Events Management Ltd (EML) hired me as a consultant in the business acquisition and the development department. Samantha who is the departmental manager of EML wants to acquire the Rigby Corporate Function Planners Pty Ltd (RCL). With a varied number of emails, both the parties have agreed at a mutual price of $7,50,000; the managing director of RCL shall remain at a consultation role for 1 year, which shall be mentioned under a separate agreement. The date of the business transition shall be 1st of July, 2018 and the fixed assets of the company shall be transferred at the mentioned date. Other items like transfer of intellectual property, staff leave liabilities, providing information to major clients of RCL about the takeover were discussed but did not have a consensus of both the parties. A rough draft of the contract was made by EML but was not given to RCL. One day Samantha received a mail from RCL of their revocation of the contract of sale.
During the inception of common law, the law of contracts was not that much of an importance. The lawyers did not judge a case based on facts but on procedural law meaning what forms the cause of the action. Up till the 19th century, contract law had no credibility. It was after that this law was recognized when a textbook was written on this subject. It was then that it came under the knowledge that there could be contractual disputes among the parties too. Classical contract theory gave a foundation to the modern contracts theory. The classical contract theory was based on three golden rules. First, it is a bargain, meaning a reciprocal contract. Like I promise to do a thing for you and in return, you promise to do a thing for me.
The second was that a contract can only be formed if the parties are willing to do so meaning that there is no pressure from anyone and that they want to bind themselves in a contract. Lastly, freedom of contract which means it is upon the parties to decide whether they want to enter into a contract or not. The law only plays a role to assure that there is no coercion or undue influence which compels either of the parties to enter into a contract1. According to the modern law of contracts (common law), which recognized that six elements constitute a valid contract. First, there should be an intention to create a legal relationship. Second, there should be an offer. Third, there should an acceptance among the parties. Fourth, there should be a consideration. Fifth, there should a capacity to create a legal relationship. Sixth, the contract should be legal.
For the given first issue, whether the contract is valid or not, if one applies the modern common law elements of a contract, so it can be concluded that there was not a legal contract between EML and RCL. No doubt, there was a will to contract between the parties and the offer of $7,50,000 was made but the main element that is acceptance, that was not communicated. For a contract to be valid, apart from the offer being made, acceptance should be communicated to the offeror. 2 The contract was formed on a future basis meaning the date of transition being 1st July 2018.
As per common law, agreements that are future based are not enforceable. Those agreements that promise to negotiate in the future are not enforceable. In Australia, however, it depends on the circumstances of the case, whether such agreements are enforceable or not. It was held in a case that for agreements to be enforceable in such scenario should be conforming to appropriate circumstances and then only could they be made enforceable. 3 Moreover, it has been seen in cases where the agreements are silent on whether some offer or acceptance was being made, then the acts of the parties decide that as per the circumstances.
Since, in the given case, the act of RCL was very dubious, so it cannot be concluded that there was a contract. Even though both the parties agreed at a mutual price, but RCL imposed a condition of being consultative for a year, and that the agreement was to be enforced at some different date, the transfer of all the assets was to be transferred at the transition date, such gestures showed that RCL was disinterested in selling his company to ECL. Knowing that common law prevails in Australia, and knowing about the uncertainty of agreements based on future does not prevail, they imposed such conditions.
The legal structure of Australia is based on Common law. Just like any other democratic country, Australia too has three governing bodies or could be called three organs of the government. First being the legislature, which consists of democratically elected members of the parliament who owns the responsibility to make laws. Second, is the executive which that executes the laws made by the legislature. In Australia, it is the Queen and her ministers. Third and the last is the judiciary or judicature whose job is to make legal judgements to protect the interests of its people.
The two types of disputes that are dealt with by the judicature are criminal and civil disputes. Criminal disputes mean a crime for which a person gets prosecuted by the police or any government agency. If courts find the person guilty, so he can be convicted either by paying fine or facing imprisonment or both. Civil disputes are those when the rights of one party/ies is/are infringed by the other party/ies. This can include any contractual obligation, any tortuous wrong, financial issues etc. the victim party is entitled to damages by the accused and no imprisonment charges could be levied.
Under common law, it is a universal fact that if a dispute arises amongst the parties on any contractual basis, then the court can intervene in that but it shall interpret what is written in the contract and shall not go beyond the mentioned wordings. 5 similar is the standing of Australian courts too. Australia mostly follows the common law so this rule is applicable there too.
Under commercial law, section 6 can only be imposed when the agreement is silent on some issue. For any uncertainties, the court shall consider the contract between the parties and then decide whether there was an intention to form a valid contract or not.6 Therefore, for any inconsistency in the contract, the parties can take recourse of the judicature and it shall decide based on the given facts of the case.
For the second issue, by the above-mentioned contentions, it can be concluded that courts can intervene in the matter to resolve the dispute between EML and RCL. The question on whether the court can impose the validity of the contract on RCL, so it can be concluded that EML did want to buy RCL but RCL tried to bluff EML by showing their consideration for the amount of $7,50,000 but did not transfer the company there and then. They imposed conditions in the contract that it would be sold on a future date and that all the transfer of assets shall be decided then. Trusting RCL and being unaware of his intentions, ECL did not even give the draft of the contract to RCL, hoping things to take their natural course slowly and gradually.
With the given reasoning in the above case, one can conclude that there was no legal contract between EML and RCL. RCL never communicated his acceptance to EML and also EML too never gave the draft of the contract to RCL. The agreement formed was verbal and based on future validity. Hence, future contracts being invalid under common law, therefore the agreement was invalid.
The court is bound to intervene in the affairs of the company to not let any injustice happen. Therefore the court can intervene, and if they feel right, judging by the facts of the case, then can give some judgment. From the given facts, it could be interpreted that RCL, even though made a future-based contract, he could be still liable to sell the company since both the parties had come to a mutual consideration of $7,50,000. This alone could be treated as its acceptance to sell the company to EML, making the contract valid.
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