Contract – Terms of Business, Battle of the Forms and Letters of Intent

The buyer (a company that made control systems for vehicles) placed orders with the seller (a company that supplied pedal sensors). Both parties traded on their standard terms of business, the key difference between the two being, as it is usual to expect, the extent of the liability, if something went wrong under the contract. The buyer’s conditions sought to impose unlimited liability on the seller for certain breaches, while the seller’s conditions purported to exclude any liability for consequential loss or damage and restricted its business liability to repair.

The sensors were defective resulting in serious problems, including uncontrolled deceleration and loss of power. The buyer suffered substantial losses as a result, including the cost of inspections and replacement of parts. It sought to argue that the contract was formed on its business terms and sought to recover its losses from the seller. The seller argued that the contract was formed on its terms and that its liability was limited to repair, in accordance with its standard terms, which the buyer had accepted by taking delivery of the sensors; while the buyer argued that the seller’s liability was unlimited (in accordance with its standard terms).

So, the preliminary question before the Court was on which terms the contract between the parties was formed.

In an unexpected decision, the Court decided that, the contract did not include either set of standard terms, because the parties had not reached agreement on their precise wording and there was no conduct that could be interpreted as accepting the other’s terms. The Court, therefore, held that the contract terms were governed by the Sale of Goods Act.

The Court, in giving its decision, summarized some of the key principles from previous cases, where there was a “battle of the forms”:

• The contract must be read objectively;

• In most cases, a contract is formed once the last set of terms is sent and received, without the recipient objecting;

• One party can be found to have accepted the other party’s terms by its conduct, but such conduct must be clear (looking at it objectively) with the intention to accept those terms; simply taking physical delivery of the goods is not enough;

• Where parties have not agreed which set of standard terms applies, the only inference that can be drawn is that, the contract was made on the basis that neither set would apply.

In conclusion, terms must be agreed between the parties before the contract is signed or executed. Even expressed wording in contract terms stating that the standard terms will prevail over others may not be effective where it can be shown that no agreement was reached, whether expressly or by way of conduct.

Another recent decision of the Supreme Court addresses two key points. The first is the need to have agreed contract terms, before work starts under a contract and the second that, where a letter of intent is signed and work starts due to it, that a contract must be finalized as soon as possible after that. In this case, the parties entered into a contract formed by a letter of intent. When the letter of intent expired the work continued on, before the terms of the detailed written contract had been finalized.

The Court in its decision reiterated that in terms of letters of intent, it will not impose binding contracts where none existed and therefore each case will depend on its own facts, taking into consideration what is communicated between the parties by words or conduct. Where contracts are negotiated “subject to contract”, the Court noted that, it will not always infer that a contract has been agreed on those business terms that are “subject to contract”.

However, in this case, the Court decided that the parties had agreed a binding contract and that the binding contract was not subject to contract for the following reasons:

• Given the parties agreement over price, it was unrealistic to infer that the parties did not intend to create legal relations;

• All the essential terms had been agreed and variations were agreed without stating that they were “subject to contract”. The actions and communications of the parties indicated that they had accepted the contract terms and formed a legal contract, without the necessity to require a formal written contract; and

• The parties had negotiated in detail the clauses which comprised the terms as amended and as such the clauses had been essentially agreed and varied.

This case highlights the dangers inherent in starting work before a formal written contract is in place and such letters of intent should always be treated with caution.

However, if a letter of intent is inevitable, this should:

• Clearly specify those contract terms that have been agreed and those that remain outstanding, so that there is no uncertainty over what has or has not been agreed between the parties; and

• State that, no binding contract is to come into effect, except to the extent set out in the letter and that neither the letter nor any work done or payment made under the letter shall be deemed to be a waiver of the requirement to provide a binding contract.

Finally, every effort should be made to finalise the contract as soon as reasonably practicable after the letter of intent has been signed.

This article is for general purposes and guidance only and does not constitute legal or professional advice.

Copyright 2010 Anassutzi & Co Limited. All rights reserved. Information may be shared or reproduced only if accompanied by the author’s name and bio.

Personal Qualities Required To Be An Entrepreneur And Start Your Own Business

A lack of skill, ability and experience in certain business areas need not be a barrier to success and starting your own business. The personal qualities exerted by a small business owner overcoming deficiencies over and over again are vital and present in many entrepreneurs much more so that specific technical knowledge.

Not everyone is a master of all business attributes in fact very few are. Certainly being a master of all is a fantastic position but unrealistic while certain personal qualities are essential to fight the inevitable battles to come. Business battles the successful entrepreneur wins.

