Preliminary Agreements, Contract Performance, and Advertisement Rules

This report examines the legal principles surrounding preliminary agreements, contract performance, and advertisement regulations within a business law context. It begins by analyzing the enforceability of preliminary agreements, differentiating between category one and category two agreements, and referencing relevant case law such as Stonehill Capital Mgt., LLC v. Bank of the West and Global Asset Management, Inc. v. Aabar Block S.A.R.L. The report then addresses the doctrine of substantial performance in cases where a contract is formed but the agreed-upon performance deviates, referencing Young v Thames Properties Ltd. Finally, the report explores advertisement regulations, emphasizing the importance of ethical principles, consumer protection laws, and the role of agencies like the Australian Competition and Consumer Commission (ACCC), including spam regulations. The report provides a comprehensive overview of the legal landscape, offering a framework for understanding the complexities of these key business law concepts.

Preliminary Negotiations 1
PRELIMINARY AGREEMENTS: BUSINESS LAW
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Preliminary Agreements
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 option.
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.
Scenario 1: Lianne and Mary’s Preliminary Agreements.
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.
Issue
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.
Rule

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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
agreement 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

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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

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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.
Application
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

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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 won 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.
Conclusion
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).
Question (b) Contract formed, but not to the agreed performance.
Issue
This question is an issue of the application of the doctrine of substantial performance
Rule
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

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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).
Application
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.
Conclusion
Mary can only receive the contract price less the sum that would balance with the
unprovided performance as she had agreed to provide Lianne.
Advertisement Regulations
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).

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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 operate 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.

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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.

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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: http://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.

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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:
http://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.

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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