Discussion On Legal Right Of Shrestha For Her Economic Loss: Contract Law Assignment Answer

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Question :

BUSINESS LAW 

ASSIGNMENT QUESTION SEMESTR 1, 2020: 

CONTRACT LAW (ESSENTIAL ELEMENTS) 

 Word Limit: Minimum 2,700 words – Maximum 3,000 words [includes footnotes and bibliography]

 QUESTION 

Shrestha Tailor is a budding fashion designer in Sydney whose aim is to design her own clothes and sell them through a retail outlet owned by her. She decided to look for suitable premises from which to sell her clothing designer goods. However, since she knew she would not be able to finance this entire business, she asked her aunt for help to start her own business. 

Shrestha’s aunt, Mrs Moneypenny, owned many properties in Harris Park (Sydney). She agreed to lease one of her shops to Shrestha at half the rental she would normally charge. Shrestha inspected the premises and told her aunt that she would like to make some alterations to the layout so as to give the clothing shop’ a smartdekko’ appearance. 

Shrestha told her aunt that she wanted to start on the renovations immediately and would speak to the local Council in Parramatta to get the necessary permits. Shrestha also agreed that she would pay for these alterations which, after quotes had been given, were calculated at $65,000. Shrestha told her aunt however, that she did not want to start on the renovation project unless her aunt was certain that the property was for rent at the amount agreed. 

Mrs Moneypenny said she would let Shrestha know in the next few days if she changed her mind about renting the building. Shrestha also said that the opening of the shop on the date agreed to in the proposed lease would help her to market her clothing designs from which she expected to receive a healthy financial return. It was estimated that the renovations to the shop would take six months, by which time Shrestha would have designed and created clothes in time for the new fashion season. 

A week after Shrestha spoke with her aunt, she started on the renovation project, having heard nothing from her aunt. After several weeks after the renovation work began, Shrestha noticed her aunt peeping into the window of the building in which the renovations were in progress. 

Before the lease to rent the building was signed and just as the renovation work was almost complete, Mrs Moneypenny advised Shrestha that she, as the potential landlord, no longer wished to continue with the arrangement because she received a higher rental offer from Mr Rich. Shrestha was very disappointed and wished that she had a signed lease. Her best 2 friend, Pinky, who is studying law but who has missed many classes told her that there is nothing Shrestha can do. Besides, Pinky also told Shrestha that the law will not allow her to sue her close relative. Pinky advised Shrestha to go to the temple and pray for good luck to try and get $65,000 back. 

Advise Shrestha Tailor as to her legal rights with reference to relevant principles of contract law. Give reasons for your answer based on contract law and relevant precedents.

End of Question. 

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1. A legal analysis of the question with reference to relevant legal principles (case law). 

2. Students are expected, as a minimum requirement, to reference the relevant chapters in the prescribed textbook and to draw supporting information from there in support of the answer.

3. You are generally advised not to use the internet for resource materials, especially if you are unfamiliar with the topic (as it may be unnecessary and you run the real risk of drawing on irrelevant information or legal information from other countries that are irrelevant to Australian law). Your prescribed textbook, and the references therein, is more than adequate to answer the question. 

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(c) Identify the relevant case law; 

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Answer :

CONTRACT LAW

Background of case

In the given scenario Shrestha who is a fashion designer approached her aunt Mrs. Moneypenny for taking her property on lease for opening of a retail outlet. Mrs. Moneypenny agreed to lease one of her property in Sydney to Shrestha at half of the rental which she normally charged. Shrestha wants to renovate the premises to make her clothing store a smartdekko which is estimated of $65,000. Shrestha agreed to pay the charges of renovation if her aunt is certain to rent the property to her. Mrs. Moneypenny said to Shrestha that she would inform her in next few days if she changed her mind to lease the property. A week after on hearing nothing from her aunt, Shrestha spoke to her aunt and she started the renovation work as it will take six month period to renovate the property. Late on at the time of singing of lease, Mrs. Moneypenny refused to lease her property to Shrestha by stating that she received a higher rental offer from Mr. Rich. 

Issue 

Here in the given case, the question of law occurred is whether Shrestha has a right to receive her amount spent on renovation or property and whether she can legally enforce Mrs. Moneypenny for signing the lease in her favor. 

Relevant Rules and Laws

The evaluation of the conditions given in the case details reflects that the issue of law is related to the concept of promissory estopple in the contract law. Also the case comprises the issue relevant to the property which is promised to be provided by the landlord to the plaintiff hence the principle of proprietary estopple shall also be considered in the given case law. 

