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EXEMPLAR

Four Step Process


Nicole and Joel, who just had a baby, decided to take a break from their hectic rock star life style and
drive around Queensland once Joel had finished singing with his band. While they were at the Gold
Coast, Nicole and Joel stayed at a great house by the beach owned by their friend Sophie. They all
agreed that Nicole, Joel and the baby would be at the beach house for four weeks and would pay
Sophie $1000 a week for allowing them to stay in her house.
Nicole and Joel end up having a terrible time, their baby does not sleep at all and they do not like
staying so close to the beach. It is hot and sandy and there is lots of noise from all the people on the
beach. After two weeks they pack up and go to Sydney. They dont pay Sophie any money at all for
rent because the holiday was so disappointing.
Sophie however, really wants Nicole and Joel to pay her the rent as they had agreed. Sophie had
counted on the money to pay for her recent cosmetic surgery. She is hurt by their failure to pay and
has come to you to ask whether she can make them pay her the rent that they owe her.
Question:
Using the four step process discuss whether there is an intention to be legally bound and a
contract formed between the parties. Can Sophie enforce the agreement between her and
Nicole and Joel?

STEP 1: Identify the principles or issue of law

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The principle (or issue) of law is that for a valid contract to be formed there must be
an intention to be legally bound by both parties.

STEP 2: Explain the rule(s) of law relevant to the principle/area/issue of law


identified in step one with reference to authority.
There are three main requirements for the formation of a legally enforceable
contract, intention, agreement and consideration. The element that requires
discussion here is the existence of an intention by the parties to enter into a legally
binding agreement.

Comment [CD1]: Note the brevity of


this statement. You dont need to
repeat the question or make general
statements here.
Comment [CD2]: You may not need
to refer to every single case that is
listed for each rule of law in the lecture
outlines and First Principles of Business
Law text book. Please, do not refer to
cases from outside of the course.
Comment [CD3]: If you are going to
have an introductory type paragraph
KEEP IT BRIEF. Look at the marking
rubric. The marks in Step 2 are
awarded based on the quality of your
explanation of the law with reference to
authority. Sometimes students find it
hard to begin writing an answer without
a general overview statement, but too
often they spend much too long on this
type of thing. A simple statement like
this does enhance the flow of your
answer, provided you have left enough
time and words for the important stuff.
Its good to include a definition here of a
relevant topic (i.e. offer/acceptance or
consideration).

An agreement is only legally enforceable if the parties intended at the time the
agreement is made to be legally bound.
Intention is to be judged objectively. The court asks whether, in the circumstances,
a reasonable person would regard the agreement as intended to be binding.
The test is an objective one however the courts rely on presumptions to assist with
ascertaining whether the parties intended to be legally bound by the agreement.
Where arrangements are made between family members or friends the court
presumes that the parties to these agreements do not intend to be legally bound. A
person who wants to treat an agreement with a close family relation as legally
binding will have to prove additional circumstances from which an intention to be
legally bound can be inferred (Lambiris and Griffin 2013 p.68)
In the case of Balfour v Balfour [1919] 2 KB 571 during their marriage a husband
and wife came to an arrangement whereby the husband agreed to pay his wife an
amount each month for her maintenance. After the parties divorced, Mrs Balfour
brought and action against Mr Balfour to enforce the payment of the promised
maintenance.
The issue for the court was whether Mr Balfour intended to be legally bound to his
wife when he promised to pay her maintenance. The court held that the agreement
was not legally enforceable. The court said that domestic arrangements between
spouses are not legally enforceable because at the time of making the agreement,
they do not intend that they should be sued upon.
In Cohen v Cohen (1929) 41 CLR 91 prior to the parties marrying they came to an
agreement that Mr. Cohen would pay Ms Cohen a yearly dress allowance paid
quarterly. After the parties separated, Ms Cohen brought a claim against Mr. Cohen
for the unpaid installments of the promised dress allowance.

Comment [CD4]: Note that this


question is mainly concerned with the
presumption concerning social and
domestic agreements. Its a good idea
to discuss the most relevant aspects of
your discussion first.
Comment [CD5]: Here is an example
of a direct quote from the text. This
quote must be in quotation marks and
have a reference after it to tell the
marker here the quote is from. In this
case, the quote is from page 68 of the
textbook by Lambiris and Griffin.

Comment [CD6]: When discussing a


case it is vital that you refer to the facts,
issue that the court had to decide and
the decision of the court. For this
answer however, given that the issue
for the court is the same, it is not
necessary to repeat it for each case on
that particular point.

The court found that in the circumstances it could not be inferred that a legally
enforceable arrangement was intended. Arrangements between intending husband
and wife are only enforceable if at the time the agreement is made there is an
intention by the parties that the arrangement will give rise to legal relations.
An example of where the presumption concerning social and domestic agreements
was rebutted is in the matter of Merritt v Merritt [1970] 2 All ER 760. In this case, the
parties built a home and lived in it together whilst married, jointly contributing to
paying off the home loan. During the marriage the home was transferred into joint
ownership, initially having only been in the husbands name. Upon their separation
the parties agreed that Ms Merritt would reside in the home and pay the remainder
of the loan. Mr. Merritt agreed that once the loan was paid off in full he would
transfer the house into Ms Merritts sole ownership. A letter to this effect was
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Comment [CD7]: Note the different


ways to introduce a case any of the
ways shown is fine.

