Student 2 HD Memorandum of Advice PDF

Preview

Summary

Download Student 2 HD Memorandum of Advice PDF

Description

Date: Friday 24th April 2020 To: Therese Thomas From: Student 2

Memorandum of Advice: Jean’s Contractual Predicaments Summary of issues:

(a) Jean’s issue with Gertie

Jean sub-contracted her sister Gertie to renovate her store, which she leased from Fern. Jean has issue with the cost, being under the impression Gertie would charge a “mates rate” fee of $30,000 rather than the $40,000.

Jean initially offered to pay Gertie $30,000 however Gertie made a counteroffer, clarifying that the cost of renovation to be $40,000, to be paid in instalments. Jean may argue that she had not accepted this offer because she was silent and had not communicated acceptance. However, Jeans’ subsequent conduct indicates that she accepted the benefit of Gerties’ services with full knowledge of the terms involved. Jean provided consideration with clear knowledge of the agreement terms. Jean may argue that she did not have intention to create a binding contract given the two are sisters. However, this is no longer a presumption surrounding domestic agreements. It is likely that Jean will be obliged to pay the remaining $30,000.

(b) Jean’s issue with Fern

The ultimate issue is whether a binding contract was formed between Jean and Fern. As such, does Jean have the right to continue leasing Fern’s property.

It must be established that there was a clear agreement that was sufficiently certain. There must have been a clear intention to enter a binding contract. It must further be determined that Fern had the capacity to enter into a binding contract. Finally, if the doctrine of part

performance will apply, given the agreement between Jean and Fern appears to have failed to adhere to formality requirements.

It is likely the doctrine of part performance will apply. The agreement was not sufficiently documented to satisfy formalities, however each other contractual element appears satisfied.

Jean v Gertie The issue for determination is whether a contract was formed, and if Jean accepted Gerties’ terms. Jean and Gertie must have reached an agreement about the terms of their respective promises.

Jean’s Offer and Gertie’s Counter Offer For an agreement to occur an offer of a promise must have been made to the other party, which is subsequently accepted. As such, there must be a ‘meeting of the parties’ minds. Would a reasonable person conclude the parties had entered an agreement?1

Jean clearly made an offer to Gertie, namely a promise to pay Gertie $30,000 to renovate the shop-space Jean had recently leased. Had Gertie responded affirmatively an agreement would have occurred. Gertie however “wanted to think about it”, which did not classify acceptance.

The following day Gertie responded to the offer, through a telephone message, that Jean listened to. Gertie however varied its terms by stipulating that the cost of renovation would be $40,000 rather than $30,000. Furthermore, Gertie requested a $10,000 instalment be paid to her grandmother. Gertie also stipulated “If I don’t hear back from you within a week, I will assume it is okay to proceed”.

As such, given Gertie sought to change the terms, her response was therefore a counteroffer, terminating Jean’s original offer of $30,000. Once an offer has been terminated, it can no longer be accepted. 2 1 Smith v Hughes [1871] LR 6 QB 597. 2 Hyde v Wrench (1840) 3 Beav 334.

2

Acceptance To be considered effective, acceptance must be communicated to the offeror. 3 Silence, in response to an offer will not generally constitute acceptance. Furthermore, an offeror cannot impose on the offeree a condition of a contract that silence or failure did decline, will constitute a form of acceptance.4 Jean to respond to Gertie’s offer within the week. The fact that Jean remained silent therefore did not constitute an acceptance of Gertie’s offer. However, silence in combination with other circumstances may constitute acceptance. 5 In Empirnall Holdings it was found that Empirnall had accepted Machon’s offer despite a lack of verbal communication, as it took the benefit of the offer with knowledge of the terms, and knowledge that the Machon was relying on being paid for their service. Silence in conjunction with the other circumstances indicated acceptance. Furthermore, an offeree’s actions are considered acceptance if an objective bystander would conclude from the offeree’s conduct that they accepted the offer and signalled their acceptance to the offeror.6 Three weeks following Gerties’ offer, Jean received email correspondence from Gertie including the designs for the store and terms of the offer, such as tradespeople employed. Despite initial silence, Jean replied indicating happiness with Gertie’s recommendations. Prior to this point mere silence had not constituted acceptance. However, Jean had now communicated acceptance and accepted the benefit of Gertie’s design, with clear knowledge of the terms Gertie had previously set out, namely the cost of the renovation totalling $40000. Additionally, Jeans’ payment to Gertie’s grandmother exemplified her understanding of the offer terms.

