Carlo was well known at the Ducks Football Club as a ‘football tragic’. He lived and
breathed football. A relatively simple and uneducated fellow, his life experience was
fairly limited. He spent most of his spare time at the Football Club and at football
games. Carlo's hero was Johnny, the team’s halfback. In Carlo's mind, Johnny could
do no wrong (despite the fact that Johnny was the dirtiest player in the
competition). The walls of Carlo's tiny rented flat were covered with posters of
Johnny.
Carlo's life changed dramatically when, on the death of his uncle, he inherited two
homes. One home, valued at $5 million, was situated on the Sydney harbour front.
The other was a $2 million holiday retreat in the mountains. Word soon spread at
the Football Club of Carlo's good fortune. Johnny, who had carefully avoided Carlo
for years, was one of the first people to offer Carlo his congratulations. Carlo was in
heaven.
Over the following few weeks, Johnny spent all of his spare time with Carlo,
introducing him to everyone as his ‘best mate’. However Johnny had a secret
agenda. Although Johnny appeared to be a successful, highly paid football star, his
financial position was dire. Johnny had poured his money into various business
ventures that had all failed. His lifestyle was suffering. He needed money, and he
needed it fast. Johnny saw Carlo as the solution to his woes.
First, Johnny said to Carlo, ‘Carlo, I’ve been thinking about you. You’re my best
mate. The last thing you need is the hassle of home ownership. I am going to do
you a favour. I will buy that harbour front home from you for $25,000. Sell it to me
and you will be able to stay living in the house with me rent-free. That will save you
all the worry of paying rates and other things.’ Carlo thought it was a great deal, as
it meant he would be living with his hero. Almost in the blink of an eye, Carlo found
himself sitting in the office of Shonky Solicitors (Johnny's lawyers) signing the
contract of sale. Johnny signed his copy, and contracts were exchanged. The terms
of the contract provided for Johnny to pay a $1 deposit to Carlo, with the balance of
$24,999 to be paid in 12 months’ time. There was nothing in the contract about
Johnny's agreement to let Carlo remain in the house. Johnny immediately paid the
$1 deposit to Carlo.
But still Johnny wasn't satisfied. He urgently needed cash to prop up his failing
businesses. Bull Bank agreed to give him a loan of $300,000 provided he could find
a suitable guarantor. Johnny told Carlo he intended to borrow $50,000 from the
bank. The money, he said, would be used to start a business that they could run
together. He asked Carlo if he would ‘guarantee’ the loan. Carlo, who had no idea
what a ‘guarantee’ might be, quickly agreed, enraptured with the notion of being
Johnny's business partner as well as his housemate.
, Johnny took Carlo to meet Mr Grabbit, the Bull Bank's branch manager. Mr Grabbit
asked Carlo if he ‘understood the gravity of his obligations’, and in particular
whether he ‘understood the extent of Johnny's liabilities’. Johnny interposed that he
had ‘explained everything’ to Carlo, which Carlo confirmed. Carlo thought Mr
Grabbit used very long words. Carlo said to Mr Grabbit: ‘If it's ok with Johnny, then
it’s ok with me.’ Carlo then signed the contract of guarantee. This guarantee, in
fact, made Carlo liable for all of Johnny's previous and future debts, encompassing
not only Johnny's personal debts, but the debts of Johnny's various companies. The
guarantee was also unlimited as to an amount.
With Carlo now of no further use to him, Johnny kicked him out of the harbour front
home. Shortly afterwards, Carlo was notified by Bull Bank that Johnny had defaulted
on his debts of $1.1 million and that the bank would therefore be enforcing the
guarantee provided by Carlo.
Carlo seeks your urgent advice as to his legal position in relation to Johnny and Bull
Bank and the options available to him. Advise him as to the rights, obligations,
remedies and liabilities he might have in relation to those parties, commenting on
the likelihood of success or otherwise, and stating, if necessary, any further
information you would require in order to give a final opinion. You should consider
relevant common law, equitable and statutory alternatives.
Contract 1
- Sale of land
Contract 2
- Guarantor
Issue Law Application Conclusion //
consequences
Was the statement - Partly written / - Carlo would Specific performance
‘Sell it to me and partly oral argue the - Show
you will be able to (SRA v Heath) contract was damages
stay living in the (Equuscorp) partly oral & inadequate as
house with me contract partly written a remedy
rent-free’ a term of - Signed (in order for
the contract. contract evidence to Damages
be admissible) (Robinson v Harman)
Parol evidence rule - Carlo would - Put the parties
- Extrinsic argue that the in the position
evidence statement was they would’ve
- PER has no promissory in been in if the
operation until nature and contract had
it is first was intended been
breathed football. A relatively simple and uneducated fellow, his life experience was
fairly limited. He spent most of his spare time at the Football Club and at football
games. Carlo's hero was Johnny, the team’s halfback. In Carlo's mind, Johnny could
do no wrong (despite the fact that Johnny was the dirtiest player in the
competition). The walls of Carlo's tiny rented flat were covered with posters of
Johnny.
