When Does a Contract Become Binding - Assignment Example

Common Law Assignment” Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name Insert Date Here (Day, Month, Year) Question 1 It is often said that parties sign “Heads of Agreement” while entering into negotiations for the sale of a business. But the question arises whether these “Head of Agreements” are binding upon both the parties and is it allowed for one of the parties to enter into the “Heads of Agreements” and issue legal proceedings according to the document to force the sale. Hereby another question that appears whether the parties have any intention to be bound by the “Heads of Agreement”, or is there are any formal agreement drawn and executed by the parties before any binding agreement is issued. It also depends upon the facts of the case. However in practical principle, the “Heads of Agreement” fall within category 3 of the categories of contracts according to the case of High Court in Masters v Cameron (1954) 91 CLR 353.1 In the case, court posited the view that when parties reach an agreement, it can fall into a situation which has reached into a final stage though they have explicitly to have the terms restated in a much full or in more precise form, but not one of different effect. Secondly they may have reached into an agreement still having intention to make its one or the other terms conditional upon the execution of the final document and thirdly their condition is not to make a concluding agreement at all, unless and until they execute a formal contract. The first two clauses are but the third one is not binding unless the intention of the parties is not to make a concluding bargain at all, unless a formal contract is executed. It is said: “The formal contract, it is true, is to be “on the above terms and conditions”, but it is to be acceptable to the vendor's solicitors, and the meaning is sufficiently evident that the contract shall contain, not only the stated terms and conditions expressed in a form satisfactory to the solicitors, but also whatever else the solicitors may fairly consider appropriate to the case…[thus] no binding contract for the sale and purchase of the property…was made.” 2 All the agreements are based on the situation of the case and on basis of the terms of agreements and here too the law could be enforceable as in the end it has been decided that in this case both the parties Pagola Pty Ltd and Takeovers Pty Ltd. had agreed into all the terms with each other in each step of their agreement on prices, details of the assets to be transferred and on the date the transfer needs to get into effect. All the details regarding the terms could be documented and in this term too, there is a clause that this agreement is subject to a formal agreement to be prepared by Takeover’s solicitor to the satisfaction of Pagola’s solicitors’. This is no doubt fully written agreement but when in the last, Pagola and Takeovers put a condition that price of the transfer will be determined upon the valuation of all assets of Pagola by an Independent assessor then in this case there is an enough chance to make this contract a binding and enforceable agreement to exist. This contract is binding in the essence that both the parties had an intention to be legally bound as both the parties gave consent to all the terms and agreements and any clause what so ever. Factors that may indicate that there was no intention on the part of the parties to get themselves legally bound before any formal documents were exchanged is the extent of the magnitude and complexity if exist in the transaction, subject matter of the transaction, in case there is vagueness in any documentation like guarantees. These factors may appear to be varying but the main thing that needs to be considered is if a person is accepting himself to get himself bound by this contract according to the surrounding circumstances. Definition of the contract also states the fact that it is an enforceable between the two parties and a convenience, an agreement by which each party is ready to forgo something in exchange of the other and it is a legal binding which can be settled in a court of law. The whole case study reveals that above case is a contract as both the parties are agreeing to all the conditions of the terms therefore we can say that it is an enforceable agreement. Question 2 In this case between Gerard and Phoebe, it is more of an oral or a verbal agreement whereby the case may or may not go in the favor of Gerard. If we go by the general agreement regarding this law, we can say that verbal agreements are enforceable but there are certain exceptions to it. In verbal agreements, getting proof is the biggest problem but this is not a case here with Gerard and Phoebe. In the case, it is clearly mentioned that Gerard had made the advertisement of the car in the Trading Post with a statement that the registration of the car for the next full year will be paid by him but when Phoebe bought the car, she started having problem with it and Gerard too did not comply with his commitment as advertised and on owing to this, Phoebe refused to make the payment. He had even said that car was in