Preliminary Agreements and Advertisement Regulations in Business Law

This report delves into the complexities of preliminary agreements in business law, analyzing their enforceability and legal outcomes. It examines scenarios involving disputes arising from pre-contractual negotiations and the significance of establishing binding agreements. The report also explores the concept of contract performance, particularly the doctrine of substantial performance, and its implications in cases of minor deviations from agreed terms. Furthermore, it provides an overview of advertisement regulations, focusing on the Australian legal framework, including the Australian Consumer Law (ACL), privacy laws, intellectual property rights, and self-regulatory systems. The report uses case studies to illustrate legal principles and regulatory compliance, providing valuable insights for business owners and legal professionals. The report highlights the importance of understanding the legal parameters in the context of business operations and advertising practices, and the consequences of non-compliance with the relevant laws.

Business Law 1
PRELIMINARY AGREEMENTS IN BUSINESS LAW
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Business Law 2
Preliminary Agreements
All commercial transactions have almost similar behaviors. In particular, many of them
involve "preliminary agreements." These are agreements which parties form as they agree to
some of some matters in contemplation of the ultimate contract. Despite their nature preliminary
agreements, they hold two significant legal outcomes. It is either they become enforceable, or
they become unenforceable in law. What happens is that parties enter into a negotiation of a
potential transaction. During their negotiations, both parties contribute their time, effort, or
money to facilitate their talks. They agree on some matters at a point, but the uncertainty of other
issues keeps the main agreement open for further discussion. However, disputes in negotiations
arise, and one party abandons the deal as the other one protest the other party’s exit. This paper
would aim to discuss the position of the parties’ relationship at that point. Also, the paper will
discuss the issue of performance after the formation of a contract. And ultimately, the paper will
look at the advertisement regulations.
Scenario 1: Mary and Lianne’s Dispute to the Preliminary Agreements.
In brief, the problem arose when Lianne exited the negotiation after Mary had prepared a
quote as requested by Lianne. Mary is protesting the exit claiming that the quote was a binding
preliminary agreement.
Issue
The parties are disputing central dispute over what can be called like a preliminary
agreement. Lianne has abandoned the negotiations, while Mary is protesting the exit. Mary says
there was an agreement, Lianne thinks there was no binding agreement yet.
Rule

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Such an issue is always a battle between lawyers and legal scholars. This is probably
because courts use the same legal doctrines addressing the conflicting issues of precontractual
liabilities are sort for cases of preliminary agreement (Banakas, 2009). As a result, Mouzas and
Furmston (2008) find that the issue creates an obscured criterion for governing the preliminary
agreement. In the determination of this matter, the courts choose to apply one main approach.
This method seeks to place the agreement into any of the three established categories. The idea is
to test the agreement against the legal rules of pre-contractual liabilities.
There are basically three categories. The first type is the "preliminary negotiations." This one
happens when parties conclude their discussions, but both parties have not come to a consensus
even on a single term (Klass, 2010). In such circumstances, no party can recover anything after
the other exits (Klass, 2010). The second category goes to preliminary agreements. This scenario
occurs where parties discuss all the terms, agree on some of the key terms, but leave the others
open for future thoughts (Miller and Jentz, 2010). In such a scenario, the law presumes that
parties only agreed to preliminary negotiations commitment. In such a case, the only thing that
the law can help with is to oversee that parties negotiate in good faith on the part of the
remaining terms (Barasnevicius Quagliato, 2008). If one party pulls out, the other party can only
recover the expenditures suffered in the reliance on the negotiations. The court cannot force the
parties to make a contract or agree on the contemplated contract.
The third category is a situation where both parties have discussed all the matters. After
the discussion, they agree to all the material terms that would form part of the main agreement
(Grundmann, Möslein and Riesenhuber, 2015). However, before the scheduled date of the final
agreement, one party exits. When this matter comes before the court, the law asserts its legal
force and makes the preliminary agreement binding.

