The Case Study: Mary and Lee
Mary entered and performed a contract for the sale of her property to Lee who agreed to purchase the said property. Lee discovered later on that the property was not in the condition as described in the contract.
The following legislations are important in this case:
- Section 45(2) of the Trade Practices Act, 1974
- Section 88F of the Industrial Arbitration Act, 1940 (N.S.W.)
- Contracts Review Act, 1980 (N.S.W.)
- Fair Trading Act, 1987 (N.S.W.)
- Consumer Affairs Act, 1970 (Qld)
An ‘Offer’ is the basis of any transaction and an offer must be in reasonable detail, it should be made as clear as possible with clear indications of what is being offered and the terms on which it is being offered. An offer then should be concurred by an ‘Acceptance’ and this should be established by the person making the offer, that the terms on which the offer was made have been agreed to by the acceptance of the buyer, (Burnett & Bath, 2009). Although the Contract Act does state that this can be conveyed orally or in writing or can even be implied from the buyer’s conduct which can be done by usually doing the required thing, the acceptance in the case of a real estate deal must be in writing. The acceptance should be communicated to the offeror, it is not valid if it is inferred from silence. ‘Consideration’ is the last feature which finally seals the deal and distinguishes the commercial deal from a gift. It is the agreed monetary price, which may not necessarily be in cash terms, which one party asks of the other in lieu of entering the agreement, (Burnett & Bath, 2009).
The law says that that there should be an offer and that to counter that offer, there should be an acceptance, but it is not the perfect ending for any bargain. The law also states that the exchange must take place, although the exchange may not always be equal. It is not for the law to go into the relative values of a commercial consideration. The consideration part can be in the form of a huge sum of money or it might just be a promise and the seller may agree to it. From the legal perspective, it is important to see that each party has given the other party what it desired in the bargain, (Davison, Monotti & Wiseman, 2011).
Legally, it is important to see that the consideration is enforceable. In the present case, Mary makes an offer and believing her statements, Lee accepts the offer. Hence, from legal perspective, the bargain is complete. More importantly, Mary translates the offer in writing and puts it to Lee for acceptance, which he does. Legally and thus far, there is nothing to suggest whether there was anything missing in the transaction or whether the transaction was not as per lawful requirements, (Beaton-Wells & Fisse, 2011).
Understanding Offer, Acceptance, and Consideration in Real Estate Transactions
This deal does not present any legally challengeable, from the evidence available so far. The law will not recognise any discrepancy or wrongdoing on the part of Mary. She offered a property for sale, Lee accepted the offer, the transaction was sealed with an agreed price and everything was in black and white, (Beaton-Wells & Fisse, 2011). But what transpired behind the scene, on the behest of the seller, is what needs to be brought to the forefront by the buyer. Then only Lee can satisfy a court of law that Mary had planned, right from the beginning, to cheat him by presenting false documents and incomplete details about the property, (Schaffer, Agusti & Dhooge, 2014).
If Lee wants the contract to be enforceable, then Lee needs to show that he had the intention to make it a legally binding commitment. Then he must clarify the circumstances under which he was lured into accepting the offer and how he was committed to the promises of making payment to Mary. In contrast to all this, Lee must prove that the agreements and documents drawn by Mary were not of a commercial nature as was presumed by him earlier and the intention of Mary was to enter into the contract just for defrauding him, through this illegal, unenforceable relationship.
Contrary to the belief which was held by Lee, the circumstantial evidence of the case does not prove that there was no contractual obligation on the part of Mary. The relationship between the two and the terms of their relationship are sufficient to prove that there was an offer and acceptance, (Williams (ed), 2013). Based on this, the court would not find it difficult to understand that both the parties had the intention to enter a legal, and hence an enforceable contract. In case the court’s jurisdiction is to be taken into consideration, very little proof of that intention is required on the part of Lee.
Although, the courts also understand that not everything that is stated in the contract may necessarily be an enforceable term of the contract. Some of the statements are merely mentioned as ‘representations’’ and cannot be enforced. In a contract document, only two terms, ‘conditions’ and ‘warranties’ are strictly enforceable terms. It is easy to name them in the document but not easy to accurately describe them, (Ibp Inc, 2013). Even the courts have been battling for centuries with this definitional problem and have not been able to reach to any consensus. The problem becomes an important consideration for the parties to the contract for two reasons. One, the breach of a condition allows the affected party to rescind the contract. Two, the breach of a warranty permits the affected party to only sue for damages and cover up any losses suffered, (Williams (ed), 2013). An important judgement in this respect comes from Lord Upjohn in which he suggested that it should be considered whether the breach of the stipulation can so much affect the contract that it can make impossible any further commercial performances. On the same issue, the High Court suggested that the parties enter into a contract because of the conditions stated.
Implications of Intention to Create a Legal Relationship in Real Estate Transactions
It can hence be deduced that there are some contracts which are illegal at common law, as they are considered contrary to the good of the society. Among the many contracts falling under this category, those which are applicable to this case study are:
- A contract created for committing a crime, a tort or a fraud;
- A contract which promotes corruption in public life; and
- A contract made for defrauding the revenue.(Ibp Inc, 2013).