Carlo's life changed dramatically when, on the death of his uncle, he inherited two
homes. One home, valued at $5 million, was situated on the Sydney harbour front.
The other was a $2 million holiday retreat in the mountains. Word soon spread at
the Football Club of Carlo's good fortune. Johnny, who had carefully avoided Carlo
for years, was one of the first people to offer Carlo his congratulations. Carlo was in
heaven.
Over the following few weeks, Johnny spent all of his spare time with Carlo,
introducing him to everyone as his ‘best mate’. However Johnny had a secret
agenda. Although Johnny appeared to be a successful, highly paid football star, his
financial position was dire. Johnny had poured his money into various business
ventures that had all failed. His lifestyle was suffering. He needed money, and he
needed it fast. Johnny saw Carlo as the solution to his woes.
First, Johnny said to Carlo, ‘Carlo, I’ve been thinking about you. You’re my best
mate. The last thing you need is the hassle of home ownership. I am going to do
you a favour. I will buy that harbour front home from you for $25,000. Sell it to me
and you will be able to stay living in the house with me rent-free. That will save you
all the worry of paying rates and other things.’ Carlo thought it was a great deal, as
it meant he would be living with his hero. Almost in the blink of an eye, Carlo found
himself sitting in the office of Shonky Solicitors (Johnny's lawyers) signing the
contract of sale. Johnny signed his copy, and contracts were exchanged. The terms
of the contract provided for Johnny to pay a $1 deposit to Carlo, with the balance of
$24,999 to be paid in 12 months’ time. There was nothing in the contract about
Johnny's agreement to let Carlo remain in the house. Johnny immediately paid the
$1 deposit to Carlo.
But still Johnny wasn't satisfied. He urgently needed cash to prop up his failing
businesses. Bull Bank agreed to give him a loan of $300,000 provided he could find
a suitable guarantor. Johnny told Carlo he intended to borrow $50,000 from the
bank. The money, he said, would be used to start a business that they could run
together. He asked Carlo if he would ‘guarantee’ the loan. Carlo, who had no idea
what a ‘guarantee’ might be, quickly agreed, enraptured with the notion of being
Johnny's business partner as well as his housemate.
, Johnny took Carlo to meet Mr Grabbit, the Bull Bank's branch manager. Mr Grabbit
asked Carlo if he ‘understood the gravity of his obligations’, and in particular
whether he ‘understood the extent of Johnny's liabilities’. Johnny interposed that he
had ‘explained everything’ to Carlo, which Carlo confirmed. Carlo thought Mr
Grabbit used very long words. Carlo said to Mr Grabbit: ‘If it's ok with Johnny, then
it’s ok with me.’ Carlo then signed the contract of guarantee. This guarantee, in
fact, made Carlo liable for all of Johnny's previous and future debts, encompassing
not only Johnny's personal debts, but the debts of Johnny's various companies. The
guarantee was also unlimited as to an amount.
With Carlo now of no further use to him, Johnny kicked him out of the harbour front
home. Shortly afterwards, Carlo was notified by Bull Bank that Johnny had defaulted
on his debts of $1.1 million and that the bank would therefore be enforcing the
guarantee provided by Carlo.
Carlo seeks your urgent advice as to his legal position in relation to Johnny and Bull
Bank and the options available to him. Advise him as to the rights, obligations,
remedies and liabilities he might have in relation to those parties, commenting on
the likelihood of success or otherwise, and stating, if necessary, any further
information you would require in order to give a final opinion. You should consider
relevant common law, equitable and statutory alternatives.
Contract 1
- Sale of land
Contract 2
- Guarantor
Issue Law Application Conclusion //
consequences
Was the statement - Partly written / - Carlo would Specific performance
‘Sell it to me and partly oral argue the - Show
you will be able to (SRA v Heath) contract was damages
stay living in the (Equuscorp) partly oral & inadequate as
house with me contract partly written a remedy
rent-free’ a term of - Signed (in order for
the contract. contract evidence to Damages
be admissible) (Robinson v Harman)
Parol evidence rule - Carlo would - Put the parties
- Extrinsic argue that the in the position
evidence statement was they would’ve
- PER has no promissory in been in if the
operation until nature and contract had
it is first was intended been
