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CONTRACTS & AGREEMENTS
LAW CASES
Careful what you sign Ė especially when family is involved
Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447
The Amadios were an elderly immigrant couple with limited English. They believed their sonís construction business was thriving when in fact it was insolvent. The Commonwealth Bank knew that the sonís business was struggling and was helping to prop it up by honouring cheques to certain creditors. The son persuaded his parents to execute a mortgage over their home in favour of the bank to get another overdraft to the business. He led his parents to believe that the guarantee was limited when it was in fact unlimited. The Amadios sought no legal advice and signed the documents at their home. When the son defaulted on the loan, the bank demanded repayment.
This case demonstrates the necessity of seeking legal advice before signing documents regardless of the parties involved. The Amadios were lucky in that the bank was held to have taken advantage of their limited English. In most cases, however, a signature will be taken as an intention to contract on the terms of the document.
If you want it in the contract, put it in the written document
Codelfa Pty Ltd v NSW State Rail Authority (1982) 149 CLR 377
Codelfa was contracted to build a railway in the eastern suburbs of Sydney. They had tendered to do the work on the basis that they would work a three shift day. This involved working through the night. Due to excess noise, citizens living near the worksite obtained an injunction preventing the work from continuing at night. The contract had not specified what would happen if this occurred although the issue had been raised during negotiations. Codelfa tried to argue that an additional term should be implied into the contract stipulating that they should be paid more because completing the job was now more expensive. The court rejected this argument and the contract was therefore commercially unviable for Codelfa.
The lesson here is that written contracts need to be as comprehensive as possible. It is very difficult to have a term implied into the contract after it has been signed. As a rule, a court will consider a written agreement to evidence the complete intention of the parties. An experienced and committed solicitor can help prepare for contingencies, foreseen or otherwise, and prevent costly litigation and commercial frustration later on.
Heavy onus to rebut presumption
Edwards v Skyways Ltd [1964] 1 WLR 349 1964 1 All ER 494 Queen's Bench Division
After meeting with representatives of the British Air Line Pilots Association, Skyways agreed to pay out moneys to its redundant pilots. A pension payment was to be made on an ex gratia (without recognising legal liability) basis and superannuation contributions were to be refunded. One pilot received his refund but was then told he would not receive the ex gratia payment and that there was no obligation on Skyways to pay it.
In court, Skyways argued that the phrase ex gratia showed that they did not intend to be legally bound by the agreement. They also asserted that the payment was non-contractual because it was intended that the pilots would not be taxed on the payment.
The court disagreed on both fronts. It stated that a person who makes an agreement in a commercial setting has a heavy onus in showing that they did not intend to create legal relations. The words ex gratia were not sufficient to displace this presumption. As to the tax argument, the court held that there was insufficient evidence to prove the alleged intention of the parties.
This case is a simple example of the presumption that an agreement made in a commercial setting is legally binding. Parties will have to explicit if they wish to avoid a legal arrangement in this context.