Law of Contract: Aspects of the Lease Issue

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Table of Contents

Moe’s legal position vis-à-vis Burn and Company under Australian law
The issues of MOE with Burn & Co are as follows
Moe’s against Burns and Co under Chinese Law
Moe’s against Burns and Co under German Law
Position governing real situation
References

Moe’s legal position vis-à-vis Burn and Company under Australian law

There are several factors that determine a valid contract. What transpired between Moe and Burn and Company (via their former Managing Director, Lisa) could be seen as a promise, or offer to enter into a contract, and not a contract per se. “Offers to purchase real property are bilateral, i.e. containing the exchange of mutual promises.” ¹

There has been no contract, written or oral, only a promise on the part of Burn and Co. to take up the lease at a future contingent date.

Again, it is seen in this case that the matching of offer and acceptance is incomplete. Although Lisa may have made an offer, there was no mention of purchase consideration and period of the offer. and it, therefore, lacks definiteness of purpose. She had made an offer to treat, that is, an expression of willingness to set off negotiations but that has not seen the light of day during her tenure. In the leading case of Storer v. Manchester Citi Council, it was reaffirmed that although the Council may have not signed and delivered the documents, whereupon the customer had signed and delivered the documents for onward transmission to the buyer, the contract had consummated and the rights and liabilities of the parties had begun, in as far as the customers are concerned. (Agreement: Do the parties meet the requirement of agreement: P.69: 3.2.2.1 General principles: P. 3) (Provided by customer)

The issues of MOE with Burn & Co are as follows

The former MD of Burn & Co. had made a promise to treat Moe to transact real estate lease with them. The purchase consideration or time frame was not discussed, nor concrete measures are taken to fulfill the deal.
Before the deal could be through, the management of the proposed lessor company changed hands, and a new MD, Bart took over the reins of the company. His entry proved fateful for Moe, since he categorically refuted the role of Burn and Company as a proposed lessor, stating that alternative arrangements have been made. In real terms, Moe’s proposed contract with Burn & Co was deemed by the professed lessors to be nullified.

It would be necessary for Moe’s attorneys to consider the aspect of promissory estoppel in this case, as decided by Mason CJ and Wilson J in the epoch-making Waltons Stores (Interstate) Ltd v Maher (HPH 219) Case. The fact of proprietary estoppel could not only be seen in the context of Burn & Co having reneged on its proposed deal with Moe but more significantly, on the fact that this withdrawal had caused detriment to the other party, Moe, in this case.

The facts and circumstances of this case differ only in degree and intensity with the one in discussion – the fundamental premise being almost the same. One party relying on the other in terms of contractual promise to perform a deed. Certain misconstrued notions and supervening circumstances giving rise to cancellation of contractual commitments, and finally the aggrieved party taking the other to court for breach of promise or damages.

In the event of promissory estoppel, it is not enough that a breach of promise has taken place. It is also necessary that the other party had relied on the statements made by the promise, and had suffered economic, or other disadvantages as a direct result of such breach, or tort.

In this case, the learned judges had ruled in favor of Maher on the grounds that certain benefits had accrued to the Company as a result of avoiding the contractual obligation with Meher. This resulted in a state of detrimental reliance, or in other words that the trust place by Meher on the Company proved prejudicial to his economic interests, in that the Company rescinded the contract after a large portion of the work was already completed. Moreover, there was an element of urgency in the Company’s needs which Meher complied with, and also the Company did not choose to inform Maher of the cancellation at an earlier stage of work progression. (Promises binding in the absence of consideration – estoppel: Waltons Stores (Interstate) Ltd v Maher (HPH 219)).

Now it had become urgent for Moe to seek out some other lessees, in order to keep business afloat. In the meantime they also appointed a Subcontractor for overseeing business operations for their Chinese plant.

Moe’s against Burns and Co under Chinese Law

Under Article 14 of Chinese Contract Act, an offer is a party’s expression of intention to enter into a contract with the other party, which shall comply with the following:

Its terms are specific and definite;
It indicates that upon acceptance by the offeree, the offeror will be bound thereby. ⁴

However, in this case it is seen that the terms of agreement between Moe and Burn and Co (later Bart) does not have specific terms and thereby, it is not compatible with Article 14. Therefore, under Chinese law, it cannot be validated.

