The Contractual Agreement between Big Oil Ltd and the Portland Council - Case Study Example

Name Tutor Title: Commercial Law Assignment Semester 2 2011 Institution Date Commercial Law Assignment Semester 2 2011 The contractual agreement between Big Oil Ltd and the Portland Council did not give a provision of any consideration in case of transfer of ownership of the refinery to a subsidiary company before the end of contractual period. This was a bilateral contract, where the two parties have corresponding rights, duties and benefits enshrined in the agreement. The transfer of contractual rights to a third party, in this case, the Best Oil Ltd, bestows right to demand performance from the other original party to the contract (Miller & Jentz, 2010)1. The third party takes only those rights that the assignor originally had. The Best Oil Ltd is the intended beneficiary of the contract and is responsible for the actual performance, and therefore has the right to control the details of the performance. It can sue the Portland Council to enforce the contractual obligations. The promises of the performance in this case are not expressly conditioned or qualified, instead they are absolute promises such that the party in contract must perform otherwise it will be breaching the contract (Miller & Jentz, 2010)2. Best Oil Ltd is delivering in its mandate without compromise and therefore, has a right to enjoy concessions on the council tax. The court will use the intended person test, in which a beneficiary company will be considered an intended beneficiary if a reasonable company in the position of the beneficiary would believe that the promisor intended to confer on the beneficiary the right to bring suit to enforce the contract. The Best Oil Ltd must show that a contract exists between the two parties, is valid and enforceable and the contract was executed for the direct and not incidental benefit of the Best Oil Ltd (Miller & Jentz, 2010)3. For the Best Oil Ltd to be a direct beneficiary of the contract the contracting parties (Big Oil Ltd and Portland Council) should grant it a legally enforceable benefit. It is important for the Best Oil Ltd to determine the intent of the contracting parties, and the circumstances surrounding the transactions as well as the actual language of the contract. When Best Oil Ltd sought enforcement of a contract made between other parties, the contract must be understood strictly by the party seeking enforcement (Revels V. Miss America Organization: Court of Appeals of North Carolina, 182. N.C. App. 334, 641 S.E 2d 721 2007)4. The agreement between Big Oil Ltd and the Portland Council on concessions on the rates, time was of essence. The contractual period was 50 years, and this period holds for the Best Oil Ltd since the transfer took place in 2004. Therefore, since the economic benefits and the setting up costs of the facility were considered as the basis of the concession on the council rates, and were time bound, Barry should consider legal redress to persuade Portland Council to continue with concessions on the rates until the expiry of the contract. However, this could be based on the fact that there was legal and economic transfer of ownership of the facility by the Big Oil Ltd to the Best Oil Ltd. If the transfer was partial, Best Oil Ltd should not claim 50% tax concession from Portland Council. Furthermore, based on the conditions precedent (Helewitz, 2010)5, the Best Oil Ltd continues to deliver in the same mandate as the Big Oil Ltd therefore, there is no convincing reason for the Portland council to cease tax concessions. A condition precedent is considered in contractual arrangements when a condition must occur before the contractual promise becomes operative and enforceable. In the view of this case the contractual promise of delivering economically beneficial services to the region and incurring costs of setting up the facility had already been incurred by the Big Oil Ltd which has transferred ownership to Best Oil Ltd, this concept applies. Implied terms refers to a term of the contract which the parties to that contract did not expressly agree either in writing or orally and which is not inconsistent with some express term and which the law holds as part of the bargain and is binding on the parties as if it were expressly incorporated into the contract. Lord Wright said in Luxor (Eastbourne) Ltd v. cooper (1941) that there were three types of implied terms. In fact many more different types can be distinguished: the local custom: (Brown v. IRC (1964), by usage in a particular trade where it has invariably been the longstanding practice in a particular trade, profession or business, and