Topic: contract law
1.Sunita Smart-Walla, an international student, was a very bright student who studied at top Educational Institute. Sunita topped her class in all her law exams and won a book and cash prize for her excellent academic results. Sunita performed really well, in particular, in the business law, company law and tax law courses. With her excellent knowledge in all of these legal areas, she is very keen to set up her own business as a tax consultant.
Sunita has just graduated and got her permanency residency visa for Australia. Sunita, however, has limited personal finances to cover all the start-up expenses for her new tax consultancy business. She knows that property in Sydney is very expensive to buy and also expensive to rent. She also knows that she will require some financial assistance to fulfil her career plan.
Sunita lives in Sydney with her uncle, Mr Property-Walla. Fortunately, her uncle is wealthy and says he is very happy to support his niece in whatever way he can. When Sunita told her uncle of her great academic results and business plans, he offers to help her. Mr PropertyWalla owns a shop in Harris Park, Parramatta that has been vacant for a long time. He agrees to lease this shop to Sunita for 5 years at a cheap rent that is below the market rate. Sunita jumps at this opportunity and gratefully accepts the offer.
Sunita visited the shop at Harris Park and found that it was previously used as an Indian restaurant specialising in Bombay-Chinese cuisine, of which there are many similar restaurants in the area. The shops had lots of restaurant equipment fixed to the walls, like a large industrial stove and large stove extractor to get rid of the cooking smells. Anybody who saw the shop would know that it could only be used for one purpose, to run a restaurant, unless many alterations are made to convert the shop for use for other business purposes. Sunita quickly worked out that it will still be cheaper for her to renovate the rental shop and lease it than to seek another rental shop elsewhere.
Sunita asked her uncle for a copy of the lease document so that she could sign it and secure the rental shop for her use before she spent money on altering the premises. Meanwhile, Sunita gathered a few quotations from builders to find the cost to renovate the interior of the shop so that it can be used to conduct a tax consultancy business. The average quote for the alterations received by Sunita was in the amount of $20,000. Luckily, she has just enough personal savings to pay for this large renovation expense.
Sunita reminded her uncle to give her a copy of the lease document to sign. Mr PropertyWalla said to Sunita “You are my favourite niece. Go ahead and do what you have to do, my solicitor will email you the lease document for signature very shortly. I trust you.” Sunita thereafter decided to select the cheapest quote for the alternations and then went ahead and paid the builder $18,500 after the alteration work at the rental shop was completed.
Two weeks later, after her conversation with her uncle and the completion of the alteration work, Sunita has still not received the lease document for her signature. Upon further enquiry, Mr Property-Walla told Sunita “there is no signed lease document, therefore there is no contract. I am going to offer this rental shop to another tenant who is prepared to pay me double the rent. Please hand back the keys of the shop immediately. See you later and have a good day.”
Sunita is deeply upset at this news, at the loss of her business opportunity and at the fact that she had just spent $18,500 of her own money to renovate the rental shop which the builder now refuses to refund.
Answer:
Issues
The main issue is whether Sunita can sue her uncle Mr Property-Walla for breach of contract and compel him to comply with his part of contractual obligations?
Applicable Laws
When any contract is made then there are few elements which form the basis of such contract and without which no contract can be established. The same are agreement (offer and acceptance), capacity, consideration and legal intention.
Offer is the prime factor in contract formation. When an offeror communicates his desires to the offeree with an expectation that the offeree will approve the said terms then an offer is considered to be made. In the leading case of Carlill v Carbolic Smoke Ball Co (1893) the concept of offer was determined by the Court of Appeal. an offer can be made orally or in written words. A contract can be made to a group or individual or to the world at large. (Graw 2012)
The office’s approval to the term of the offer is considered to be an acceptance in law (Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988). The acceptance so made must correspond with offer and the acceptance must be conversed order to hold the same as valid in law. (Graw 2012)
The combination of an offer and acceptance makes contract.
The third element that is required for the formation of contract is the presence of legal intention amid the parties.
Legal intention means that the parties are ready to apply the terms legally and is held in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309. The basic preposition regarding the presence of legal intonation is that when the parties are in domestic relationship then they are not willing to enter into any kind of legal relationship and is rightly held in Balfour v Balfour [1919] and Jones v Padavatton [1969]. But, when the parties are in commercial relationship then it is generally presumed that the parties have legal intonation and they want to establish a contractual relationship and is held in Rose and Frank & Co v Crompton [1923]. (Latimer 2012)
But, it was held that at times these general prepositions can be rebutted by establishing evidence. For instance in Simpkins V Pays (1955) the parties are in domestic relationship but as per the evidence that are valid down the parties have legal intonation to make a contractual relationship and thus there is valid contract amid the parties.