signed. After the loan was repaid, Mr. Merritt refused to transfer ownership to Ms
Merritt. Ms Merritt sought to enforce the agreement.
The court found that the parties intended to be bound by this agreement and
therefore it was legally enforceable. The court stated that when all the
circumstances at the time the agreement was made were taken into account, a
reasonable person would regard the parties to the agreement as intending to be
bound by it.
When an agreement is reached in a commercial or business context, the court
presumes that the parties to the agreement intended that the agreement would be
legally binding (Lambiris and Griffin 2013 p.68). The party wanting to establish that
this is not the case will need to adduce evidence to show otherwise.
In Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117
Esso promised to give motorists who purchased their fuel a commemorative coin.
The Commissioner argued that these coins were subject to a tax because they were
not free, but part of a sale agreement. The issue before the court was whether
Esso had intended to be legally bound by the offer to give the coins to motorists
who purchased its fuel.
The court held that the terms of the promotion were intended to be a legally binding
promise. This was a commercial promotion even though the coins were described
as free and it could be presumed from these circumstances that it was a promise
made with an intention to be legally bound.
In the case of Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR
95 a religious minister employed by the Greek Orthodox Community, (an
incorporated association) brought an action against the Community for breach of
the employment contract when the Community refused to pay him for accumulated
leave entitlements. The Community argued that the agreement was in the nature of
a social arrangement and it was not intended to be legally binding. The court held
that the agreement was intended to be legally binding and Ermogenous was entitled
to the payments under the enforceable contract of employment.
The court stated that an agreement with a minister of religion does not in itself mean
the agreement is not intended to be legally binding if other circumstances indicate
otherwise. In these circumstances an incorporated nonreligious body made an
agreement and it provided monetary and economic benefits to the minister.

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Comment [CD8]: Here is an example


of paraphrasing. Note that while the
words are not exactly the same as the
text, they are similar enough to require
acknowledgment of the text as the
original source.
Comment [CD9]: Note that this
presumption is less important to the
question so it should be discussed
second.
Comment [CD10]: In a test or exam
situation you could shorten this case
name to the Esso case, as there is no
other Esso case on this rule of law. It
is okay to abbreviate case names.
However, just make sure your
abbreviation CLEARLY identifies the
case you are referring to and cannot be
confused with another similarly named
case.

STEP 3: Apply the law to the facts of the question in a detailed and logical
manner.
As an agreement is only legally enforceable if the parties intend to be legally bound
at the time the agreement is made, an objective assessment of the circumstances in
which Joel and Nicole and Sophie made the agreement needs to be undertaken.
The question is whether, in the circumstances, a reasonable person would regard
the rental agreement as intended to be binding.
The parties here are friends. There are no facts to indicate that the rental
agreement was made in a commercial or business context, such as the beach
house regularly being rented out by Sophie as a source of income or for investment.
Given that the parties are friends and the rental agreement appears to have been
made in a social context, the courts will rely on the presumption that in these
circumstances Nicole and Joel and Sophie did not intend to be legally bound at the
time the agreement was made.
To enforce the rental agreement Sophie will have to prove additional facts to rebut
this presumption. There are two facts mentioned that suggest Sophie may be able
to argue that at the time they made the arrangement they all intended the
agreement for the use of the beach house to be legally binding.
First the agreement itself. The rental payment is substantial and appears to be a
commercial rate, not a reduced rate for friends. The agreement is also for a
reasonable length of time. They have agreed that Joel, Nicole and the baby will stay
at the beach house for four weeks. However, there is nothing in the facts to suggest
the agreement is in writing. If the rental agreement had been reduced to writing, this
would assist Sophie in establishing that contrary to the presumption, the parties
intended the rental agreement to be legally binding.
Second Sophie appears to have acted on the basis that she will be receiving the full
rental amount as agreed. She has incurred costs for medical procedures and seems
to be relying on the payment from Joel and Nicole to pay for these costs. The
question does not say, but if Joel and Nicole knew about this fact at the time the
agreement was made, this would strengthen Sophies argument that the parties
intended to be bound.
In these circumstances, a reasonable person would regard the agreement as
intended to be binding.

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Comment [CD11]: This is similar to


the comment made above regarding
introductory paragraphs. This may help
order your argument, but make sure it
is not too long winded it takes time
away for getting to the detailed
application of the law to the facts, as
this is where the marks are

STEP 4: Draw possible conclusions

In conclusion, it is likely that the rental agreement is legally enforceable because


Nicole and Joel and Sophie intended to be legally bound at the time the agreement
was made. A contract has been formed and Sophie can enforce the agreement
between her and Nicole and Joel in order to receive payment.

Comment [CD12]: This is the


maximum that would be expected for a
conclusion.

References

List of cases referred to:


Balfour v Balfour [1919] 2 KB 571

Comment [CD13]: At the end of your


assignment you should list all of the
cases that you have referred to in your
work, in alphabetical order.

Cohen v Cohen (1929) 41 CLR 91


Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER
117
Merritt v Merritt [1970] 2 All ER 760

List of other sources:


Lambiris, Michael, and Laura Griffin. 2013. First Principles of Business Law.
Sydney: CCH.

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Comment [CD14]: If you refer to the


textbook or lecture slides then you
should reference them here. There is
no need to reference each page that
you have referred to.