  • Promissory Estopple: 

In the Australian Contract Law, a proposal made by promisor becomes a promise if the acceptor gives his acceptance on the same. However there are some other element which makes a promise legally enforced on the parties such as consideration and intention. It was prescribed in the common law that a contract made without consideration cannot be enforced or sued by any of the party. To respond such harshness of common law and to protect the interest of injured party the doctrine of promissory estopple has developed. The principle of promissory estopple prevents the parties to contract from going back on their promise. The major purpose of this concept is to legally enable the injured party or party in loss to claim the amount of loss or damage. It is intended to prevent the promisor from proving that the underlying promise should not be legally enforced. It provides a right to promisee or injured person to recover his part on a promise. There are some elements which are required to make a claim under the principle of promissory estopple. There should be a promisor, promisee and an injury or damage from which the promisee has suffered. In addition to this the promisee must have relied on the promise made by promisor. Another required element is that the promisee must have suffered from an actual detriment due to the failure of promisor to meet the promise. For example an employer made a promise to his employee to a specific monthly amount to him throughout the full tenure of his retirement. The employee retires by relying on the promise made by employer and then the employer refused to pay such amount. In that case the employee has the right to force the employer to perform his promise. 

Generally the contract law requires existence of a formal consideration for creating an agreement or contract. The legal consideration can be in any form of valuable asset which is exchanged between the contractual parties while creating a contract. Hence the consideration in any form is required to make a contract legally binding on the parties but in certain cases to ensure the justice even in the absence of consideration, the court may enforce a promise. Usually it is done by the Court if reliance on such promise led in a detriment to the promisee. 

  • Proprietary estopple: 

Generally the estopple functions to enforce the conditions of a promise. Proprietary estopple is a legal rule concerning the law of land in which the claim can be made by a person in relation to right to use the property of an owner. This concept enables the person to create a proprietary interest in form of a freehold ownership, a license, an easement or a lease. This is used in case of non-following of fair conditions or formalities of promise. This is a concept which is sued to provide the remedy to a person who is affected from the unconscionable behavior of a promisor. The remedy in this concept includes the entitlement of right in the property of holder who holds the legal title of property. To implement the principle of proprietary estopple some major elements are required which include an assurance or promise made by the promisor which has given a rise to the expectation of promisee that he would get a proprietary interest in certain property. In addition to that reliance should be made by the promisee on the promise made and there must be damage to the promisee in the consequences of his reliance. 

In case the claimant succeeds in proving the proprietary estopple, the Court may determine his entitlement in the property or may enforce the defendant to compensate the economic loss of the plaintiff. For instance, Peter Promised to Henry that his house would be transferred to him after his death, Henry relied on the promise of Peter and spent a lot of money on the renovation of such house in the belief that this property would eventually transferred to him one day. On other hand Peter signed such property in the name of David who will be the owner of this property after Peter’s death. Here in this condition, Henry may present his claim against Peter on the grounds of proprietary estopple. Hence by using the principle of proprietary estopple, the injured party can establish his interest in the property of landlord. 

Relevant Case Laws

In a relevant case of “Waltons Stores (Interstate) Ltd v Maher HCA 7, (1988) 164 CLR 387” the rule of promissory estopple was used by the plaintiff. In this case a contract has been executed between Maher (a builder) and Waltons Stores Ltd for construction of premises for the purpose of lease. Both parties signed a contract of lease and for the construction of premises, the existing building was demolished. On the completion of 40 percent construction work, Waltons decided to cancel the lease contract. In this case the principle of promissory estopple was assumed by the Court because by relying on the Waltons, Mehar started the construction work of premises and also demolished the existing building hence it would be unconscionable to avoid the promise by Waltons. The Court held that Mehar is entitled to recover the compensation for the damages occur from the breach of promise or may request the Court to enforce the Waltons for specific performance of contract. 

In another relevant case of “Central London Property trust Ltd V. High Tree House Ltd. (1974)1 KB 130”, the landlord promised to tenant to receive half of the rent during the wartime period and after the war he asked the tenant to pay the forgone amount of rent by him. In this case the Court held that the landlord was not entitled to receive or demand the arrears of rent from the wartime period as per the promise he made to the tenant.