Another element that is very necessary in order to make any contract enforceable in law is the presence of consideration. a consideration is nothing but value (monetary or non monetary) which is excahmegd amid the parties and makes the contractual terms enforceable in law (Coulls v Bagots Executor & Trustee Co Ltd (1967). There is no need that the consideration must be plenty but it must be enough and is held in Biotechnology Australia Pty Ltd v Pace (1988).
At times the rule of promissory estoppel plays a relevant part in establishing consideration on the part of the parties. promissory estoppel exists when anything is promised by the defendant and induce the plaintiff to carry out certain action which the plaintiff would not have incurred if the promise is not made, then, if the plaintiff have actually acted as per the wish of the defendant, then, the defendant is not permitted to back out from his words and must comply his part of the promise and is held in Central London Property v High Trees [1947] and Waltons Stores (Interstate) Ltd v Maher (1988).
Lastly, the parties to the contract must have the capacity to establish a contractual; relationship, that is, the parties must be major and must be of sound mind.
The law is now applied to the facts of the case.
Application of laws
Sunita Smart-Walla was a bright student. She is interested in setting up her own business as a tax consultant. But, she does not have the adequate finance to support her business and is in need of financial assistance. Sunita was living with her uncle Mr Property-Walla. Mr Property-Walla owns a property in Harris Park, Parramatta that has been vacant for a long time. He is willing to give the said shop on lease to Sunita for five years at a rent which is below the market rate.
Now, a contract is made amid Sunita and Mr Property-Walla mainly because:
A valid offer was made by Mr Property-Walla to Suita wherein he was willing to give the shop of Harris Park, Parramatta to Sunita for five years at a rent which is below the market rate. This offer was accepted by Sunita.
So, there is valid offer and acceptance resulting in the formation of an agreement.
Further, when Sunita vests the shop, she found that it was previously used as an Indian restaurant specializing in Bombay-Chinese cuisine. The shops had lots of restaurant equipment fixed to the walls. In order to run the business it is very much required that alterations must be made. Sunita asked her uncle for a copy of the lease document so that she could sign it and secure the rental shop for her use before she spent money on altering the premises. However, Mr Property-Walla submitted that he trust Sunita and that she can start the renovation and that his solicitor will email the lease to her in a short while for signature.
It is submitted that both Sunita and her uncle are in domestic and family relationship thus as per Balfour v Balfour there cannot be any kind of legal intention that is present amid the parties. However, it is submitted that even though the parties are in domestic relationship but still the uncle of Sunita is giving his property ob rent to her not free of charge but is seeking rental at a price which is below the market value. The facts reveal that both the parties are willing to abide by the terms of the contract with legal intention. Thus, as per Simpkins V Pays (1955) the assumption is rebutted and there is presence of legal intention amid the parties.
Now, Sunita gathered quotations from the builders so that she can start with the renovation process. Sunita has personal savings to pay for the renovation expense. After relying on the words of Mr Property-Walla she initiated the alterations and completed the same.
It is submitted that it is on the wording of her uncle that Sunita has initiated the renovation and alteration work. it is on the promise of her uncle that Sunita has indulge in certain actions which he would not have undertaken if the promise is not made. Thus, a detrimental is caused to Sunita which is caused by her uncle. Thus, there is promissory estoppel on the part of her uncle Mr Property-Walla. This detrimental which is exchanged amid the arties is a valid consideration in law.
Also, both Sunita and Mr Property-Walla are major and are of sound minds. Thus, the element of capacity of the parties is also present in the given situation.
Thus, all the elements that are required for the formation of the contract are present in the given situation and thus there is a valid contract that can be established amid Sunita and Mr Property-Walla. Both the parties are obligated to comply with their terms of the contract.
But, even after the completion of work she has not received any document from her uncle. Later Mr Property-Walla denied the existence of contract amid the two on the basis that there was no signed agreement amid them.
It is submitted that Mr Property-Walla cannot consider that there ius no contractual relationship amid Sunita and him as all the elements of contract that are required in the formation of a contract are present.
Conclusion
It is submitted that there is a valid offer that is made by Mr Property-Walla which was duly accepted by Sunita. Both the parties have legal intention and are capable to perform the contracts. There is presence of consideration. The rule of promissory estoppel is also applicable and thus Mr Property-Walla cannot consider that there is no contract amid the parties.
References
Books/Articles/Journals
Latimer, P 2012, Australian Business Law 2012, CCH Australia Limited.
Graw, S 2012, An Introduction to the Law of Contract, Thomson Reuters (Professional) Australia.
Case laws
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309.
Balfour v Balfour [1919] 2 KB 571.
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 13
Central London Property v High Trees [1947] KB 130.
Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460.
Carlill v Carbolic Smoke Ball Co (1893).
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527.
Jones v Padavatton [1969] 2 All ER 616.
Rose and Frank & Co v Crompton [1923] 2 KB 261.
Simpkins V Pays (1955).
Waltons Stores (Interstate) Ltd v Maher (1988).