as a doctrine of frustration of contracts where there is a supervening event which prevents performance, and to give the contract commercial effectiveness- the Doctrine of the Moorcook (1889). If a term can be said to be the presumed intention of the parties, the courts will apply the ‘officious bystander test’. Put simply, the question will be whether it can confidently be said that; ‘if at the time of the contract was being negotiated someone had said to the parties, ‘what will happen in such a case?’ they would have replied: “of course, so and so will happen; we did not trouble to say that’ it is too clear. ‘In this situation the Best Oil Ltd will argue that there can never be an implied term to give business efficiency to contract if there is an express term dealing with the same matter, unless the terms are to be implied by statute or at common law (Chappell & Parris, 2002)6. Contracts are voluntary agreements between parties, Barry should know this. Therefore, the contracting parties decide on the substance of the contract, and the agreement on the transfer of ownership can be express or implied. In every case, one would need to explore the agreement. Best Oil Ltd is correct that there should be an implied term that the rating concession continues even if there is a new owner provided the original owner still retain at least a 40% shares in the new owner. This would be wrong only if the Big Oil Ltd transferred the ownership of the refinery to Best Oil Ltd under express terms. This means, the Best Oil Ltd was not authorized to enjoy concessions on council rates by Big Oil Ltd and this should have been in the transfer contract. The implied term sometimes may denote some terms which does not depend on the actual intention of the parties but on a rule of law, such as the terms, warranties or conditions which, if not expressly excluded. Best Oil Ltd would argue that its possession of the refinery from the Big Oil Ltd was to ensure continuous benefits to the region and this was in line with the mandate Big Oil Ltd had. This can never be disputed because failure to pay council rates by Best oil Ltd would lead to the closure of the facility which in turn would deny the region benefits. In the contract there should have been an implied term that all charges known to the seller (Big Oil Ltd) and not to the buyer have been disclosed to the buyer before the contract is made. In this scenario, this disclosure is missing an indication that the Best Oil Ltd is entitled the concession. Again, Barry would argue that there was contractual incompleteness because no implied term was disclosed by the Big Oil Ltd for the contract to be binding the terms of the contract must be reasonably certain and definite. Best Oil Ltd can pursue a legal case based on the gap in fulfilling contractual obligations by the Portland Council (Beale, Bishop, & Furmston, 2008)7. Barry Waterbuck should consider promissory estoppels to apply in his case because the offer from Big Oil Ltd is clear and definite, has a reasonable expectation that the offer will induce reliance on the other party (Portland Council and the region), and there is actual and reasonable reliance by the offeree and detriment which only can be avoided by the enforcement of the offer. Since, the contract between Big Oil Ltd and Best Oil Ltd, was clear, and there was express transfer of contract, Portland council should not oppose concession on taxes to Best Oil Ltd. The Best Oil Ltd should consider pursuing a legal case for there is clear evidence that it should be entitled to concessions. In conclusion, the Best Oil Ltd should argue for the concessions under the contractual arrangements because, the contract was time limited, and there were no implied terms in the transfer of the ownership. Also, Best Oil Ltd continues to deliver in benefit the region economically. Alternatively, the contractual agreement between Big Oil Ltd and Best Oil Ltd should be revisited to ensure that there is complete transfer of the ownership including benefits. Bibliography Legal Cases Revels V. Miss America Organization: Court of Appeals of North Carolina, 182. N.C. App. 334, 641 S.E 2d 721 (2007) Others Beale, H. G., Bishop, W. D., & Furmston, M. P. (2008). Contract: Cases and Materials, 5th edition. New York: Oxford University Press. Chappell, D., & Parris, J. (2002). Parris's Standard Form of Building Contract: JCT 98; 3rd Edition. Iowa: Blackwell Publishing Company. Helewitz, J. A. (2010). Basic Contract Law for Paralegals, 6th edition. New York: Aspen Publishers. Miller, R. L., & Jentz, G. A. (2010). Fundamentals of Business Law: Excerpted Cases, 2nd Edition. Ohio: South-Western Cengage Learning. Read More