good condition with odometer reading of 990,000 kilometers but when Phoebe bought the car she felt like car is not in a good condition either. For Phoebe, Gerard cheated her and therefore she refused payment to him as advertised in the newspaper. But if this case is seen from other angle, we can find that Gerard had promised to make the registration of the car for the next full year if car is sold at 5000 dollars, but at the instance of Phoebe Gerard has to sell the car by 4000 dollars. At the time of buying the car, there was no condition and nothing was mentioned and no condition was made that Gerard would be registering the car for the next year but there was a verbal agreement that Phoebe would be paying the amount of 4000 dollars in monthly installments of $500. If we analyze the whole case, we will come to the fact that enforceable agreement exists between the two and Gerard can file the case on the basis of his documentary evidence which is his advertisement in the newspaper that he would pay for registration for the full year when the car is sold of 5000 dollars and not 4000 dollars and while the transaction was being carried out, there was no further indication to this effect but there was an indication on the part of Phoebe. In the oral cases, generally documentary evidences are taken as proof though it may not fully constitute a written agreement but it may substantiate the affirmation that agreement has reached and here the document evidence is the advertisement in the newspaper. There is nothing else mentioned about this evidence. Some may object that the oral contract is not enforceable but I may point here the fact that oral contracts are not enforceable when the agreement made is illegal and where there is an instance of violation of local, state, or federal law. In this case only, contract will be deemed as void. Secondly in the case when verbal contract is vague then also it is not enforceable. For e.g. if someone is just talking with a friend and shows the interest and says that he wants to buy her collection then in this case there is no oral contract, therefore there is no chance to sue in this case. If both the parties had a misunderstanding then also the agreement won’t be considered as an oral contract. There are also certain transactions that need the written contract. In such cases, there cannot be any sufficient evidence that there is any legal binding. Such kind of transactions is real estate transactions, credit agreements, and employment contracts, which do not exist for more than one year. 3 In the case between Gerard and Phoebe, Gerard on the basis of his document evidence, which is his newspaper advertisement, can file the case in court. This newspaper advertisement on the Gerard’s part is an invitation to treat.4 It is defined as a declaration of willingness to enter into negotiations, and is not an offer, and cannot be accepted as a binding. It implies that though it is documentary evidence yet it is not binding and any party to it can either accept or reject what is in the newspaper advertisement. In this case, therefore this newspaper advertisement cannot be taken as a documentary evidence and Gerard can follow his own course by not complying to what is in the advertisement for registering the car for client for complete one year and client can also enforce the seller to change its requirements as Phoebe did by offering to pay only 4000 dollars. As per the telephonic conversation, Phoebe intended to buy a car for $4000 but Gerard was little reluctant, as he wanted to sell the car maximum at the price of 4,500 dollars. But again Phoebe was reluctant to offer only 4000 and showed her intention to pick up the car the next day by 3:00 PM and at that time Gerard agreed. At this junction, it is not shown that Gerard accepted to sell the car at 4, 500 or 4, 000 or if he had any intention to render him services as advertised. From all this, one thing that comes is what went on between Gerard and Phoebe was not enforceable agreement as in this case verbal contract is vague because according to the law oral contracts cannot be enforceable if it is vague. Though Gerard can still file for appeal in the court for not payment of his dues yet we cannot consider it as an enforceable agreement. Bibliography CornWall Stodart, When Does a Contract Become Binding? at 16 April 2009. Gillies, Peter, Concise contract law (1988) Gillies, Peter, Business law (12th ed, 2004) Greenberg, Sue, Anatomy of a Contract (2004) St. Louis Volunteer Lawyers and Accountants for the Arts at 16 April 2009 O’Donovan, James, Lender liability (2005) Ong, Denis S. K., Trusts Law in Australia (3 rd Revised, 2007) Masters v Cameron, Fenwick Elliott Grace at 16 April 2009. Mulchay, Linda and Tilloston, John, Contract Law in Perspective (5th ed, 2004) Platnich, Timothy, C., Verbal Agreements - Are They Enforceable? (2000) Caron & Partners LLP at 16 April 2009. Rosenthal, Trevor, Heads of Agreements - Are they Binding? Rosendorff Lawyers at 16 April 2009. Reynolds, Wal, Savage, Warwick and Williams Alan John, Your own business (3rd ed, 2000) Yates, John, Enforceability of Oral Agreements (2008) DMH Stallard at 16 April 2009. Read More