Business Law Assignment: Case Analysis On Legal Obligations
Business Law Assignment Instructions:
Albert is a 78-year-old farmer who owns several properties outside of Wagga Wagga, NSW. For as long as anyone can remember he has been prone to periods of moodiness and cantankerousness. While his mind is still sharp his body is slowing so for the last 10 years he has relied on his son Bernard for assistance with different aspects of running the farm.
In September 2019, Albert is approached by his neighbour Catriona with an offer to buy one of Albert’s properties, called Willowbend. They arrange a meeting at which Albert, Bernard and Catriona discuss the proposal for several hours. Catriona would like a long settlement period to allow her time to arrange finance. They finally reach an agreement, which Bernard records on a piece of paper as follows:
- Albert will grant Catriona a lease over Willowbend from 1 November 2019 to 31 October 2020 at a rental of $10 000 per month;
- At the end of the 12-month lease, Albert will then sell Willowbend to Catriona for the price of $1 750 000; and
- The agreement is subject to the preparation of a formal written contract, at which point Catriona is required to pay a 10% deposit.
Catriona reads what Bernard has written and says: ‘That’s all correct’. Bernard suggests to Albert that they get the family’s lawyer to prepare the formal contract and send it to Catriona. Albert grunts in reply: ‘Yep, you sort all that out’.
At Bernard’s request, the family’s lawyer prepares a formal contract that reflects what the parties agreed to including the terms of the lease and the agreement to sell with a completion date of 1 November 2020. The lawyer emails it to Bernard who checks it then forwards it to Catriona, asking that if she is happy with it to print and sign two copies. Catriona is satisfied that the document reflects their agreement, so she prints two copies, signs them both and posts them to Bernard.
In early October 2019, Bernard shows the printed contracts to Albert and explains to him where he needs to sign. Albert refuses. He says to Bernard: ‘You know I don’t like signing things. Never have.’ Bernard gently reminds him that the contract reflects what they had agreed. Albert still refuses to sign, saying: ‘Maybe I’ve changed my mind. Maybe I want to sell, maybe I don’t. Maybe I want to think about it. You can tell that Catriona that she has to wait until I’m good and ready. Might be next week, might be next century.’
In late October 2019, Catriona rings Bernard to check on progress. Bernard is of the strong view that the sale agreement is a good idea for Albert and he does not want it to fall through, however Albert is still in a bad mood and Bernard does not want to raise it with him again at the moment. Bernard says to Catriona: ‘Look, you know what Albert is like. He’s stubborn and old fashioned and now he’s decided that he doesn’t sign written contracts.’ Catriona is worried, and asks: ‘Is there a problem with the agreement? Has he changed his mind?’ Bernard replies: ‘No, he agrees to the proposal and is happy with the terms of the agreement, it’s just that he refuses to sign the paper. The important thing is that we do have an agreement so we can go ahead. I’ll email you the details of our lawyer’s trust account so you can pay the deposit’. The following day, Catriona transfers the deposit of $175 000 to the lawyer’s trust account as directed by Bernard. Then on 1 November she moves into Willowbend and starts making rent payments under the lease.
Albert suffers a series of falls which mean for the next twelve months he rarely leaves the house. He is not aware that Catriona has paid the deposit or that she is paying rent. He does not see her and does not know that she has moved into Willowbend.
Catriona immediately starts fixing up some of the dilapidated fences, replaces several gates and installs a new set of cattle yards. She buys three large grain silos at a cost of $40 000 each and has them delivered to Willowbend with the aim of cementing them in place and installing them permanently, although she is yet to find the time to do so. For the moment they are resting on their own weight. In April 2020, following rain, she sows a crop of wheat over about half of Willowbend with the intention of harvesting it in December 2020.
In August 2020, Albert receives a letter from a mining company called TBC Co who offers to buy Willowbend for $2 100 000. Albert looks through the drawers in his desk and confirms that he never signed the sale contract with Catriona. Without telling Bernard or Catriona, he agrees to the offer from TBC Co. TBC Co ask Albert what Catriona is doing on Willowbend and Albert realises that Bernard must have made some arrangement with her. He tells TBC Co that Catriona has a 12-month lease that ends on 31 October 2020 but says nothing about a sale agreement with her. The sale to TBC Co goes ahead and Willowbend is registered in its name on 30 September 2020. On 1 October 2020, TBC Co sends a letter to Catriona advising her of its purchase and requesting that she vacate Willowbend on 31 October.
Prior to her interest in Willowbend, Catriona had been running cattle on some land belonging to Deepak, who granted her a five-year lease over that land which began on 1 March 2016. The lease was registered. The terms of the lease provided that on 1 March each year the rent would increase in line with inflation and included a clear set of terms setting out how this would be calculated by reference to the Consumer Price Index as published by the Australian Bureau of Statistics. Between 2017 and 2019, the entire area experienced a drought and on 1 March 2018 and 1 March 2019 Deepak told Catriona that there would be no rent increase for each of those years. In February 2020 the drought broke. Deepak also learned that Catriona was planning to buy Willowbend and thought that she must be doing well financially. On 1 March 2020, he wrote to her advising her of the new amount of rent, in accordance with the agreement, and also demanding that she now pay the additional rent from the previous two years in a lump sum, which totalled $28 000.