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Application
Application
A situation where a case was ruled following the rule discussed in the first category of the
preliminary agreement is (PFT Roberson, Inc. v. Volvo Trucks North America, Inc., 2005).
PFT Roberson was a trucking company. He approached the defendant (Volvo) in a contract for
the purchase and servicing Roberson’s trucks. Volvo sent Roberson an email memorizing their
earlier talks with Roberson. The email stated the terms that they had agreed upon, and the ones
that remained open. They then continued to negotiate, and Volvo sent another email to Robertson
with the finalized proposal. Roberson pulled out of the negotiation and sued Volvo for breaching
the previous terms agreed in the first email. The court of Appeal said that terms not agreed in the
negotiation could not become binding on the parties.
A situation on the second category was ruled in (Masters v Cameron, 1954). This
claimant and the defendant signed a document that had some terms agreed, but the document
also noted that some crucial terms were not agreed. The document stated that some other terms
would be agreed in the main contract. When the dispute for enforcement of the preliminary
agreement came to court, the court stated that there were gaps in the essential terms hence the
contract was not enforceable.
The third category is an enforceable preliminary agreement. A case for this scenario was
concluded in ( Hartslief v Terra Nova Royalty Corporation, 2013). The case involved two parties
who were both solicitors. The solicitor’s agreement on the settlement of the claim made by the
employee (claimant) to the defendant (employer). After the settlement, the defendant argued that
there was no agreement until the parties sign a formal agreement. The court ruled that since the

Business Law 5
solicitors had agreed on all matters that were to be contained in the written agreement, the
contract was valid.
Conclusion
It is very likely that the court will dismiss Mary’s claim that the quote was a binding
preliminary agreement. For instance, by balancing Mary’s case with the examples given. The
facts are similar to the once the case of (PFT Roberson, Inc. v. Volvo Trucks North America,
Inc., 2005). In this case, the parties had exchanged a preliminary agreement but continued to
discuss the further terms. This same scenario is what happened with Mary and Lianne. Further,
in the middle of the negotiation, Lianne exits. Since the parties had not agreed to all the terms,
Mary cannot enforce the quote.
Question (b) It is an assumption that the parties formed a contract in good will, but
one party did not perform as per the expectation of the other party.
Issue
This matter involves the dispute as to the degree of contract performance. In particular, it
is a matter to be taken care by the doctrine of substantial performance.
Rule
Most contract end by full performance (Perillo, 2014). The term refers to a situation
where all the parties do as they had agreed during the formation of the contract. On the other
hand, a party may complete the work, but with minor deviations (McKendrick, 2012). In this
case, there is no full performance but rather substantial performance. In most cases, the refers to
performance as substantial if it is above 95 percent.

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A person who substantially performs has, in good faith, executed all the fundamental
obligations of the contract, leaving only minor details incomplete (McKendrick, 2012). One
standard rule that applies to the law of contract is that performance is only substantial if it can
deliver the intended output despite the deviations. Consequently, the law allows the party that
provided substantial performance to get the pay of the contract price but less the amount needed
to correct the defects (Klass, 2010). The reason why the court allows the recovery of the part-
price is to avoid denying the party that performed its right to the performed work.
Application
One application of this rule is in (Hoenig v Isaacs,1952) The claimant was hired to
decorate and furnish the house of the defendant for a contract price of £750. He completed the
job leaving defects that amounted to £56. However, defendant refused to pay half of the contract
price due to defects. The court ordered the defendant to pay the contract price minus the cost of
the defects.
Conclusion
Even though Mary’s performance deviated from what was agreed with Lianne, Lianne
will have to pay Mary the contract price of $9,500, but Lianne will subtract the amount for the
other services that Many failed to provide.
Advertisement Regulations
There is always an expectation from the society for businesses to abide by the set
regulations. Consequently, it is important that business owners are aware of these laws for the
smooth operation of their businesses (Goldman and Sigismond, 2011). For instance, Australia
has various rules that any business that wishes to advertise their products should abide to.

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In Australia, advertisements and marketing strategies are regulated by a co-regulatory
system (Crawford, Smart and Humphery, 2010). All these principles can fall under four
categories. The major principles are drawn from the Australian Consumer Law (ACL). Also, the
state of Australia recognizes rules set as self-regulatory arrangements (Latimer, 2010). All
businesses are required to comply with each of these laws and regulations.
Firstly, ACL contains the laws that govern most of the advertising campaigns. These laws
are outlined in Schedule 2 of the (Competition and Consumer Act [CCA], 2010). Further, there is
an established body of the Australian Competition and Consumer Commission (ACCC) whose
work is to monitor and enforce the laws as set in the CCA. Apart from ACCC, there are also
Australian state-based regulators who also help in enforcing the act (Schiffman et al., 2013).
Some of these are the NSW Fair Trading and Consumer Affairs Victoria.
In broad, ACL prohibits against some business advertising conducts. Some of these are
advertisements that are likely to deceive or mislead a customer (Schiffman et al., 2013).
Therefore, ACL covers all aspects of advertisements, product campaigns, promotions,
campaigns, written or unwritten advertisements, multimedia, face to face or telephone marketing.
If any business is caught or suspected of breaching any of the ACL rules, the government
commences investigations to that business. If guilty, various penalties may apply. Some of the
actions available are allocating damages to the affected persons. A court can also order the
business to drop the advertisement or product or correction of the same. One example is the case
of (Commercial Bank of Australia Ltd v Amadio, 1983). In this case, a son provided his parents
as the guarantee of the loan to a bank. The parents did not understand English well, and the bank
manager knew that. When the son was unable to pay the loan, the bank started following the
guarantee to repay the loan. The court denied the action since it was an unfair practice in trade.