The contract created by Mary was of Category-A and the facts state that she was avoiding her contractual responsibilities, (Ibp Inc, 2013). Common law states a number of factors which may vitiate such contract. These include –
- Deceit
- Duress
- Illegality
- Legal Incapacity
- Misrepresentation
- Undue Influence
These aspects are consistent with the consensual theory of freedom of contract since each one of them presents an example of lack of consent.
In the normal course of business, a company selling goods to its consumers or even a private person, such as Mary in this case study, entering the deal of selling real estate, there comes an implied condition that the goods being sold will be of ‘merchantable quality’. The term may not be implied if, at the time the sale is being made, the seller (Mary in this case study) had pointed out the defects to the buyer (Lee in this case study), or if the buyer had closely inspected the goods at the time of purchasing.
Conclusion
Contract Laws state that the following five elements are essential for the formation of a legally binding contract:
- Agreementbetween the parties.
- Considerationin the form of exchange for something of value.
- Capacityof entering in legal relations.
- Intentionof the parties entering legal relations
- Certaintymeaning the contract should be certain, clear and binding.
In the absence of any one of these elements signifies that either there is no agreement as per law or the agreement cannot be enforced as a contract.
Courts have also agreed that all illegally made contracts are void and unenforceable, at common law, by either party. Hence, property or money transacted cannot be recovered.
Whereas, all legally formed contracts which are performed in an illegal manner, as was performed in this case study by Mary, do not make the contract as void, although:
- no remedies may be available to the guilty party; and
- the innocent party will be allowed to retain all rights and remedies, since they had no knowledge that the contract would be performed illegally.
Hence, in this case study, not only can Lee recover the money that he paid under the contract, which now shall be treated as void at common law and the parties would be back to their original positions as if the contract did not exist.
Intangible Personal Property
‘Intangible Personal Property’ is defined as something of individual value, which cannot be held or touched. Intangible personal property may be any valuable item that is not of physical nature and may include a trademark, copyright or goodwill. This is stated in the Intellectual Property Laws Amendment Act, 2015 which has since amended the Patents Act, 1990; Trade Marks Act, 1995; Designs Act, 2003; and the Plant Breeder’s Rights Act, 1994.
Contents of the Contract: Conditions and Warranties
Security Interests
Security Interest refers to a type of property interest, which is created by an agreement or by the operation of law, over assets, by an individual or a corporate entity, for securing the performance of an obligation, which usually is paying-off a debt. It is meant to give the beneficiary getting the security interest, some preferential right in disposing-off the secured assets. This is explained in the Personal Property Securities Act, 2009 (Cth), which is a law dealing with security interests in personal property.
Perfection
Generally, it means an action or process performed for improving something to the point that it becomes faultless. In law, perfection is related to steps which are taken in respect to a security interest so to make it effective against a third party in the event of a default by the grantor as stated in the Uniform Commercial Code, 2010.
The Mirror Principle
The Mirror Principle states that after the registration of a Land Title, the record must reflect every important and significant detail about the deals which the purchaser must have the knowledge of before buying the land. The details mentioned above refer to –
- the identity of the owner
- the nature of his ownership
- limitations on his ownership
- rights enjoyed by other persons over the land.
The objectives of the mirror principle are stated under the Land Registration Act, 2000.
Grantor
An Intentionally Defective Grantor Trust (IDGT) is used as an estate planning tool for freezing certain assets only for estate tax purposes and not for income tax purposes. The structure of an IDGT will allow the grantor to transfer the assets to IDGT either through a gift or sale. Since gifting of the asset to the IDGT may invoke the levy of gift tax, so taxpayers chose the other alternative of selling the asset to IDGT. The Australian Taxation Office (ATO) does not invoke any tax liability on the taxpayer when assets are sold to an IDGT, as there is no capital gains recognition on sale and this means no taxes are payable.
However, the grantor is liable for any income earned by the IDGT. In case the asset sold to IDGT is an income earning asset, such as a running business or a rental property, the Grantor is liable for paying tax to the ATO on the income generated under the applicable statutes of Income Tax Assessment Act, 1936 or Income Tax Assessment Act, 1997.
References
Beaton-Wells, C. and Fisse, B. (2011) Australian Cartel Regulation: Law, Policy and Practice in an International Context. Melbourne, VIC: Cambridge University Press.
Burnett, R. and Bath, V. (2009) Law of International Business in Australasia. Annandale, NSW: Federation Press.Davison, M.J., Monotti, A.L. and Wiseman, L. (2011) Australian Intellectual Property Law, (2nd ed.). Melbourne, VIC: Cambridge University Press.
Ibp Inc. (2013) Australia Business Law Handbook Volume 1 Strategic Information and Basic Laws. Washington DC: Int’l Business Publications.
Schaffer, R., Agusti, F. and Dhooge, L. (2014) International Business Law and Its Environment, (9th ed.). Stamford, CT: Cengage Learning.
Williams, M. (ed) (2013) The Political Economy of Competition Law in Asia. Cheltenham: Edward Elgar Publishing.
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