3 Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037. 4 Ibid. 5 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. 6 Ibid.

3

It is likely that a reasonable person would see that Jeans response classified acceptance, given Jean had already begun receiving the benefit of Gertie’s service, with clear knowledge of the terms that had been laid out. Certainty A contract will only be enforceable if the agreement is sufficiently certain. An agreement will be held uncertain and therefore unenforceable if its terms are ambiguous, illusory or incomplete to the extent that the court is unable to determine the intentions of the parties. However, courts will generally ascertain a common intention in commercial agreements,7 where there are “matters that can be resolved by a court implying terms of reasonableness”.8

It is unlikely that Gertie’s offer would be unenforceable due to uncertainty. Gertie has explicitly stated the cost of the renovation being $40,000, the method of payment and other essential terms such as design. Court would reasonably conclude that Gertie had promised to renovate Jean’s store for the cost of $40,000 based on the wording of her offer. Consideration

An issue for determination is whether Jean provided sufficient consideration. In order for an agreement to be binding, there must have been an exchange of consideration for the promises made. Without consideration, a promise is considered to be unenforceable.9 Consideration is considered to be a price the promisee pays in exchange for the promisor’s promise. In order for the price paid to constitute consideration, it must satisfy three essential elements. Namely, it must be in the form stipulated by the promisor expressly or implicitly,10 7 (Scammell v Ouston [1941] 1 All ER 14. 8 Ashton v Pratt [2015] NSWCA 12, 92. 9 Beaton v McDivitt (1987) 13 NSWLR 162. 10 Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256.

4

there must be evidence of ‘quid pro quo’, that is it must be given in exchange for the promise,11 and it must be something of value in regard of the law.

Gerties’ offer clearly stipulated the cost of the renovation to be $40000 and that payment could be made in the form of instalments, with a $10,000 instalment to be paid to Gerties’ grandmother. Jean subsequently paid the $10,000 instalment. Furthermore, Jean’s consideration clearly is regarded by law as valuable given it was stipulated by Gertie to be the price paid for her promise. Secondly, Jean’s payment of $10,000 was an act “done in consideration of a potential promise inherent in the statement”.12 The $10,000 was not given gratuitously, however it was part of the agreed bargain. In lieu of a verbal promise to Gertie, Jeans’ $10,000 payment was consideration given in exchange for Gerties’ promise. It is not an issue that Jean’s consideration was paid to a third party as the benefit may be received by a third party rather than directly by the promisor.13 Finally, by paying the $10,000 Jean is clearly incurring a detriment, at Gerties’ request. 14 It is clear that Jean has provided sufficient consideration for Gerties’ promise. Contract between sisters An issue for determination is whether Jean and Gertie intended to form a contractual relationship considering their relationship. For the agreement to have been binding, it must have been clear that both parties’ intended to form a binding contract. In domestic agreements there is no presumption that those involved in a family relationship did not intend to create legal relations.15 Courts recognise that informal situations that arise in normal circumstances of love and friendship, should not be converted into commercial

11 Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424. 12 Ibid. 13 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460.