The case of “Glasbrook Bros v Glamorgan County Council [1925] AC 270” is an important case of promissory estopple where the company asked to police to form mobile petrol at the coal mine to for the protection. They also offered a consideration of £2200 against the police protection during worker’s strike. The police accepted the offer of company and established the mobile petrol in the mine. Later the mine company refused to pay the consideration by saying that police has the public duty to provide protection to public hence they do not required to pay by the company. In that case the Court held that the duty of police falls under the public duty but in this case the police provided additional protection to the company hence the company is bound to pay the agreed consideration to the company. 

In another case of “Dillwyn v Llewelyn 1862 4 De G. F. & J. 517” a father transferred his land to his son without complying with the legal formalities and encouraged him to construct a house on such land. The son spent an amount of £14,000 on the construction of house and before complying with the correct formality of transfer, his father died. In such case the son was automatically entitled to possess the land and house through proprietary estopple. The Court held that a voluntary agreement will not be completed by the Court of equity and court will not assist a donee to complete the title of him for the right which he automatically received by the mere gift by the donor. However the donee may claim for the rights which he did not receive from the original gift. Similarly in the case of “Sidhu v Van Dyke [2014] HCA 19”, Miss Van rented a Oak cottage from Sidhu and afterwards entered into a love relationship with him which resulted into the breakdown of Sidhu’s marriage with his wife. On the separation with his wife Sidu promised to Van that he would give the cottage to Van and by relying on his statement, Ms Van improved the cottage on her own expenses. The Court held in the case that Sidhu is bound in his given promise because he is responsible for the detriment reliance by Van. As a remedial action in the case of estopple it was held by the Court in a similar case that it was held that the award for estoppel may involve the enforcement of promise or fulfillment of expectation generated by the promise but in this case the cottage was burned down and the subdivision of land had never done by Sidhu and his wife hence Ms.Van is eligible to get compensation for the amount of damages. 

Application

As per the details given in the case law, Shrestha spent her own money on the renovation of property by relying on the statement of her aunt Mrs. Moneypenny that she would provide the property to her for the half of rental charge which she would have normally charge. Thus, there is a promise established between Shrestha and her aunt which also involves a legal consideration for the further continuance of contract. As per the principle of promissory estopple, all the element of such principle i.e. promisor, promisee and economic injury are present in the given scenario. Also the economic loss occurred to the promisee as the consequences of breach of his reliance on the promisor Another required condition in the principle of promissory estopple is that the promise or assurance given by the promisor should be clear. In the details of case, Mrs. Moneypenny was agreed to lease the property and allowed Shrestha to renovate the property for opening of her cloth store. Such action of Mrs. Moneypenny shall be considered as her clear consent. Later on at the time of signing of lease, Mrs. Moneypenny denied Shrestha to lease the property to accept the offer of Mr. Rich who was giving higher rent for the property. However, being the landlord, Mrs. Moneypenny has the right to make decision about her property but in this case she is bound to perform in a legal promise which she made with Shrestha. Also by believing on her promise, Shrestha started the renovation work in the property which is almost completed at the date of signing. Hence Shrestha has the right to claim for the amount of economic injury or loss which was caused to her due to the non-performance of promise by Mrs. Moneypenny. 

On the other hand, as per the concept of proprietary estopple, Shrestha could also present her claim before the Court for arguing his interest in the property of Mrs. Moneypenny on the basis of promise made by her. For proving her claim Shrestha is needed to prove the presence of elements necessary for the proprietary estopple. In the given circumstances, the elements of proprietary estopple i.e. promise promisee and assurance to provide an entitlement in property is involved. Also due to relying on the given assurance by promisor, the promise caused an economic injury hence the principle of proprietary estopple can be applied in the given scenario in which Shrestha can claim her interest in the Court. She can argue before the Court about the loss of money which she spent on the renovation of property and loss of efforts which she made in designing new clothes for the opening of her store. It is prescribed in the rule of proprietary estopple that if the promisee raise his expectations by relying on the statement of landlord and performed any step in the continuance of such promise then he would be entitled to get the compensation for his losses. However the loss must be in real and measurable form such as economic loss. 

Conclusion

The above discussed principle of law reveals that Shrestha has legal ways to recover her economic loss which was caused to her due to the breach of promise by her aunt.  She can claim for the amount of $65,000 which she spent on the renovation property under the principle of promissory estopple in contract law. This principle enables the injured party to recover his amount of loss or damage which was occurred as the consequence of breach of his reliance. Also she can represent her claim before the Court for getting the lease of property under the law of proprietary estopple. As per this law, the promisee may prove his interest in the property of promisor and the Court may enforce the entitlement of claimant in the property of landlord. Hence on the application of Shrestha, Court may enforce Mrs. Moneypenny to lease the property to Shrestha.