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James D. Ford
James D. Ford, Solicitor
Category: Australia Law
Satisfied Customers: 1601
Experience:  Consulting Principal at Nexus Law Group
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Contracts – Problem Question Nicky Elleet is a famous

Customer Question

Contracts – Problem QuestionNicky Elleet is a famous Australian model. In recent years she has not been offered as many fashion assignments as she had in the past. “Oh well,’’ she thought, “time to move on”. She decided to try and use her media profile to move to the next stage of her career. To that end she decided to go into the skin care business and create a range of ‘Elleet’ skin care products. To achieve this she would need to engage a manufacturer to produce the products and a laboratory that could create the formulas for her unique range. She would also need to convince retailers to agree to stock her products in their stores.She commenced discussions with AuzLotion Pty Ltd a company specialising in the bulk manufacture of creams and lotions. She made it clear that she needed the manufacture of the products to proceed quickly as she wanted them in the shops for Christmas 2015. The negotiations resulted in Nicky and AuzLotion signing the following letter of intent on 1 August 2015:Letter of Intent
1. Having completed negotiations, Nicky Elleet and AuzLotion Pty Ltd agree to sign a formal Contract to reflect the following.
2. Pursuant to this letter AuzLotion will manufacture a skin care range of lotions and creams for sale to Nicky with a view to Nicky on-selling the products to retailers.
3. The products will be manufactured according to formulas to be supplied by SkinCare Laboratories Pty Ltd. AuzLotion agree to contract with SkinCare for the development and supply of these formulas.
4. The price for the manufacture of the products will be determined by AuzLotion.
5. Nicky in her absolute discretion has final approval of all products and agrees to execute a formal manufacturing contract giving effect to these terms.
6. This agreement is for a ‘first run’ which will involve manufacturing 100,000 units reflecting the range of formulas provided by SkinCare to Auzlotion but actual numbers of any particular product in the range is at the discretion of AuzLotion. The parties agree to negotiate a further agreement for a second run.
7. This agreement is subject to Nicky locking in contracts with retailers to her satisfaction.AuzLotion entered into a design contract with SkinCare Laboratories on 16 August 2015. SkinCare formulated a set of preliminary formulas for a range of products and sent them to Auzlotion on 15 September 2015. There was enough detail in these for AuzLotion to get started on the manufacture. AuzLotion forwarded a copy of the specifications to Nicky and let Nicky know they had commenced preliminary aspects of the manufacture and that in their view the quality of the products looked excellent. Nicky phoned the manager of AuzLotion to thank him for getting things moving so quickly and said, “the products look great, but what would I know, ha, anyway great news I have two small retailers already locked in”.
Two weeks later the final formula specifications arrived. They contained some minor changes that could be easily incorporated into the work AuzLotion had done. AuzLotion then went about assessing the price. They arrived at a figure of $2 million for the first run. By this stage they had incurred $150,000 in costs.
Nicky was informed of this price and took the view that it was too high. She has also not been able to lock in a contract with the major department store that she had met with. They had told her that they were not prepared to devote a large section of their stores in the Christmas period to a whole range of new products that were unknown to buyers. They had suggested they might be prepared to stock one product. Nicky was dispirited with this news and cancelled the meetings she had arranged with other major department stores. She made the decision that it was too ambitious to create an entire range of products at this early stage. She decided to focus on one product and thought that if she had to choose one thing that would attract some public attention it was sun care and so she independently called SkinCare to ask whether they could create a moisturising sun cream; this was not part of the initial range of formulas. In a follow up meeting with Skincare, AuzLotion was told that Nicky had asked them to develop a sun cream because she had had problems with some larger stores. AuzLotion heard nothing from Nicky and kept manufacturing the products as per the original formulas. By mid November they completed the manufacture of the first run of products.
Nicky refused to pay for the products produced by AuzLotion or take delivery of them. She claimed there was no contract obliging her to pay for them and, moreover, she had not approved the specifications. Moreover, she just got offered a role in a movie and had decided to pursue an acting career instead.Advise AuzLotion.
Submitted: 1 year ago.
Category: Australia Law
Customer: replied 1 year ago.
It is an assignment question and it is URGENT and needed by 8pm tonight.
Expert:  James D. Ford replied 1 year ago.