14 Beaton v McDivitt (1987) 13 NSWLR 162). 15 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95.

5

relations.16 However, if parties are not on amicable terms at the time the agreement was entered into, an intention in more likely to be found.17 Courts use an objective test to determine whether there was an intention to create a binding contract, considering factors such as subject matter and surrounding circumstances, despite the parties’ subjective intention. Although subjective intention can still be taken into account.18 The facts clearly state Gertie and Jean were not on amicable terms when they entered the agreement. Furthermore, an objective intention is clear. The agreement was commercially driven. Jean was utilising the services of her sisters’ professional skills. Also, there was evidence detailing their agreement unlike in Ashton v Pratt where courts declared no objective intention.19 Capacity/Formalities

Jean and Gertie are both sufficiently capable of entering a binding contract. Likewise there is no requirement to adhere to certain formalities for their contract to be binding. The type of contract they are entering does not require formalities in order to be enforceable. Jean is required to pay Gertie $30,000. Jean accepted the full benefits of Gerties’ service with knowledge of the terms she had laid out whilst there was nil reference to a subsidised “mate’s rate”.

Jean v Fern It must be determined whether a binding contract was formed between Jean and Gertie. Fern will be unable to revoke her offer if it an agreement was established.

16 Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] FCAFC 81.

17Balfour v Balfour [1919] 2 KB 571. 18 Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1985] 2 NSWLR 309. 19 Ashton v Pratt [2015] NSWCA 12, 92

6

Offer An offer is distinguished from an invitation to deal by the other party’s affirmative response. The affirmative response to an offer will create an agreement, whilst an affirmative response to an invitation to deal will be an offer itself.20 On 29 January 2019, Fern displayed an advertisement outside the front of her property which read “available for rent”. Fern is merely intending to start a negotiation with members of the public. An advertisement is an example of an invitation to deal, unless the advertisement is “clear, explicit and leaves nothing up to negotiation in which case the advertisement will be treated as an offer.21 Given Fern’s offer lacked sufficient clarity, it did not present as an offer. After Fern’s subsequent offer of $300 a week, Jean made a counter offer stating she would renovate Fern’s property provided she could lease the space for $150 a week for 4 years. Fern’s Acceptance and Capacity Acceptance is effective when it is communicated to the offeror.22 It can be communicated verbally however it can also be established through conduct, 23 namely where a reasonable person in the situation would have considered they had accepted the offer.24 Furthermore acceptance must be in response to the offer.25 Once acceptance has occurred, an offer is unable to be revoked.

It is clear that a meeting of the mind’s occurred between the two parties. Jean promised to renovate the store and pay $150 per week, whilst in exchange Fern promised to allow Jean to accommodate the space for 4 years. Fern, aware of Jean’s terms, responded that if Jean renovated the store, she would look after her. At this stage acceptance had not occurred.

20 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [ 1953] 1. 21 Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957). 22 Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037. 23 P’Auer AG v Polybuild Technologies Pty Ltd [2015] VSCA 42. 24 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. 25 Crown v Clarke (1927) 40 CLR 227.

7

There must be no doubt in the offeror’s mind of acceptance.26 Fern’s statement was not an unequivocal statement of acceptance. The following day on Ferns 18th birthday, she provided acceptance in writing, stating a fouryear lease of her property if Jean paid $150 per week.

It was at this point she had

unequivocally in writing accepted Jean’s offer. A reasonable bystander would have perceived this written document as a signal of acceptance.27 There is a presumption that minors lack capacity to enter a contract making certain contracts voidable. Given the acceptance occurred on Fern’s 18th birthday, capacity will not be an issue. If there is an unclear offer and acceptance, an agreement may still be established, provided a reasonable person would conclude the parties reached a concluded bargain.28

Once a party has begun to perform a requested act, an offer is irrevocable.

29

Jean had already

begun paying $150 when Fern decided to revoke her offer.

Certainty of agreement An issue for determination is whether the agreement was sufficiently certain, namely whether Gertie’s response “I will look after you” was sufficiently clear. In Crown v Cosmopolitan hotel, Crown similarly stated they would “look after” Cosmopolitan come lease renewal time on the basis that Cosmopolitan refurbished the property they were leasing. Crown failed to renew Cosmopolitan’s lease despite Cosmopolitan’s refurbishment of the property. The High court found that Crown’s statement was too uncertain to enforce a contract given a reasonable person would not view the statement as a binding promise. The reasoning was that the phrase was too vague and incapable of conveying to a reasonable person that an offer for a further 5-year lease would

26 Hyde v Wrench (1840) 3 Beav 334. 27 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. 28 Brambles Holdings Ltd v Bathurst City Council [2001] 53 NSWL 153.

