Scenario
James was a very talented baker and started a bakery under the trading name ‘Tasty Treats’. To purchase the expensive commercial baking machines, he asked for a loan of $5000 from his mother, Betty. Betty agreed provided they put the loan agreement “on paper” as she didn’t want any “family argument” about the loan later and that James need to pay her back upon demand. James agreed and both of them signed the agreement.
The bakery become popular with locals and became quite successful after a few months. As business got more and more busy, James found himself needing to get help to meet the increased demand. He called up his old classmate Amelia who also happens to be a amateur baker. James offered to take Amelia onboard, to teach her his skills and to pay her if business continued to be good. Amelia liked the opportunity but wanted the terms recorded on paper. James didn’t want to sign any documents and preferred to keep things informal but ultimately agreed as he really needed the help. However he insisted on putting a clause in the agreement which stated “this agreement is not a formal or legal contract and shall not be enforceable in the Courts”. Both Amelia and James then signed the agreement.
James’ bakery continued to thrive and for the next three months Amelia helped James with the business and James taught her many of his tips. However, he did no pay her during this time. Unfortunately, the stress of running the business became too much for James and one day he suffered a nervous breakdown.
James’ therapist advised him to close the business for now and go take a long extended vacation. James decided to take up this advice and told Amelia not to come anymore. Amelia was upset and asked James to pay her for the three months that she worked there. James refused and said that there was no agreement that he would pay her.
When Betty heard that James had closed the bakery, she asked for her money back. James ignored her request. James have now heard from mutual friends and family that Amelia and Betty were getting lawyers to represent them and claim against him on the basis of the two agreements that he signed.
Required
1.Advise James whether Amelia will be successful in an action against him. In your answer, please refer to the relevant caselaw.
[5 marks]
2.Advise James whether his mother, Betty, will be successful in an action against him. In your answer, please refer to the relevant caselaw.
[5 marks]
Sample Solution
