Breach of Arrangement Entered by Australia Bank - Essay Example

Narni Pty Ltd sued the National Australia Bank Ltd for breach of arrangement entered by them. Narni was the owner of the Carrum Nursing Home, which was subjected to possession by an agent and was sold later when the Bank refused to honor the cheques, which were drawn on Narni No. 2 check account maintained at Elwood Branch without giving adequate notice to Narni. Because of the breach of their arrangement, Narni allegedly have suffered damages for loss of earning profit from the Carrum Nursing Home and even after the sale, Narni did not earn any income. It has not derived any benefit from the sale of the said Nursing home for it was applied to payment of credit debts, and even the other creditors were not given any amount. Narni was dependent on this kind of arrangement because the Bank has been honoring the checques drawn over the limit and has not notify it for the dishonor. 2. The Court found that indeed the Bank committed breach of its arrangement with Narni. As deduced from the facts of the case, the acts of the bank in allowing and honoring the cheques drawn way beyond the ceiling despite the fact that there was no sufficient fund in the account of Narni constitutes an implied terms. As gleaned from the records of the case, Narni applied for overdraft facility with the Bank with ceiling of $65, 000 and when it has drawn cheques pending approval of the said application, the Bank honored the cheques even if the account was regularly in debit. When Narni asked for extension of the overdraft to $100, 000.00, the Bank continuously manifested its refusal to grant it, but continued to honor the cheques drawn beyond the limit. This kind of dealings between the Bank and Narni gave rise to implied terms, which the bank is bound. And Narni relied upon this dealing of the Bank that the latter will not refuse to honor the check without giving adequate notice. Hence, when it refused to honor the checques without informing Narni, there was a breach of implied terms committed by the Bank. Implied terms are considered and regarded as extra terms read into contracts by the courts as deduced from the acts and dealings of the parties in order to give effect to statutory requirements and common law presumptions (Robinson, 2009). These implied terms are categorized into two kinds: 1) terms implied by the court as a matter of fact and 2) terms implied by the court as a matter of law. The following the terms are implied as a matter of fact: a). as a result of a course of past dealings between the parties; 2). as a result of custom or trade usage; and 3). to give business efficacy to the contract (Topic 6, n.d.). And for the Court to regard the implied terms as result of past dealing between the parties it must be shown that a). the terms of the collateral contract must not be inconsistent with the terms of the main the term claimed to have been used in past dealings is clearly identifiable. This is most easily done by reference to previous contractual documents; b). The previous dealings were sufficiently frequent and consistent, given the circumstances of the case, to constitute a regular course of dealing; c).the present dealing fits into that course of dealing to the extent that it can reasonably be said that the same terms should be included; d). and there is no conflict between the implied term and the express terms (Ibid.). As regards the situation between Narni and the Bank, the Court correctly held that there was an implied terms between them as a result of past dealing and course of action between them. It has ruled that "that by honouring cheques at a time when the account was well in excess of $100,000 the Bank impliedly extended the overdraft facility to “a limit of at least $100,000” and further agreed not to dishonour a cheque drawn “within the limit” without first giving adequate notice." The silence of the Bank regarding the status of the cheques drawn despite lack of funds and the previous dealings it had with Narni wherein it honors the cheques are factors relied by Narni in the conduct of its businesses. Hence, the dishonor of the cheques without notifying Narni caused undue disadvantage on the part of the latter. The Court held that it is "well established that the contract between a banker and customer obliges the Bank to pay cheques only when there are available funds in the account to support the payment. Funds may be available in this sense where there is an agreement between the parties to permit the customer to overdraw to a specified limit and there are sufficient funds to meet the cheque without exceeding that limit." The transaction entered into by Narni with the Bank relates to this kind of relationship as deduced in the terms of the transaction and as reflected in the Authority to Transact Banking Business signed by the directors of Narni on 6 November 1987 when the account was opened. The relationship between them is debtor and creditor. The Bank by extending the overdraft facility in a non-formal dealing is the creditor and Narni is the debtor. Basic legal relationship between banker and customer is contractual relationship. This relationship is established from the time of opening an account in a bank (Banker-Customer, n.d.). This relationship is at the root of all other legal relationships that exist between the banker and customer (Ibid). 