Moe’s against Burns and Co under German Law

Brinkibon Ltd v. Stahag Stahl und Stahlwarenhandels GmbH (1983) opined that in cases of immediate communication (specifically face-to-face conversation, and telephone) acceptance takes effect when and where it is actually brought to the attention of the offeror. (Agreement: Do the parties meet the requirement of agreement:: 3.2.2.1 General principles: P. 87) (Provided by customer)

Again coming to the German law of contract it could be said that under Section 280

“If the debtor fails to comply with a duty arising under the contract, the creditor is entitled to claim compensation for the loss caused by such breach of his duty. This does not apply if the debtor is not responsible for the breach of duty.” ⁵

It is seen that the Federal Court of Justice follows a fairly straightforward and transparent method with regard to dealing with contracts where the assent of the parties are required for fulfilling the contractual obligations. It is also seen that it follows the 3 Step methods by which the contested value of collaterals are assessed. The three step method is as follows:

Whether the collateral agreement places such a financial burden on the defendant debtor and renders the covenant financially unviable- as in the present case where the weather and presence of rock has increased cost and time overruns
The defendant entered into the contract not on his own volition or may be through some influence, undue or otherwise from the other party- in this case it is seen that King Kong may have been influenced by Moe to accept the contract on incomplete one sided terms
Whether the particular situation would warrant such collateral agreement as this one.

Laws in Germany are not autocratic and are designed to safeguard the interests of the proletariat or common man who may be inveigled into entering into unscrupulous agreements. (Peer Zumbassen: Chapter 6: The law of contracts: provided by customer)

In the case of Moe’s legal position vis-a –vis King Kong Constructions,

It could be seen that the contractual agreement is the ultimate document in contractual agreements and is binding upon the signatories thereto.

In this case it is seen that Moe had entered into covenant with King Kong Constructions which is a standard form agreement, in that no alternations or concessions could be made on it, save and except, what are mentioned on main contract.

The law states that in the presence of a written covenant between the parties it needs to be honoured, save and except, changes or modifications made through mutual consent and benefits. In this case it could be said that it contains, interalia, the following features:

It does not envisage variations to the contract based on unexpected site conditions, such as rock formation which could cause delay in the construction process.
Makes no allowance for delays caused by wet weather since work cannot be carried out during rainy time.

In the case of Moorcock (1889), it was held by the Courts that though there was no clause in the contract that the ship would not be damaged; it formed part of the implied clauses of contract. ³

Moe v. Lisa & Bart

It is now proposed to consider the aspects of contractual obligation between Moe and Bart. There is an element of Tort, since it was incumbent on the part of the new MD to honour the previous promises made by the earlier MD, since she had acted not on her personal capacity, but her official capacity as MD of Burn & Co.

Vicarious liability

The aspect of vicarious liability needs to be examined in this context, in that whether Burn & Co. are liable for the actions of their director. Lisa and must honour or ratify the commitments made by her during the currency of her directorship with Burn & Co. It is normally believed that acts of company officers bind the company, since the acts have been carried out in the ordinary course of for furthering the business of the company. The question of liability or vicarious liability arises under the following circumstances. “When an employer is vicariously liable for negligent acts or omissions by his employee in the course of employment whether or not such act or omission was specifically authorised by the employer.” (Vicarious Liability).

To avoid vicarious liability it is seen that Burn and Co must prove

That the employee was not negligent in taking the decision or,
Or that the employee was acting in his own right rather than on the employer’s business.

In this case, even a person of ordinary prudence could surmise that Lisa’s act of promising the future lease would have met the board’s approval at that time and would have even been ratified by them had Lisa been around when the lease period was due. However, supervening situations made this situation impossible. Under such circumstances, it was incumbent for Lisa to have clarified the Board’s stand on Burn & Co before her departure; this would have saved a lot of trouble for Burns & Company.

Legal crux of this issue

It is believed that the primary issue here is not whether Lisa’s action was correct or not. She had played her part. The contract was promised by the Company, and Lisa was just a via media. There is nothing in this case to even suggest that this was a contract in which Lisa had personal interests, which could set off aspect of vicarious liability. As far as Moe is concerned, the time of fruition is more important and that was the time when Bart stepped in as the new Managing director. It was necessary for Moe to convince Bart in his new role to honour the commitment made by his company to Moe. And this forms the crux of this issue.

Legal action needs to be taken against Burn & Company and not against the individual directors, whether Lisa or Bart since they were only acting in the best interest of the Company.

In the celebrated case of Saloman v. Saloman, (1897) it was held that an individual owner of the company is different from the corporate and thus his individual liabilities cannot be forced on the company since they have different identities. ⁶ Coming now to the aspects of tort laws, it is necessary to examine tort laws as practices in Australia, China and Germany. All these counties are having valid and robust tort laws that aim at reducing the malpractices and undesirable aspects in commercial and other businesses. However as laid down in the landmark case of Hadley v. Baxadale (1854) 9 Exch 341.

It is also necessary to consider that penalties for infringements should be reasonable and relevant to the level and intensity of the fault. ⁷ It is now necessary to consider the aspect of sub-contracting business between Moe and King Kong. The terms are one sided and much like what MNC Companies contract with their franchisees, offering no liberties, or concessions whatsoever. In this contract, all the conditions are favourable to the issuing party,

“A type of contract, a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage. ⁸ In the 1957 case of Oscar Chess Ltd, v. William (1957) 1 WLR 370, a person sold a 1938 model car stating it to be a 1948 Morris. “Held defendant was not liable to plaintiffs in damages for breach of warranty because, having regard particularly to the fact that defendant had no personal knowledge (as the plaintiffs knew) of the date of manufacture of the car and the date was a matter on which plaintiffs might well also form their own opinion. ⁹ It was held that the expert car dealer should have exercised enough discretion to know the difference and thus avoid the purchase.

