Workshop 5 - Worksheet on Consideration and Estoppel PDF

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Contracts Workshop 5 Worksheet on Consideration and Estoppel PART A In September 2017, Louisa Holding leased a commercial property in Hillcrest to Tom Williams at a monthly rent of $10,000, for three years. The lease provided that the lessee may terminate the lease before the expiry date with three months’ notice in writing. Tom opened a shop “Sweet Williams” on the property. It was the only flower shop in the Hillcrest area and business was quite good. However, in January 2019, “Wild Flowers”, a well-known florist franchise, opened a large flower shop in nearby East Hamilton. Almost immediately, Tom experienced a dramatic downturn in business. By April, Tom was having difficulty paying the rent. Discussions regarding a rent reduction were held but with no agreement reached and the turnover of “Sweet Williams” continued to decline. Tom did not dispute what he was obliged to pay under the lease but explained how hard the situation was. In July 2019, Tom sent Louisa an email proposing to pay a half of the monthly rent due “until things picked up”. Louisa replied that she would consider Tom’s proposal and respond shortly. But she did not respond. From July to December 2019, Tom paid only half of the monthly rent. Louisa, on 31 December 2019, sent Tom an email, saying that 1) she agreed to a half monthly rental payment “from the first date of the coming new year”, since she valued the on-going contractual relationship with Tom; and 2) Tom should pay back the arrears for the past 6 months in instalments of $2,000 per month. For the next 6 months, Tom continued to occupy the premises and make payments of half the rental but has not paid the arrears for the period from July to December 2019. In July 2020, Louisa noticed that the “Wild Flowers” shop in East Hamilton had closed down. She visited the “Sweet Williams” shop immediately and found that Tom’s business seemed to be doing much better. She asked Tom to resume paying full rent and to pay “all of the arrears that Tom owed”. Tom refused, but continued to pay half the rent only until the lease expired. Questions 1) Must Tom pay the rental arrears for the period of August - December 2019? – Part payment of undisputed debt 2) Was Louisa’s promise to reduce the rent (for the period of January – June 2020) supported by consideration and thus enforceable? – Consideration for variation of contract. 3) Must Tom pay the full rent for the period after July 2020? – Foakes v Beer and High Trees.

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PART B Arno, the real estate agent who successfully sold Louisa’s house last month sent her an invoice for the commission of $8,765. Louisa felt that amount was too much, so she asked Arno for a reduction. Arno refused because “the amount was calculated based on the actual sale price of the farm at the pre-agreed rates of commission”. Louisa then posted a cheque for $5,000, with a letter saying: “Thank you for helping me in the sale. Please find the enclosed cheque to pay your commission which I estimate on a work done basis. This is the full and final settlement”. Arno, who was desperate for cash at the time, banked the cheque as soon as he received it, but on the same day, he sent a letter to Louisa seeking the balance of $3,765. Advise Louisa whether she has to pay Arno the $3,765.

PART C Hannah runs a successful café, Sweet Espresso, on the University Campus. She decided to refurbish Sweet Espresso to attract the growing number of younger students. She signed a contract with Dover Construction Ltd (DCL) to do the work. The contract required the work to commence on 16 October 2020 and to be completed by the end of October because Hannah wanted to capture the good business in November when the students finish their exams. They agree to an all-inclusive price of $75,000. Hannah told Stan Downe (director of DCL) that the work must be finished on time because a Grand Reopening Ceremony had been planned for 3 November. Stan assured Hannah that the job would definitely be completed on time. Hannah contracted a popular local band to perform in the ceremony, sent out hundreds of invitations with free vouchers for attending the ceremony, and advertised on local radio. On 16 October DCL started the work. A week later, when Hannah visited the site, she found little progress had been made and only two workers on site. Hannah called Stan and was told that DCL had overcommitted itself and had more projects in progress than it had expected. Some workers and equipment had been assigned to other projects. Stan said, “Progress is much slower than expected. We will not be able to finish the work on time unless more workers and equipment are hired. We are not in a position to hire more workers and equipment unless you can pay us an additional $25,000. Otherwise, the actual completion date would be “around the end of November”. Hannah was of the view that if the café did not re-open on time the business would suffer a financial loss and possibly damage to its reputation. Hannah felt she had no choice but to agree. Although extremely reluctant, she promised to pay DCL the additional sum. The work was duly completed on time and the re-opening ceremony was very successful. However, Hannah does not want to pay the extra $25,000 to DCL.

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Hannah asks for your advice as to whether she has to pay the additional $25,000.

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