Chapter 9 - Contract law 3. At the end of this chapter you should understand: the tests that determine whether a statement is a term of a contract, the difference between a condition and a warranty, conditions precedent and conditions subsequent and be able to provide examples,...
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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 2-1 CONTRACT LAW CHAPTER Copyright â 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-2 Learning objectives At the end of this chapter you should understand: • the tests that determine whether a statement is a term of a contract • the difference between a condition and a warranty • conditions precedent and conditions subsequent and be able to provide examples • express and implied terms • the doctrine of privity of contract • the circumstances that will discharge a contract • the doctrine of frustration of contract and examples Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-3 Learning objectives (cont.) • the doctrine of frustration and examples of its application • what is meant by breach of contract and remedies available for the injured party • the definition of specialty contracts • the definition and regulation of franchise agreements • Franchising Code of Conduct and the recent amendments Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •-4 •2-4 Introduction • Once a contract has been made, assuming that all six essential elements are present, it may be necessary to consider in some detail the terms contained in the contract • These terms can be either express or implied • Terms can be enforced, but only by a party to a contract—this is the doctrine of privity • A contract can end or be terminated Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-5 Terms of a contract • The terms of a contract are its contents They define the obligations of each party Determining whether a statement or representation is a term in the contract can sometimes be difficult • The terms of a contract can be express or implied Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-6 Tests for determining the terms of a contract Dependent upon: • Time statement made • Form of statement • Reliance on special skills and expertise • Intention of parties Resulting in Mere representation (collateral contract) Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Term of contract •2-7 Classification of express terms Term Significance Remedy if breached Condition Heart of the contract Rescission of contract and/or damages Warranty Of less importance Damages only Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-8 Express terms of contract statements (made throughout negotiations) Resulting in Mere representation No damages TEST: Did party enter contract because of term? Term of contract Breach Damages Warranty Condition i.e term of vital importance No Yes Damages Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Damages (rescinds contract) •2-9 Conditions precedent and conditions subsequent Precedent condition • A term that must be satisfied before the contract can be enforced Subsequent condition • A term that will terminate the contract due to either the occurrence of a particular event, or a particular act of a party to the contract Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-10 Exceptions to the rule that performance must be exact • Severable contract—allows for payment by instalments and confers some right on the party that has partially performed the contract • Substantial performance—confers the right for the defaulting party to enforce the entire contract but entitles the innocent party to recover damages from any loss caused because a performance was not exact • Acceptance of partial performance—requires free and willing acceptance of partial performance of the contract • Obstruction of performance—if one party is prevented from performing, the other party may regard the contract as at an end Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-18 Discharge of contract— by agreement Agreement Cancellation of original agreement Mutual discharge Both parties agree to end contract Release Party can release other party from obligations Substitution of new agreement Novation Replaced by new contract involving third party Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Accord and satisfaction Release one party for new agreement with further consideration •2-19 Discharge of contract— provision for discharge Options to terminate subsequent Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Conditions •2-20 Discharge of contract— operation of law Bankruptcy Merger Material alteration Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-21 Discharge of contract— frustration Frustration (i.e impossibility of performance of a contract through no fault of either party) Destruction of subject matter Failure of event to take place Contract of personal service Change in law Government interference Increase in burden of performance An event that is The occurrence The frustrating The frustrating event must make performance unforeseen must of the event must event must occur not be the fault after the contract of the contract radically occur of either party has occurred different from what was agreed by the parties Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-22 Discharge of Contract—by Breach Breach Anticipatory Renunciation during performance Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Impossibility Actual of performance •2-23 Remedies for Breach of Contract Condition Right to rescind Damages (reasonably foreseeable) Specific performance Injunction Quantum meruit Ordinary Nominal Exemplary (mitigate losses) Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-24 Specialty contracts • Lease – One party grants exclusive possession of property to another party for a period of time • Hire purchase – The owner of goods hires the goods in exchange for regular payments to the hirer Title passes after all payments have been made • Franchise agreement – Agreement between a supplier of a product or service, or an owner of a trade mark or copyright (franchisor), and a reseller (franchisee) Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-25 Franchise agreement • A marketing tool and means by which, through a contract, the franchisor grants the franchisee a right to the use of: – a product – services – a trade mark – copyright, etc Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-26 Advantages of franchising • For franchisor (seller) – Ability to penetrate markets quickly – Access to capital resources – Risk-sharing • For franchisee – Instant reputation – Arranged marketing – Financial expertise – Established business Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-27 The Franchising Code of Conduct • • • • • • • Disclosure document Cooling-off period Copy of lease Association of franchisees Prohibition of general release from liability Transfer of the franchise Franchisor must receive documentation from the franchisee • Termination of a franchise Resolution of disputes Copyright â 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-28 Amendments to Franchising Code of Conduct—March 2008 • Aims to increase the transparency, quality and timeliness of disclosure to franchisees • Places more onerous disclosure requirements on franchisors, including that all details must now be given in full • Disclosure includes comprehensive details of franchisor and their officers’ own business dealings, past franchisees, and a history of the franchise site • Foreign franchisors are no longer exempt from the code Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-29 Amendments to Franchising Code of Conduct—July 2010 • Amendments applicable to franchise agreements commenced, transferred, renewed or extended on or after July 2011 • Matters including novation, notices of renewal and methods of dispute resolution addressed • Disclosure document provided by franchisor to franchisee must include: – statement that franchise could fail – any payments that must be made by franchisee to a third party of which the franchisor is aware Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-30 Amendments to Franchising Code of Conduct—July 2010 (cont.) – make reference to any unforseen capital expenditure to be made by the franchisee – inform franchisee of cost contribution obligations for dispute resolution - disclose any unilateral variations to franchise agreements imposed by the franchisor in any franchise agreements since July 2010 - inform franchisee regarding confidentiality obligations - inform franchisee as to obligations or options for renewal at conclusion of franchise agreement Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-31 Competition and Consumer Act 2010 (Cwlth) • Section 45: Exclusionary provisions • Section 46: monopolies • Section 47: exclusionary dealing • Section 48: resale price maintenance • Section 20: unconscionable conduct • Section 18: misleading and deceptive conduct Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-32 ...CONTRACT LAW CHAPTER Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev • 2-2 Learning objectives At the end of this chapter. .. Barron, Fundamentals of Business Law 7Rev • 2-2 7 The Franchising Code of Conduct • • • • • • • Disclosure document Cooling-off period Copy of lease Association of franchisees Prohibition of general... Non-contractual documents: – Ticket cases Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev • 2-1 4 The doctrine of privity of