3. The claim of Narni is promissory estoppel, which will definitely not lie in the given case although the court has adjuged the Bank to be in estoppel. Estoppel is " a bar which precludes someone from denying the truth of a fact, which has been determined in an official proceeding or by an authoritative body (Estoppel, n.d.). In certain situations, the law refuses to allow a person to deny facts when another person has relied on and acted in accordance with the facts on the basis of the first person's behavior (Ibid). This estoppel is not the same with the claim of Narni, which is promissory estoppel. This promissory estoppel is a legal doctrine used in American law as well as other legal systems that allows a party to recover on a promise even though that promise was made without consideration (What, n.d.). If one party has relied on the promise of another, it would be unfair not to enforce the agreement (Wick, n.d). In the given case, the claim was not upheld by court for the law does not allow promissory estoppel. As gleaned from the facts, the arrangement between Narni and the Bank in which the former relied upon was made with promise of consideration, that is payment of interest on money lent which the court found to be sufficient consideration. It refers to the promise wrongly or falsely made by a person to another person, depending on which, the other person relied on the promise and suffered an economic loss (Promissory Estoppel, n.d.). The sufferer can enforce such false promise in court and judge would believe the statement made by the promisor as promise and order for the payment for the value of work of the sufferer (Ibid). Of course it would depend on the actual element present such as, false statement of promise, promissor's inability to deny that such statement was made by him/her, enforcement and establishment of the facts (Ibid). An oral promise whose enforcement in an action for breach of contract is barred by the Statute of Frauds may nevertheless be enforced in a separate cause of action under the doctrine of promissory estoppel. Under the doctrine of promissory estoppel, a party who has relied to his detriment upon another's promise may enforce that promise to the extent of his reliance (Luepke, 2002). However, for this claim to be upheld, the following must be complied with: 1) a promise, 2). Foreseeable reliance upon the promise; 3) Actual reliance upon the promise; and 4) I Injustice absent enforcement of the promise (Ibid). Each element must be proven "by clear and convincing evidence. Oral promise must be "definitely made in contractual sense (Ibid). Applying this in the given case, Narni was not able to comply with the requirements stated above. For one thing, because of the presence of consideration in the form of interest, it can no longer be considered promissory estoppel. Narni failed to prove that the elusive element that injustice would likely to occur if the oral promise is not enforced. The Bank was definitely in estoppel, hence it cannot deny the fact that its previous dealings with Narni had created legal consequence. For honoring the cheques drawn beyond the limit pending formal approval, it is bound to act on their implied terms. Narni relied on these implied terms giving rise to its claim for estoppel on the part of the bank. WORK CITED Zoe Kirk-Robinson, Nov 5, 2009. What are Implied Terms in Contracts? An Explanation of Clauses Read Into Contracts in English Law. Available at Law Crime and Justice by Suite 101 Website. Retrieved from: http://www.suite101.com/content/what-are-implied-terms-in-contracts-a166192, [May 17, 2011]. Topic 6. Implied Terms of the Contract. (n.d.). Retrieved from: http://www.acsis.com.au/Publications/RiskMange/Chapters/BusinessPractise/Topic_6.pdf. [Accessed: May 13, 2011]. Banker-Customer Relationship. (n.d.). Available at Free Books Online Website. Retrieved from: http://free-books-online.org/banking-2/banking-laws-and-practices/banker-customer-relationship-2/. [Date Accessed: May 15, 2011]. Estoppel, nd. Available at Lectic Law Library Website. Retrieved from: http://www.lectlaw.com/def/e040.htm, [Date Accessed: May 13, 2011] What is promissory estoppel? (n.d.) Available at Wisegeek Website. Retrieved from: http://www.wisegeek.com/what-is-promissory-estoppel.htm. [Date Accessed: May 12, 2011]. E. Marshall Wick , Promissory Estoppel. Available at E. Marshall Wick Website. Retrieved from: http://homepage.gallaudet.edu/marshall.wick/bus447/promissory_estoppel.html. [Date Accessed: May 15, 2011]. Promissory Estoppel, (n.d.). Available at Legal Explanations Website. Retrieved from:http://www.legal-explanations.com/definitions/promissory-estoppel.htm. [Date Accessed: May 15, 2011]. Luepke, Henry F. III Promissory Estoppel and the Statute of Frauds in Missouri, JOURNAL OF THE MISSOURI BAR. Volume 58 - No. 3 - May-June 2002. Available at The Missouri Bar Website. Retrieved from: http://www.mobar.org/9f9753bb-ae48-4a83-885c-473b89565bfd.aspx. [Date Accessed: May 17, 2011]. Read More