Law of Contract A
Practice Problem Questions
Question 1
Jane rented a shop in a shopping mall in Leichardt, a Sydney suburb, for a term of five years from
Daniel, paying a monthly rental of $2,000 plus rates and other expenses. She signs a contract with
Rug Importers Pty Limited that says ‘Rug Importers will send Jane carpets from time to time’, and
‘Jane will pay Rug Importers $3000 per month’, as well as donate $100 per month to the RSPCA,
their chosen charity. For a time Jane makes a reasonably good profit from the business, and feels good
that through her business she can give back to the community.
Jane’s business is going so well that she decided to buy herself a new car. She has always wanted a
Honda, and Jake was selling a fine red one, only a couple of years old. She was really keen but knew
she would need a bank loan. She signed a contract to buy the car from Jake for $18,000 that said ‘this
contract is subject to the purchaser obtaining suitable finance’.
Soon after Jane signs the contract, fluctuations in currency values in Australia and overseas result in
an increase in the cost of her stock by about 50%, and she can no longer operate at a profit. Worse, the
products she is receiving from Rug Importers have declined in quality. She wonders whether she can
get out of the contract, stops paying the donation to the RSPCA and gives up on buying the car.
Jane approaches Daniel, her landlord, and notifies him that she will have to vacate the shop. Daniel
wants Jane to stay in the shop. He owns other adjacent shops, some of which were vacant, and another
vacant shop would probably cause further loss of confidence in the mall. Daniel promises to reduce
Jane’s monthly rental from $2,000 to $1,000 until things improve.
In an effort to get Jane to stay, Daniel says he will repaint the interior of her shop, because the paint
was peeling. He employs Jane’s brother Sebastian, a qualified painter, saying ‘it’s always good to
help out family’. Soon after Sebastian starts work, he discovers that the paint is actually lead-based
and toxic. He realises that he will have to add the cost of removing the paint by an expert with the
correct equipment to strip toxic paint. Sebastian writes an email to Daniel to say, ‘sorry mate. This job
is a disaster. There’s no way I can handle this job with the money we’d agreed I’d be paid. I’m out.’
By this stage Sebastian has stripped and painted half of Jane’s shop. Daniel, panicked at the prospect
of losing Jane as a tenant, tells Sebastian he’ll pay an extra $5000 if he completes the project on time.
Sebastian agrees, and completes the job. When Sebastian sends Daniel his invoice, Daniel informs
Sebastian he will pay him the original amount due under the contract, but not the additional $5,000.
After six months, Jane was again trading profitably and she notifies Daniel that she can resume rental
payments at the originally agreed rate of $2,000 per month. A week or so later, however, Jane
received a letter of demand from Daniel, claiming from Jane the sum of $6,000. When Jane contacted
Daniel to question his decision to sue her for $6,000, Daniel stated that he had changed his mind
about reducing the rent, and that she could now afford to pay him for the rental that he had previously
waived.
Advise Jane on her rights and obligations in relation to
(a) Rug Importers Pty Limited
This clause allows Rug Importers Pty Ltd to send jane any carpets of their choosing, whenever they
like (‘from time to time’). This contract between jane and RIPL however, is non-enforceable as it is
seen as being illusory / void due to if one party has complete discretion there is no promise (found in
Placer Development and Biotechnology). What this means is because the contract is unenforceable
due to it being illusory / void, jane is under no contractual obligation to continue to pay RIPL
Practice Problem Questions
Question 1
Jane rented a shop in a shopping mall in Leichardt, a Sydney suburb, for a term of five years from
Daniel, paying a monthly rental of $2,000 plus rates and other expenses. She signs a contract with
Rug Importers Pty Limited that says ‘Rug Importers will send Jane carpets from time to time’, and
‘Jane will pay Rug Importers $3000 per month’, as well as donate $100 per month to the RSPCA,
their chosen charity. For a time Jane makes a reasonably good profit from the business, and feels good
that through her business she can give back to the community.
Jane’s business is going so well that she decided to buy herself a new car. She has always wanted a
Honda, and Jake was selling a fine red one, only a couple of years old. She was really keen but knew
she would need a bank loan. She signed a contract to buy the car from Jake for $18,000 that said ‘this
contract is subject to the purchaser obtaining suitable finance’.
Soon after Jane signs the contract, fluctuations in currency values in Australia and overseas result in
an increase in the cost of her stock by about 50%, and she can no longer operate at a profit. Worse, the
products she is receiving from Rug Importers have declined in quality. She wonders whether she can
get out of the contract, stops paying the donation to the RSPCA and gives up on buying the car.
Jane approaches Daniel, her landlord, and notifies him that she will have to vacate the shop. Daniel
wants Jane to stay in the shop. He owns other adjacent shops, some of which were vacant, and another
vacant shop would probably cause further loss of confidence in the mall. Daniel promises to reduce
Jane’s monthly rental from $2,000 to $1,000 until things improve.
In an effort to get Jane to stay, Daniel says he will repaint the interior of her shop, because the paint
was peeling. He employs Jane’s brother Sebastian, a qualified painter, saying ‘it’s always good to
help out family’. Soon after Sebastian starts work, he discovers that the paint is actually lead-based
and toxic. He realises that he will have to add the cost of removing the paint by an expert with the
correct equipment to strip toxic paint. Sebastian writes an email to Daniel to say, ‘sorry mate. This job
is a disaster. There’s no way I can handle this job with the money we’d agreed I’d be paid. I’m out.’
By this stage Sebastian has stripped and painted half of Jane’s shop. Daniel, panicked at the prospect
of losing Jane as a tenant, tells Sebastian he’ll pay an extra $5000 if he completes the project on time.
Sebastian agrees, and completes the job. When Sebastian sends Daniel his invoice, Daniel informs
Sebastian he will pay him the original amount due under the contract, but not the additional $5,000.
After six months, Jane was again trading profitably and she notifies Daniel that she can resume rental
payments at the originally agreed rate of $2,000 per month. A week or so later, however, Jane
received a letter of demand from Daniel, claiming from Jane the sum of $6,000. When Jane contacted
Daniel to question his decision to sue her for $6,000, Daniel stated that he had changed his mind
about reducing the rent, and that she could now afford to pay him for the rental that he had previously
waived.
Advise Jane on her rights and obligations in relation to
(a) Rug Importers Pty Limited
This clause allows Rug Importers Pty Ltd to send jane any carpets of their choosing, whenever they
like (‘from time to time’). This contract between jane and RIPL however, is non-enforceable as it is
seen as being illusory / void due to if one party has complete discretion there is no promise (found in
Placer Development and Biotechnology). What this means is because the contract is unenforceable
due to it being illusory / void, jane is under no contractual obligation to continue to pay RIPL
