The Contractual Obligation to Pay the Rent Arrears - Case Study Example

Law of Business Question One For advising Lisa, regarding the contractual obligation of payment of arrears of rent to David, her brother- in- law, the following issues need to be considered. Issues Whether there is a legally binding contract between Lisa and David. Whether family agreements are legally binding. Whether David is liable under the principle of promissory estoppel. Rule of Law Promissory estoppel enables the enforcement of a promise, although the promisee had not provided consideration for the promise (Gibson & Fraser, 2013, p. 405). Family agreements are lacking intention to legal binding[Gib132] Application Promissory estoppel comes into play if it would be inequitable or unconscionable for the promisor not to be held to their promise. As demonstrated in Central Property Trust v High Trees Ltd it can be employed as a defence. It can be utilised for initiating a cause of action as illustrated in Waltons Stores (Interstate) Ltd v Maher[Gib132].This requires that the promisee’s position had been transformed due to reliance on the promise. The tests for establishing promissory estoppel, which precludes promisors from defaulting upon their promise are: first, assumption, the promisee had presumed a specific legal relationship with the promisor. Second, responsibility, the promisor had been responsible for the assumption. Third, reliance, the promisee had taken action or desisted from doing so on the basis of the assumption. Fourth, the promisor had intended the promisee to act in that manner. Fifth, the promisee would undergo a loss when the promisee’s assumption or expectation had not been fulfilled. Sixth, the promisor had failed to caution the promisee regarding non-delivery on the promisor’s part[Lat122]. As such, promissory estoppel, serves to prevent the promisor from acting in an unconscionable or unconscientious manner. For instance, in Central Property Trust v High Trees Ltd, the court held that the plaintiff was estopped from reneging upon the reduced rent agreement. Albeit, the defendant had not provided consideration for the plaintiff’s promise, the former had relied and acted upon it, thereby generating an estoppel[Lat122]. Consequently, a promise to accept a lesser amount if acted upon becomes binding, and this is independent of the passing of consideration. However, in cases of family agreements, legal intention cannot be deduced. In our problem, David agreed for lesser rent due to Lisa’s relationship with his family. For instance, parties to domestic arrangements include spouses, mistress, siblings, uncles, aunts, nephews and in-laws. In a specific instance, it is the responsibility of the plaintiff to adduce evidence that a contract had been envisaged. Whilst determining the intention of the parties, the court scrutinises their conduct and words. The court tends to be more inclined to discern such intention, when the promise’s consequences are grave for one of the parties and they have altered their position, relying upon the promise made to them. This was the ruling in Wakeling v Ripley[Gib132]. Conclusion In our present problem, David reduced the rent to Lisa, due to their family relationship. Subsequently, Lisa intended to change the place of business after the breakdown of her marriage. There was no legal intention to be bound by the agreement to reduce the rent, between them. Hence, Lisa cannot claim reduction of rent under promissory estoppel rule. Question Two For advising Lisa, regarding the contractual claims against Allen Family Homes Pty Ltd, regarding its pre-contractual representations with respect to the house, the following issues need to be considered. Issues Whether the pre-contractual negotiations by Allen Family Homes, constitute misrepresentation. Whether the conduct of Allen Homes in inducing Lisa to form the contract constitutes deception. Whether Lisa has any legal remedies against Allen Homes. Rule of Law Section 52 of the Trade Practices Act 1974, per se, prohibits conduct that is misleading or deceptive, or which can deceive or mislead. Moreover, Section 52(1) of the Trade Practices Act 1974 states that in commerce or trade, no corporation can engage in conduct that can deceive or mislead, or which is misleading or deceptive. A misrepresentation is a false statement of a material fact that has been made by one party to another, in order to induce the latter to form the contract (Latimer, 2012, p. 378). According to Section 51A of the Trade Practices Act, making representation regarding future events without reasonable grounds, renders the representation misleading and deceptive. Application Misrepresentations are: first, non-contractual, which are minor misrepresentations that have been made by conduct or words. These do not form a part of the contract, and there is no remedy in rescission, unless it is actionable. Second, actionable misrepresentations, which are not a contractual term, and which are actionable or major misrepresentations[Lat122].The injured party can cancel the contract by rescission in such instances. Nevertheless, an advertisement or brochure is merely an attempt to ask for offers, and not an offer; thus, the display of goods in a shop is merely an invitation to treat. The Trade Practices Act 1974 provides that false or misleading statements could