Advise Catriona on her rights with respect to Willowbend and the things upon it and the extent of her obligations to Deepak.
In the present case of business law assignment, the following issues have been identified:
- Is the contract between Catriona and Albert an official binding contract?
- Can Albert defend himself, stating that his mental capacity was not right while he agreed to contract with Catriona?
- Does the email exchange of agreements sufficient enough as acceptance of the contract on the side of Albert?
- What are the legal obligations that Catriona owes to Deepak?
- To make a contract legally binding, it is very important that the important elements of the contract are fulfilled such as offer, acceptance, consideration, legal intention, mental capacity, age and consent. To make a contract legally enforceable in the court of law, a contract should have all the important elements. In the absence of any of the essential element, a contract cannot become binding or enforceable1.
- The parties to the contract should be legally sound and should be capable enough to understand the legal terms of the contract. Moreover, they should also know if there is the presence of any adverse effects in the present contract. As part of the contract law, incapacity is the knowing that every party has freely agreed to be part of the contract and have also understood the terms in a proper manner. The same is also applicable in the case of minors as well. However, when a person is mentally unwell or has a mental condition that does not allow him to understand the terms in a proper manner. The person may be called a legal disable person, and in such a situation, the contract can be declared as void at the option of the party who was sound while making the decision2. However, mood swings and being cranky does not fall under the category of mental impairment as the person has the complete sense to understand the legal terms of the contract in a proper manner. A person who has agreed to the terms previously, on account of his bad mood, cannot disagree with what he agreed previously.
- With technological advancement, more and more people are using the electronic medium to make communication, and most of them are also forwarding legally binding agreements to each other via email. This has become one of the major reasons as to why courts are taking into consideration the manner as to how the contracts can be legally enforced. When a person casually shares email or exchanges the same in good faith; however, later on, is held liable for the same is indeed a confusing situation. However, when the parties to the contract have exchanged with each other emails that state subject to contract or subject to approval, then the status of legality can be applied here. In the case of Stellard Pty Ltd v North Queensland Fuel Pty Ltd  QSC, the court found that a series of email has been exchanged and this made the contract binding as the subject of the email itself showed that the contract was subject to approval. Thus, the court was of the view that the exchange of emails between the parties was done with the intention of forming a legal and binding contract3
- The tenant has the legal obligation to make sure that all the obligations under the lease are fulfilled or else the risk may be bad, leading to the cancellation of the lease. Thus, the tenants should have a full understanding of the terms. The tenants should pay their rents on time, paying the security deposit on time, maintaining the property in a proper and secure manner. Moreover, it also includes that the tenant should take insurance of the land so that it is protected from any type of hazards such as fire etc. The tenant is also supposed to pay for the outgoings such as related things including body corporate fees, water, electricity and other important things4.
- With the application of the laws stated above, it can be said that a valid agreement existed between Albert and Catriona as Albert accepted the offer of Catriona and he also agreed to the other terms of the contract. He also consented that he shall agree to the given contract when it will be presented to him in writing. Thus, all the elements of the contract have been fulfilled, thus making both Albert and Catriona binding to the contract.
- However, on a later date, Albert due to his moodiness is now refusing to sign the contract that he initially agreed to. Bernard used this as an excuse that he would not be agreeing to the contract because he is not old fashioned and does not want to sign the contract anymore. Though Albert did not sign the contract, however, his consent earlier has already made the contract binding on him, and that is why even though Albert does not agree he is still bound by the contract. Moreover, being moody does not make a person mentally incapable as he has all the soundness to understand the terms of the contract. This has been later proved when he agreed to contract with the TBC Mining Company.
- Based on the case study presented here, it can be said that the email exchange in the present case has been done to discuss the binding element of the contract. That is why in the present case study, even though Albert is not agreeing to the contract is still legally binding to the terms of the contract. If the given case is presented to the court, he shall be held liable for his obligations, and he shall also be made legally bound by the other party.
- In the case of Deepak, Catriona is not completely liable for the obligations as a tenant to the landlord. Deepak has been imposing on her the rent that was not included during the time of drought so the question is can she be held liable for the payment of her rent which she missed during the time of drought. The answer to this is yes she is partially liable for the payment of rent however not completely liable. The court has the authority to use the discretion, and based on the facts of the scenario can make changes.
Thus, conclusively it can be said that the contract between Albert and Cartiano is legal and binding, and now Albert cannot disagree with the legally binding contract now. Likewise, the obligations of Cartiano to Deepak are partial and cannot be fully imposed.
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