Businesses that have grown and become medium sized and bigger are not reliant on the business owner entirely. Employees are engaged with specialist skills and abilities to develop and grow the business. A sole trader just starting out has to settle for a comfortable living or have the ability to grow the business to the point where more specialist abilities can be added to the business.

Most small business owners who start a new business do so in an area where that small business owner has some knowledge, experience and skill. It is a natural progression having acquired the business knowledge and experience to use those abilities to build the business under self employment rules rather than earn profits for an employer.

The personal qualities a small business owner possesses are more likely to determine the level of success. Abilities such as hard work, determination, persistence, intuition, tolerance and aggression can be the bedrock of success. But the road to success is not all slam wham bang for the entrepreneur.

Small business owners invariably work longer and harder than employees. An employee works for wages and an adequate work performance is enough. A small business owner is more likely to be on the job at first light, miss the coffee and dinner break and twelve hours later announce he has to finish off for the day because he has to go home and do the business accounting books that he started on Sunday.

Determination and persistence go hand in glove with success. Every new business runs into problems at some time or reaches a stage where the business owner needs to be completely focused and stick with a strategy to make the plans work. Things go wrong from time to time; its normal, determination and persistence are valuable qualities to see through these times.

Aggression in forcing through a business plan may sometimes be the only viable option. Not physical violence but the heightened state of anxiety to push through the plan and make it work with controlled aggression and passion. On the other side of the coin there will be times when the small business owner has to exercise tolerance and just go with the flow.

Many small start up businesses go out of business within 2 to 3 years of starting a new business. A major cause is under capitalisation which basically means they run out of money. Liquidity is a major area of concern for every small business entrepreneur and a cautious approach to a new business can be of considerable value.

There is a strong tendency for a new business start up to borrow money and buy new equipment just to get started. Such businesses are taking a major risk the plans will work. Some plans do work but rarely it is a smooth path and a better option is to build the business and reinvest profits made.

A more cautious approach would be to start a new business without borrowing substantial funds because if the small business owner has the ability to make a success of the business and make money then they can usually do so without external funding and use the profits made to build the business in the future.

The sound reason for a small business or a start up business to borrow money is to already be showing a good financial performance. Use the extra funds to speed up future success while borrowing funds with no track record is a gamble and a gamble which fails only too often.

Internet Marketing for Small Home-Based Businesses

Small home-based businesses battle to stay on search engine listings and gain the advertising and marketing exposure they deserve. Small home-based business owners typically don’t have the money for expensive advertising and marketing. It is for this reason that popular big name companies seem to have taken over the online market by advertising on television, in magazines, and at the top of almost every search engine listing. Small home-based businesses should not be discouraged. It is possible for small home-based internet businesses to move up the ladder of success through effective and creative internet marketing. Small home-based internet businesses are able to gain the exposure they deserve, but they must use strategies other than standard marketing and advertising methods used by big name companies.

Small home-based businesses striving for marketing and advertising success need to grab the attention of potential customers. After grabbing the attention of potential customers, it’s critical to keep their attention. Home-based business owners should consider offering potential customers and those looking for information on the internet the high-quality information they are looking for through opt-in newsletters.

Small home-based business owners can bring in new customers and keep customers coming back by giving them the information or news they’re seeking online. For example, if a small home-based internet business sells craft items, the home-based business owner can offer valuable free information on craft projects. Those seeking craft project ideas and instructions through a craft project newsletter will find links to materials and supplies. Marketing small home-based businesses through newsletters can greatly increase earnings.

The owner of a small home-based internet business doesn’t have to be a great writer to develop an internet newsletter full of valuable information. There are a number of helpful internet programs to assist owners of small home-based businesses with developing and marketing products and newsletters. Offer people the information they are seeking, and they will sign up to receive the information. Before long, newsletter marketing efforts will pay off through ever increasing sales.

Home-based small business owners who don’t have time for newsletters should consider joining one of the many popular link exchange programs. Marketing small home-based businesses becomes effortless, and home-based businesses literally begin marketing themselves. Link exchange members assist each other with marketing, and they help increase website traffic. Potential customers gain access to small business websites they otherwise wouldn’t have found.

Marketing efforts can be increased by directly exchanging links with otherbusiness websites. Small home-based businesses can offer their banners and links in exchange for banner and links from other small business websites.There is no cost for this type of marketing, and small home-based business websites can increase traffic and sales considerably. Choose link exchange partners wisely to gain the most marketing benefits and exposure for your small home-based internet business.