generate enforceable rights. The provisions of this Act have been replicated in the Fair Trading Acts of the various Australian States, in order to make them applicable to individuals[Mol17]. In John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd, the court rejected the plea of the agent on the following grounds: first, potential purchasers would not consider the agent as merely conveying information. Second, calculation of area of the building was a tangible physical fact[Law17]. Similarly, in our problem, Lisa was induced to enter in to the contract, with the exaggerated description of features of the house. The representations made in the brochure were with regard to important features of the building which induced Lisa to form the contract. In Butcher v Lachlan Elder Realty Pty Limited, the Court held the conduct of a real estate agent, in incorporating certain erroneous material in a brochure that had induced a party to form a contract, had not been deceptive and misleading as described under Section 52 of the Act[Law17]. Moreover, the Court upheld the agent’s reliance upon a disclaimer in the brochure. In our problem, no such disclaimers were noticed in the brochure. Moreover, the brochure made a representation regarding the future train station without any reliable source of information. This conduct can be deemed as misleading and deceptive. Conclusion Allen Family Homes described the future house in an exaggerated way to induce Lisa to form the contract. In addition, future issues, such as establishment of railway station was represented without any basis. Hence, the representor is liable for misleading and deceptive conduct under the provisions of contract law. Therefore, Lisa can claim rescission of the contract, as well as damages for the losses incurred by her, due to misrepresentation and termination of the contract. Question Three For advising Lisa regarding her contractual right to restrict Ashley from working in the same complex after the end of the latter’s employment, the following issues need to be considered. Issues Whether Lisa has any contractual right to stop Ashley from working with her competitor. Whether the restrictive covenant agreed upon by Ashley is legally valid. Whether Ashley is liable for breach of contract. Rule of Law A restrictive covenant is a contractual clause that precludes employees from competing with their previous employer for a specific period after discontinuing employment with that employer (Out-Law, 2016). In HRX Holdings Pty Limited v Pearson, the Federal Court of Australia held that a post-employment restraint upon an ex-employee was enforceable, as well as reasonable (Riley, 2012, p. 625). Application A restrictive covenant is one that prevents ex-employees from soliciting or dealing with customers of the preceding employer by utilising information regarding those customers obtained during the previous employment. Post-termination restrictions are void as they restrain trade and are in conflict with public policy. In general, employers cannot safeguard themselves from competition from their previous employees[Out16].However, such protection will be accepted and enforced by a court, if the employer establishes that the covenant aims to protect her legitimate business interests; and does not extend beyond what is essential for protecting such interests. In our problem, Ashley’s working with other competitors would affect the legitimate interests of Lisa. The ruling in Scully UK Ltd v Lee, enlarged the ambit of non-solicitation covenants beyond the customers of a former employer to agents and distributors as they constituted a link in the customer connection of the plaintiff. However, the Appellate Court ruled that such clauses could not prevent contact with the suppliers of the former employer, as there was no goodwill to safeguard in such associations. Nevertheless, in Burwood Night Patrol Pty Ltd v Lagarde, the court disallowed enforcement of a contractual clause that restrained solicitation of clients with whom the previous employee had not been in contact[Bro01]. However, in our problem, Ashley had maintained good contacts with her past clientele. In Forster and Sons Ltd v Suggett, the defendant had been trained in several confidential procedures of glassmaking, and had agreed that in the five years after cessation of employment he would not participate in glass bottle manufacturing in the UK[Gib132].The court held that this restraint was justified as the employer had to safeguard the confidential procedures developed by him. Conclusion Ashley had consented to abstain from working in other coffee shops in the same shopping complex as that of Lisa, for a period of two years. She reneged upon her verbal agreement and commenced to work for another coffee shop in that shopping complex. Since, she had breached her agreement with Lisa, the latter can approach a court of law for orders restraining Ashley from working in the same complex under the provisions of contract law. References Cases Gib132: , (Gibson & Fraser, 2013, p. 175), Gib132: , (Gibson & Fraser, 2013, p. 405), Lat122: , (Latimer, 2012, p. 354), Lat122: , (Latimer, 2012, p. 353), Lat122: , (Latimer, 2012, p. 378), Mol17: , (Moles & Sangha, n.d.), Law17: , (Lawyers, 2017), Out16: , (Out-Law, 2016), Bro01: , (Brooks, 2001), Gib132: , (Gibson & Fraser, 2013, p. 470), Read More