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.

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.

Functions of Business Finance

Strength and soundness of business depends on the availability of finance and competency with which it is used. The abundance of finance can do wonders and its scarcity can ruin even a well established business. Finance increases the strength and viability of business. It increases the resistance capacity of a business to face losses and economic depression. It is just like a lubricant, the more it is applied to the business, the quickly the business will move. Following headings explain the importance of finance to business:

(1) Initiating Business: Finance is the first and fore most requirement of every business. It is the starting point of every business, industrial project etc. Whether you start a sole proprietary concern, a partnership firm, a company or a charity institution, you need ample amount of finance. It is equally important for profit seeking and non-profit activities. It is equally important for a multinational organization and for a free dispensary.

(2) Purchase of Assets: Finance is needed to purchase all sorts of assets. Even if credit is available some down payment is to be made. Mostly finance is needed at the start of business for the purchase of fixed assets. These fixed assets consume a large amount of initial investment of the entrepreneur, so he may face liquidity difficulty in running day to day affairs of the business.

(3) Initial Losses: No business attains high profit on the first day of commencement. Some losses are normal before the business reaches its full capacity and generate enough revenue to match cost. Finance is necessary so that these initial losses can be sustained and business can be allowed to progress gradually.

(4) Professional Services: Certain business need services of specialized personnel. Such personnel have rich experience in specialized fields and they can provide useful guidance to make business profitable. Nevertheless these services are costly. Finance is always needed so that services of such professional consultants can be hired.

(5) Development: Business is always exposed to change. New innovations and emergence of new technologies replaces old techniques out of market. So in order to remain in the market, it is needed to keep the business well equipped with all emerging tools and techniques. This required finance. New technology is always expensive as it is better than others. So finance is needed to purchase new equipment and keep the business running.

(6) Information Technology: Information technology has now changed the geography of the business battle field. The home markets have now extended virtually to other comers of the world. The whole world can be your customer or competitor. To face such a fierce competition, IT is needed. Skills and competency in IT can perform miracles. But finance is again the decisive factor. It is very much needed to incorporate expensive IT products in the business.

(7) Media War: The advertisement and promotion have now become a vital elements for the success of business. The way a businessman approaches a customer and convinces him to purchase his product has become more important than the quality of product. With advertisement on International media, a businessman can reach the minds of millions of people around the globe. However, advertisement is a luxury which every business can’t afford. Huge finance is required to meet advertisement expenses.

(8) Resource Management: Finance is very essential for efficient resource management. Resources here include capital and human resources. Maintenance of plant and equipment and training of employees all need finance. Establishment of new industrial units, expansion of plant capacity, hiring of well learned skilful laborers – all
these factors can lead to huge revenue but at the first place they need finance to start with.

(9) Stock Investments: These investments are those which are made to hold ample stock of raw materials in hand. Bulk purchase of raw materials is profitable in a sense that purchase discount can be attained and there is no danger of production halts. So companies most often hold huge amount of stocks and raw materials. But such an investment can be made only if a company has sufficient capital or finance to carry out its daily operation easily besides holding huge stock.

(10) Combating Risks: Everything is exposed to one or more risks. A business is also exposed to variety of risks. These risks include natural hazards, burden of any huge liability, loss of market or brand name etc. Finance is needed to make business powerful, so that it can sustain occasional losses and liabilities.