Memorandum of Advice on Contract Formation and Construction

This memorandum of advice discusses the formation and construction of contracts in the context of a business acquisition company. It analyzes the legal nature of preliminary agreements and the requirements for a legally binding contract. The main issue of the case is to determine whether any contract has been made in between both the companies or not. The memorandum provides an overview of the law and applies it to the facts of the case. It concludes that no contract has been formed in this case due to the uncertainty of the subject matter and the lack of intention to be bound by the parties.

Running head: BUSINESS LAW
CONTRACT
Name of the Student
Name of the University
Author Note

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Memorandum of Advice
To
Samantha
Subject: Is there a contract between the Event Management Limited (EML) and Rigby
Corporate Function Planners Pty Ltd. (RCFP)
Respected Madam,
In this case, it has been observed that you are engaged in a business acquisition
company. This company works to take over other companies and enhance their
businesses in this way. Considering the matters of fact in this case, it has been
observed one pre-contractual negotiation has been done with Rigby Corporate Function
Planners Pty Ltd. (RCFP). It can be seen that the company where you are working has
done many steps to bring all the negotiations into reality. A number of steps have been
taken. The parties have agreed the purchased price of the company and it was decided
that the owner and managing director of the RCFP would be posted in a consultative
role after the completion of acquisition process. Further, the date of business transition
has been fixed. However, after certain times, the following company was denied to
continue the business by stating that they are not interest anymore to let Event
Management Limited take over their company.
Issue:
The main issue of this case is to determine whether any contract has been made
in between both the companies or not.
Law:
Your case is based on the principle of contract formation and construction and
therefore, it is important to look over all the aspects of contract. A contract is an
agreement by which any party on certain consideration has made certain promises and
other party accepts the terms of the promise. The terms and conditions of the contract
are imposed on the parties mandatorily and any of the parties will face legal provisions
in case of making any breach. A contract could be formed if the following elements are
followed. The elements are agreement, consideration, capacity of the parties, legal
nature of the contract, intention of the parties and forms of contract. It is important to
state about the principle of contract formation to come into conclusion regarding the
facts of the case. In this case, it has been observed that certain preliminary agreement
has been formed in between the parties regarding the acquisition of a company and a
framework has been provided to the parties to negotiate over the pre-contractual
conduct. The nature of the preliminary agreement is binding. The main intention of this
agreement is to avoid all kinds of risks regarding the contract where both the parties to
the contract have an intention to enter into a contract. The preliminary contracts are to
certain extent regarded as “subject to contract”. Certain tests have been prescribed in

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the case of Masters v Cameron1. There are many cases where before the final
contract, certain negotiating terms have been made in between the parties in the writing
format and the legal nature of the negotiating terms is based on three conditions such
as:
 Where the parties to the contract have made all the terms regarding their
consideration and they have an intention to be bound by the terms of the
negotiation;
 Where the parties have no intention to depart from or make any addition
regarding the express or implied terms of the agreement and nevertheless
made performance of any condition upon the execution of formal document;
 Where the parties to the contract has no intention to conclude the bargaining
process before execution of formal contract
According to the contractual interpretation of this case, it has been decided that
first two of the conditions have legal perception and the last condition has no legal views
in the eye of law and the parties to such contract will not legally bound2. The High Court
in this case has decreed that preliminary agreement caused an assumption regarding
the formation of a contract and not legally binding contract itself. The parties to the
preliminary agreement should have to show the common intention regarding the
contractual subject and all the additional terms regarding pre-contractual statements
should be decided mutually. However, there are certain exceptions too. According to
Coal Cliff Collieries v Sijehama3, if all the key commercial terms of the contract is
quite clear to the parties and the agreement is capable of enforcement thereby, the
nature of the agreement will be binding. Further, it has been decided in GR Securities
P/L v Baulkham Hills Private Hospital P/L4 that in case the intention of the parties is
to bind by the contents of the agreement, the nature will be legal. Further, in Factory 5
Pty Ltd (In Liq) v State of Victoria (No 2)5 , it has been observed that the conduct and
correspondence of the parties before and after the execution of the contract will be
taken into consideration for making the preliminary contract legally enforceable.
However, the general nature of the preliminary agreement is not legal, as fundamental
pricing of the final contract are not mentioned usually.
There is another problem cropped up in this case. it is to be decided whether the
negotiation conducted between the companies provide certainty for a court to conclude
that a contract did existed or not. There are certain agreements where some incomplete
contractual terms existed. According to the traditional view, an agreement will not be
legally enforceable if the contractual terms are uncertain. However, this concept has
been rejected in Danny Lions Ltd v Bristol Cars Ltd6, where the court has decided
that where the ventures of an agreement are quite reasonable and clear, the nature of
the agreement will be legal in spite of other uncertainty present in the agreement.
1 (1954) 91 CLR 353
2 Parker, David, and Gerald Box. Business Law for Business Students 2008. Lawbook Company, 2008.
3 (1991) 24 NSWLR
4 (1986) 40 NSWLR 631
5 [2012] FCAFC 150
6 (2014) EWHC 817