We cannot provide answers to assignment questions - it is unethical and a breach of your student policies! This is a public forum... if you were caught obtaining an answer online... you could be expelled from your course, and would not be able to practice as a lawyer.

We can prompt and guide by asking relevant questions.. but as an assignment, you as the student need to provide the actual legal advice to AuzLotion.

Kind regards,

James

Expert:  James D. Ford replied 1 year ago.

The key question for AuzLotion here is to have their lawyer (you) help them determine whether or not a binding contract has been created?

And if not, whether they have any other way to recoup any costs incurred at the specific request of Nicky Elleet ("NE") ?

For example, when NE contacts Skincare direct to request to develop the moisturising sun cream...

There are a number of alternative legal/commercial decisions AuzLotion could make...

One option being to attempt to commercially continue with this one product... and try to obtain sign-off from NE on the specifications.. and determine (or enlist professional assistance is NE is too busy) to secure retailer agreements to NE's satisfaction on this one product.. which could be a way to salvage the situation... if this one product was launched... it could be the start of something BIG, especially with the increased publicity from the new movie role...

If there is no way the above is going to happen, what else could AuzLotion do?

Kind regards,

James

Customer: replied 1 year ago.
Is a letter of intent a valid offer and acceptance
Expert:  James D. Ford replied 1 year ago.

Yes, there has been an offer, which has been accepted.. but the acceptance is on CONDITIONS...

The question is not whether a Contract has been formed, but whether the Contract formed is CONDITIONAL, or UNCONDITIONAL.

For example, when a buyer signs a Contract to purchase a Property subject to... (Conditions)..

all of the key terms have been agreed... price, settlement date, the property, etc... but unless the Contract becomes UNCONDITIONAL, it is not yet specifically enforceable by the parties.

Traditional property purchase conditions include:

- subject to due diligence,

- subject to building and pest inspection,

- subject to finance, etc.

If the Contract was subject to a 21 day due diligence conditional clause, where the Buyer can terminate the Contract for any reason.. if they are unhappy regarding any aspect of the Property... in their total discretion, for any reason... then because the Contract was only conditional, and the conditions were not met, they can decide not to continue with the purchase of the Property, and walk away...

Kind regards,

James

Customer: replied 1 year ago.
Would you deal with the issue of whether a contract exists in the 'first run' between N and AuzLotions? Do you think that there is estoppel at play here?
Expert:  James D. Ford replied 1 year ago.

In real legal practice.... in my view a Contact exists... I would move from this assumption... but that does not mean it is binding... as I have already concluded above.. it is a conditional contract..

In a law assignment, you need to deal with the elements of a Contract, and conclude they are satisfied, and conclude that a Contract exists...

Similarly, if you think estoppel applies, you need to set out the elements, and look to the facts to conclude whether it applies...

Cheers, James

Customer: replied 1 year ago.
The case where it might be binding is Masters v Cameron!!!!!
Customer: replied 1 year ago.
Is acceptance on conditions valid acceptance?
Expert:  James D. Ford replied 1 year ago.

Masters v Cameron found that the pre-contract was not binding, as there was no intention to be bound...

Issue(s):

The issue of the Masters v Cameron (1954) was whether or not the pre-contract can already be considered as the final contract since the terms and the conditions were not altered.

Ratio:

The court decided that the pre-contract agreed upon by Cameron and Masters cannot be considered as a final contract for the sale because the circumstances suggest that it was still not the final contract.

What is required to satisfy the legal element of acceptance in Contract Law?

If this is met, then there is valid acceptance... but as I have already stated, just because a Contract has been formed, it does not mean it is binding..

Yes, you can have a contract that is subject to conditions...

Also note that some of the terms of this pre-contract between AuzLotion and NE could be "void for uncertainty"...

Customer: replied 1 year ago.
Do you think there would be issues with promissory estoppel in this question?
Expert:  James D. Ford replied 1 year ago.

Promissary Estoppel is a complex area of law... have you identified the legal elements, and applied them to the facts? where is the unconscionable conduct?

Cheers, James

Customer: replied 1 year ago.
What is the nature of security in real property?
Expert:  James D. Ford replied 1 year ago.

Hi, are we still on the same question? please let me know, how this relates to the above? or if it is a new question?

Cheers, James