Contract Law: Essential Elements 1 BUS107 Commercial Law Week 2 Tutorial

‘You’re too young to be a consultant,’ Rory Huntley, longstanding client of Farnsworth & Partners, looks you up and down with suspicion. ‘This is the intern that saved Violet Shae at the AVEA meeting last month,’ Fergus says. ‘Hence the promotion.’ ‘Well, well… so you can save an industry association president. But can you save a major industrial construction company?’ Rory asks you. ‘What’s happened?’ Fergus suddenly looks nervous. ‘A month ago I came to you Fergus with my concerns about my company, Landcorp Ltd, being close to insolvency. You advised me to appoint a voluntary administrator to buy enough time to sign up new clients and return Landcorp to solvency.’ Fergus nods. ‘I followed your advice but only managed to sign up one new client. An energy conglomerate in Spain called Matador Group.’ ‘What’s the contract worth?’ ‘Seventeen million.’

‘Seventeen million. ’ Fergus splutters ‘Seventeen million!’ Fergus splutters. ‘That’s more than enough to put Landcorp back on its feet.’ ‘It would be if the voluntary administrator was supporting the deal. Instead, he’s recommending the creditors vote to put Landcorp into liquidation. He refuses to believe the deal is binding.’ ‘Why?’ ‘Well, for one thing, the CEO of Matador Group is also my brother, Peter Huntley. And another reason is because Peter and I did the deal over the phone.’ ‘What did you and Peter say to each other?’ ‘I offered to build him a power plant in Spain for nineteen million dollars. He counter-offered with seventeen million - but on the condition he can pay me in debentures issued by Matador Group. I accepted his terms.’ ‘Sounds like offer and acceptance to me.’ Fergus says. ‘The voluntary administrator disagrees. He thinks the debentures are inadequate in value and my acceptance of them is conditional.’ You clear your throat to speak, ‘The voluntary administrator is wrong, Mr Huntley, and yes … I can save your company.’

Group One Group Two Group Three Group Four In your group, prepare a solution to Rory’s issue. Focus on the following: Explain that his agreement with Matador Group is a contract Discuss how contractual obligations are binding and can be enforced by a court Prepare a counter argument to the voluntary administrators report that a deal made over the telephone cannot be binding Group Two Group Two In your group, prepare a solution to Rory’s issue. Focus on the following: Explain that a binding contract must have an offer and an acceptance Discuss the rules relating to an offer and the rules relating to an acceptance Prepare a counter argument to the voluntary administrators report that Rory’s acceptance of Peter’s offer is conditional Group Three Group Three In your group, prepare a solution to Rory’s issue. Focus on the following: Explain that parties to a contract must have an intention to be legally bound Discuss the presumption that the courts make when hearing contractual disputes between family members and how this presumption may be rebutted by evidence Prepare a counter argument to the voluntary administrators report that the contract cannot be enforced because the parties are brothers Group Four Group Four In your group, prepare a solution to Rory’s issue. Focus on the following: Explain that a contract must have consideration to be legally enforceable Discuss what consideration is and the rules relating to consideration Prepare a counter argument to the voluntary administrators report that consideration must be adequate for a contract to be binding

‘That’s a fine piece of work,’ Rory says ‘That’s a fine piece of work,’ Rory says. ‘But it’s the creditors you need to convince, not me.’ ‘What time is the creditors meeting?’ you ask. ‘Eleven this morning.’ ‘We’ll be there,’ Fergus says. ‘We’ll convince the creditors the agreement is binding and they’ll vote to give you back your company.’ ‘They’d better Fergus, for your sake, because if they don’t I’m going to sue Farnsworth & Partners and I’m going to sue you personally as well. After all, it was your negligent advice that got me into this mess. This is your one and only chance to get me out of it.’ Fergus looks to you as the colour drains away from his face. You give him a reassuring nod and a smile. Restructure your work into a presentation to the creditors at the creditors meeting.  

‘I list the reasons why, in my opinion, the proposed deal with Matador Group is not binding and cannot be relied upon by you in making your decision regarding the future of Landcorp Ltd,’ the voluntary administrator pauses to sip from a glass of water. ‘If the agreement was binding I would obviously change my recommendation and advise you to vote to return the company to Mr Huntley. But because it is not I must recommend that you vote to put the company into liquidation. We will now proceed to that vote.’ ‘Before we do,’ you say, as you rise from your seat and face the creditors, ‘There are a couple of things I’d like to point out to the creditors about the nature of contracts and what makes them binding…’ Deliver your presentation to the creditors at the creditors meeting

The voluntary administrator is visibly furious. ‘I don’t know who this person is or who they represent but -’ Rory Huntley’s voice booms from the back of the room. ‘This person is a consultant from Farnsworth & Partners and is representing me.’ The creditors all turn in their chairs. ‘Very well, Mr Huntley,’ the voluntary administrator says. ‘The creditors will now cast their votes by show of hands to determine the future of Landcorp Ltd. All those in favour of placing the company into liquidation please raise your hands. Thank you. All those in favour of returning the company to its directors please raise your hands. Thank you.’ The voluntary administrator records the result in his ledger. ‘The creditors have decided by majority vote to …’