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Further, in R & D Construction Group Limited v Hallam Land Management
Limited7, the court has explained that where the price of the contracted subject has
been accepted between the parties, obligation regarding the price will be enforceable.
One of the basic principles of construction of contract is that the terms of the
contract are required to be certain and this principle has been established in May and
Butcher v The King8. Lord Denning, in F & G Sykes (Wessex) Ltd v. Fine Fare
Ltd 9states that reasonable terms of the contract has been implied in the contract to
avoid all the uncertainties. The court will decide whether any legal offer and acceptance
has been made between the parties or not. Further, intention of the parties will be
required and the terms should be certain. A pre-contractual negotiation is sufficient for
the court to decide the validity of a contract where all the terms of the agreement are
certain and the parties have an intention to be bound legally through the contract.
Application:
In this case, it has been observed that certain negotiations have been made in
between the parties to the contract and the companies have decided certain things.
However, it has also been observed that there are certain other matters that are
remained unresolved. The date of transition of the company has been decided, but staff
leave liabilities have not been mentioned properly in the pre-contractual agreement
made by Event Management Ltd. further, no attempts have been made by the parties to
confirm the mechanism for informing the parties of the Rigby Corporate Function
Planners. A rough copy has been made by EML, which was not reviewed by the other
company. According to Masters v Cameron’s case, it is to be decided that whether the
subject matter of the case is legally binding or not. Considering the nature of the case, it
can be stated that the parties have no intention to conclude the bargaining process, as
many matters were unresolved that makes the terms of the contract uncertain.
Considering the unresolved part of the contract, it can be stated that certain additional
or substitution regarding the terms can be made. Therefore, it can be stated that no
contract is made between the parties.
However, all the pre-contractual negotiation has been made through mail and
there are certain requirements made for e-mail negotiation. Considering the case, it can
be stated that acquisition price of the company has been agreed and the date has also
been fixed. However, not all the terms of the contract were certain and that makes the
nature of the agreement vague.
Conclusion:
It is therefore, advised to you that as no intention to be bound regarding the
contract have been made by the owners or General Manager of Rigby Corporate
Function Planners Pty Ltd, no contract has been formed in this case. Further, the
subject matter of the agreement was uncertain, as there are some unresolved issues
present and there was a chance to make amendment in the present agreement.
7 (2009) CSOH 128
8 [1934] 2 KB 17
9 [1967] 1

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However, the negotiation process has maintained certain essentials of the formation of
contract and therefore, the court may order for the existence of contract between the
parties.

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Reference:
Coal Cliff Collieries v Sijehama (1991) 24 NSWLR
Danny Lions Ltd v Bristol Cars Ltd (2014) EWHC 817
F & G Sykes (Wessex) Ltd v. Fine Fare Ltd [1967] 1
Factory 5 Pty Ltd (In Liq) v State of Victoria (No 2) [2012] FCAFC 150
GR Securities P/L v Baulkham Hills Private Hospital P/L (1986) 40 NSWLR 631
Legal Aid Act 1978 (Vic)
Masters v Cameron (1954) 91 CLR 353
May and Butcher v The King [1934] 2 KB 17
Parker, David, and Gerald Box. Business Law for Business Students 2008. Lawbook
Company, 2008.
R & D Construction Group Limited v Hallam Land Management Limited (2009) CSOH
128