29 Errington v Errington [1952] 1 All ER 149.

8

be made, or that there was an intention to be binding. Furthermore, there was no essential terms present in Crowns statement.30

Jean and Fern’s agreement can however be distinguished. That statement that Fern would look after Jean alone arguably would have been too uncertain. However, Fern’s subsequent provision in writing, detailing $150 a week for a 4-year term is evidence of her intentions and understanding of the agreement terms. A reasonable person looking at the situation would conclude that the essential terms were clear and agreed on. Fern may have been argued that the agreement was incomplete given it lacked essential terms such as a start date for the lease and payments. However, although not specified in the facts, Jean was able to lease the property whilst paying up until December 2019, therefore certainty does not appear to be a contentious issue. There was clearly an understanding of the agreements terms. Consideration

Consideration has clearly been made out in the form of executory consideration. Both parties have made clear promises in exchange for one another’s promise. They are promises that have been bargained for.31 Furthermore, the promises were both stipulated by the respective promisors. Jean has promised to renovate the property and to pay Fern $150 a week, whilst Fern has promised Jean her property for 4 years.

Intention An issue for determination is whether Jean and fern intended to create contractual relations.

Similarly, to domestic agreements, there is no longer presumption at law regarding the intention of parties involved in a commercial agreement. In light of this, the context of a commercial agreement generally indicates intention.32

30 Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 31 Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424.

32 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95.

9

It is likely both Jean and fern intended their agreement to be binding. The agreement is commercial in nature, nor was there involvement of an honour clause or letter of comfort. 33 Therefore, there is minimal evidence required in order to prove that both parties intended a binding contract. Formalities and the equitable doctrine of performance

An issue to determine is whether Jean still has a right to leasing the property considering formalities were not sufficiently adhered to.

In accordance with Section 126 of the Instruments Act 1958 (Vic) a contract that involves the disposition of an interest in land will only be enforceable if the agreement of it must be in writing and signed by the person to be charged. The documents that detail this information must also include the essential terms. It is clear on the facts that a note was given to Jean reading “Lease: $150 a week”. It did not include any other essential terms of the agreement, such as start date of the lease or a description of the property. Nor did it contain the signature of Gertie who in this case would be the person being charge. The agreement is therefore unenforceable. The contract is not void however it is not enforceable at court. The equitable doctrine of part performance may however apply to Jean. This doctrine applies where a contract does not abide by formalities however a party has wholly or partly performed an act on the faith of an agreement, and as such apply the formalities requirement would result in inequity.34 It is clear that Jean’s performance was unequivocally due the agreement, that she had purely renovated the store and contributed weekly payments of $150 due to her contract with Fern. The doctrine of part performance operated in Regent v Millett, whereby the Millets had paid a deposit and completed renovations on the property with the knowledge and permission of the

33 Rose & Frank Co v Crompton & Bros Ltd [1923] 2 KB 261. 34 JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282

10

owner. Jean would not have performed the actions agreed on had she known Fern would have refused to adhere to their 4 -year agreement.35

It is likely that a court would grant an order for specific performance, or some form of remedy given the formalities element of the contract is the only element that Jean has failed to adhere to in her contract with Gertie.

Bibliography: A. Cases

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1985] 2 NSWLR 309 Ashton v Pratt [2015] NSWCA 12 at para 92) Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 Balfour v Balfour [1919] 2 KB 571 Beaton v McDivitt (1987) 13 NSWLR 162). Brambles Holdings Ltd v Bathurst City Council [2001] 53 NSWL 153 Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 Crown Melbourne Limited v Cosmopolitan Hotel (Vic...