2-1 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev This is the prescribed textbook for your course. Available NOW at your campus bookstore!

2-2 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev CONTRACT LAW 3 CHAPTER 9

2-3 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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

2-4 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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. -4

2-5 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-6 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-7 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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 representationTerm of contract (collateral contract)

2-8 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Classification of express terms TermSignificanceRemedy if breached ConditionHeart of the contract Rescission of contract and/or damages WarrantyOf less importance Damages only

2-9 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Express terms of contract statements (made throughout negotiations) Resulting in Mere representationTerm of contract No damages Breach Damages WarrantyCondition i.e. term of vital importance TEST: Did party enter contract because of term? No Yes Damages Damages (rescinds contract)

2-10 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-11 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Implied terms By courts (officious bystander test) Reasonable and equitable Contract ineffective otherwise So obvious it didn’t need to be included Clearly expressible Not contradictory to other terms By statute law Sale of Goods Act 1895 (SA) By custom or trade usage Certain, reasonable, notorious Not contradictory to express terms Not contradictory to statutory restrictions

2-12 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Exemption clauses A term contained in a contract that attempts to reduce or exclude one party’s contractual liability to the other party in certain instances. Can be divided into two categories: –Exclusion terms –Limiting terms

2-13 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Requirements to give notice of exemption clause Courts have viewed such clauses conservatively and tend to interpret them against the party seeking to rely upon them. The court will ascertain whether the exemption clause seeking to be relied upon has become a term of the contract. For this to have occurred, it must have been brought to the attention of the party against whom it will be used. Did the other party have notice of it?

2-14 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Exemption clauses Actual notice and constructive notice Types of notice required Documents that are contractual in nature Non-contractual documents: –Ticket cases

2-15 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev The doctrine of privity of contract Only parties to a contract can sue or be sued on the contract. Exceptions: Insurance Contracts Act 1984 (Cwlth) Person(s) acting as agent or trustee Person assigning rights and liabilities to another

2-16 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of a contract A contract is regarded as at an end when the word discharged is used. There are several circumstances that will result in the discharge of a contract: –performance –agreement between parties –provision for discharge –operation of law –frustration –breach.

2-17 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of contract—by performance Performance ActualTender (attempted performance )

2-18 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-19 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of contract— by agreement Agreement Cancellation of original agreement Substitution of new agreement Mutual discharge Both parties agree to end contract Release Party can release other party from obligations Novation Replaced by new contract involving third party Accord and satisfaction Release one party for new agreement with further consideration

2-20 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of contract— provision for discharge Options to terminate Conditions subsequent

2-21 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of contract— operation of law Bankruptcy Material alteration Merger

2-22 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of contract— f rustration 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 The occurrence of the event must not be the fault of either party The frustrating event must make performance of the contract radically different from what was agreed by the parties An event that is unforeseen must occur The frustrating event must occur after the contract has occurred

2-23 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Discharge of Contract—by Breach Breach AnticipatoryRenunciation Impossibility Actual during of performance performance

2-24 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Remedies for Breach of Contract Condition Right to rescind Damages (reasonably foreseeable) Specific performance Injunction Quantum meruit Ordinary Nominal Exemplary (mitigate losses)

2-25 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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).

2-26 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-27 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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

2-28 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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

2-29 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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.

2-30 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Amendments to Franchising Code of Conduct—July 2010 Amendments applicable to franchise agreements commenced, transferred, renewed or extended on or after 1 July 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

2-31 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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 inform franchisee regarding confidentiality obligations -inform franchisee as to obligations or options for renewal at conclusion of franchise agreement.

2-32 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 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