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Apart from ACL, there are also laws that govern issues of privacy and intellectual
property (IP) regarding advertisements. Business owners should refrain from that infringe any
other business or person’s IP rights (Davison, Monotti and Wiseman, 2015). An IP right is the
right of ownership of a particular audio, text, or image. For example, an artist can be holding
rights to a particular song can use it himself and deny permission for use to others. As a business
owner, one should ensure that all advertisements are original work. When in need of using
another person’s work, they should first seek permission before using them.
On the issue of the privacy, businesses should make sure that all advertisements and
promotions do not hold consumers’ personal information (Susilo and Mu, 2014). Personal
information includes a person’s age, name, address, phone number, date of birth, or place of
work (Privacy act, 1988). Businesses should also protect any personal information held by the
company from disclosure.
Additionally, business should be aware of the self-regulatory systems. These are under
the administration of the Australian Association of National Advertisers (AANA). ANNA is
recognized with its AANA Code of Ethics which are optional rules under the administration the
independent Advertising Standards Board (ASB) (Australian Association of National
Advertisers, 2011). The ASB handles consumer or complaints regarding a particular strategy of
advertisements. Lastly, depending on the industry, business owners need to observe specific
rules and laws set for that industry. For instance, a cigarette company must warn the customers
against excessive smoking. Others are code or rules regarding advertisements that can promote
bad moral or ones that put the welfare of children in jeopardy.

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Reference List
Banakas, S., (200). Liability for contractual negotiations in English Law: looking for the Litmus
Test.
Australian Association of National Advertisers (2011). A Submission to Department of the
Prime Minister and Cabine. A Commonwealth Statutory Cause of Action for Serious
Invasion of Privacy on behalf of Australian Association of National Advertisers.
Available at: http://aana.com.au/
Mouzas, S. and Furmston, M. (2008). From Contract To Umbrella Agreement. The Cambridge
Law Journal, 67(01).
Barasnevicius Quagliato, P. (2008). The duty to negotiate in good faith. International Journal of
Law and Management, 50(5), pp.213-225. Doi: http://10.1108/17542430810903896
Furmston, M., Tolhurst, G. and Mik, E. (2010). Contract formation. 1st ed. New York: Oxford
University Press.
Perillo, J. (2014). Contracts. 7th ed. West Academic.
McKendrick, E. (2012). Contract law. 1st ed. Oxford: Oxford University Press.
Miller, R. and Jentz, G. (2010). Fundamentals of business law. 2nd ed. Mason, OH: South-
Western Cengage Learning.
Klass, G. (2010). Contract law in the USA. Alphen aan den Rijn: Kluwer law international.
Grundmann, S., Möslein, F. and Riesenhuber, K. (2015). Contract governance. 1st ed. OUP
Oxford.

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Goldman, A. and Sigismond, W. (2011). Business law. 8th ed. Mason, OH: South-Western
Cengage Learning.
Susilo, W. and Mu, Y. (2014). Information Security and Privacy. Cham: Springer International
Publishing.
Davison, M., Monotti, A. and Wiseman, L. (2015). Australian intellectual property law. 3rd ed.
Cambridge University Press.
Schiffman, L., O'Cass, A., Paladino, A. and Carlson, J. (2013). Consumer Behaviour. 6th ed.
Pearson Higher Education AU.
Latimer, P. (2010). Australian business law 2012. North Ryde, N.S.W.: CCH Australia.
Crawford, R., Smart, J. and Humphery, K. (2010). Consumer Australia. 1st ed. Newcastle:
Cambridge Scholars.
Competition and Consumer Act, 2010 (Cth)
Privacy Act, 1988 (Cth)
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
PFT Roberson, Inc. v. Volvo Trucks North America, Inc., (7th Cir. 2005).42o F3d 728
Hartslief v Terra Nova Royalty Corporation, [2013] BCCA 417
Hoenig v Isaacs [1952] 2 All ER 176 Court of Appeal