oxford University Press.
Barasnevicius Quagliato, P. (2008). The duty to negotiate in good faith. International Journal of Law and Management, 50(5), pp.213-225. DOI: https://10.1108/17542430810903896
Beale, H., Bishop, W. and Furmston, M. (2008). Contract. 5th ed. Oxford: Oxford University Press.
Perillo, J. (2014). Contracts. 7th ed. West Academic.
Miller, R. and Jentz, G. (2010). Fundamentals of business law. 2nd ed. Mason, OH: South-Western Cengage Learning.
Kubasek, N., Browne, M., Dhooge, L., Herron, D. and Barkacs, L. (2016). Dynamic business law. 3rd ed. New York. NY: McGraw-Hill Education.
Miller, R. and Cross, F. (2010). The legal environment today. Mason, OH: South-Western Cengage Learning.
Parkinson, M. and Parkinson, M. (2015). Law for Advertising, Broadcasting, Journalism, and Public Relations: Law for Advertising, Broadcasting, Journalism, and Public Relations. 3rd ed. Routledge.
Hwang, C. (2017). Deal Momentum. UCLA Law Review. Forthcoming Stanford Public Law Working Paper, 65. Doi: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947516
Ullah, N. and Hussain, M. (2017). Impact of Unethical Advertising, Misleading Information or Deceptive Advertising on Customer Purchasing Intention with Mediating Effect of Word of Mouth: Case of Pakistan. International Journal of Innovation and Economic Development, 1(4), pp.49-69. https://ideas.repec.org/a/mgs/ijoied/v1y2015i4p49-69.html
Behboudi, M. and Hasanabad, H. (2014). Advertisements on the Internet. International Journal of Innovation in the Digital Economy, [online] 5(4), pp.1-21 Doi: https://10.4018/ijide.2014100101
Cawley, J., Avery, R. and Eisenberg, M. (2013). The Effect of Deceptive Advertising on Consumption of the Advertised Good and its Substitutes: The Case of Over-the-Counter Weight Loss Products.
Stonehill Capital Management, LLC v. Bank of the West, 2016 NY Slip Op 08481
Arcadian Phosphates, Inc. v. Arcadian Corp., (2d Cir. 1989) 884 F.2d 69
RTS Flexible Systems Limited v. Molkerier Alois Muller Gmbh & Company KG, [2010] UKSC 14
Global Asset Management, Inc. v. Aabar Block S.A.R.L, [2017] EWCA Civ. 37
Young v Thames Properties Ltd, 1999) [1999] EWCA Civ 629
Perry v Suffields, Limited [1916] 2 Ch 187
SPAM ACT 2003 (cth)
Privacy Act, 1988
Competition and Consumer Act 2010
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