In the Australian context, in the case of contracts impinged by legislation, which is comparable in the Statute of Frauds, there is no requirement for written contract to be in writing, although there must be written evidence of the contract, which may even come into existence after the contract has been formed…. It must contain all material terms of the contract, the subject matter and the parties to the contract. ¹⁰

However, it is seen, in this case that all the terms of the contract are not mentioned on the face of the covenant and therefore it could be avoidable, at option of the contracting party. Moreover, it is not known whether the subcontractor Moe has contested the disputes with regarding to weather and presence of rocks and sediments, for which more costs would be incurred by the sub-contractor.

Therefore, it is necessary that law of sub –contracting needs to be invoked in the country context in order to arrive at a just and equitable solution. Again in the case of contracts it is seen that the terms of the contract bind the parties, and in the event of any clause, like “exclusion clause”, the other party cannot offer lack of knowledge, or not having read the terms and conditions as an excuse for non-performance. This was enunciated in the leading case of L’estrange v. Graucob (1934) 2KB 394 where the operating defective in a cigarette vending machine for which the manufacturer had previously disowned liability could not be enforced against them, since there was a disclaimer clause in the contract. ¹¹

In the case of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 the House of Lords (HOL) took the view that the principles enunciated in Morris’s case could be applied in this case. The plaintiffs had contracted with defendants for the provision of a night patrol service for their factory. Fire and theft were the perils the parties had in mind. A security person intentionally lit a fire which burned down the factory. It was an unresolved issue whether his motive was to start a fire or a conflagration. The Courts held that the Company, Securicor, was responsible for the attendant losses. (Bussines, 2008).

Again, in the leading case of Commercial Bank of Australia v Amadio (1983) HCA 14; (1983) 151 CLR 447 (12 May 1983), the full Bench of the Supreme Court of South Australia held that the unusual transactions between the bank officials and unknowing parents of the defendant were unreasonable and not in best commercial practices. The Hon Court ordered that memorandum of mortgage made by the plaintiffs (the present respondents) on or about 25 March 1977 in name of the appellant bank be revoked and also made certain auxiliary orders. ¹² The contract between Moe and King Kong could be said to be unconscionable, if the party so determine.

However, it is seen that dialogue with the company also needs to be pursued to increase the time limits of completion of the contract, if not increase in rates since it is bound by contractual obligations. As is often the case, the subcontractor faces time lags and difficulties in finishing the works due to impositions by the main contractor, through no fault of the subcontractor. In this case it has been acts of God, due to inclement weather, which was a factor that could have been previously forecasted and suitable controlled by the party involved.

However the second factor of rocks and cement needs special treatment. It is seen that the decision of Moorcock (1889) could have been applied to this case also if Moe had constructive notice of the presence of rock and cement in the construction bed.
Applying the reasoning available in Moorcock (1889), it could reasonably be said that the employer (Moe) was aware of the hazards posed by rocks and cement and needed to have taken this into consideration, while drafting the sub-contractors agreement. Therefore, King Kong could be eligible for damages under such circumstances. (Lexis Nexis: P.3-4: Reasonable and equitable :

Position governing real situation

The Company Moe Power is an United Kingdom (Glasgow) based company having power plant equipment business throughout the world. For this purpose, it also has a power plant unit at Shanghai, China which caters to needs of the eastern Bloc countries. Considering the immense growth potential in the Chinese region, it has contracted with King Kong sub- contractors, for building business dealings in this region.

The place of execution of contract has been at the Registered Office at Glasgow since it is company policy that all contracts and legal matters relating to global business dealings needs to be examined and approved by the corporate attorneys, pending ratification by the Board of Directors situated at Glasgow.

The place of performance is at their power plant located at China.

The place of the residence or business of party would be the Chinese address.

It is seen that the subject of sub-contracting envisages several aspects, Including area of jurisdiction of legal matters. It is seen that in the case of Subcontracting business, the Courts of China would be the deciding Authority and they would have the power to intercede in any kind of disputes occurring within their jurisdictional areas in this country.

Chinese laws regarding contracting

In this case it is seen that the company operates a plant in People’s Republic of China as a branch and is thus subject to administrative controls exercised over foreign branches operating in PRC. (University library, 2004).

It is therefore necessary that the foreign company establishing a Branch in PRC, duly retains a caretaker to carry on business, and make necessary distribution of funds that are necessary for conduct of business of the branch.

The branch shall be liable for all civil liabilities incurred by it. Further under the provisions of Article 196 of Company law, it cannot be construed to be a Chinese legal person under law. (University library, 2004).

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