Kevin owns a commercial shop unit in Kennedy Town, which had become vacant in October last year. Lisa is Kevin's sister. Michael owns a dry-cleaning business in Shatin, and is married to Lisa. Although Kevin is on friendly terms with Lisa, he rarely speaks to Michael. Norma is a wealthy business associate of Michael's.

In October last year, Michael formulated a plan to expand his business into Kennedy Town. Not being on close terms with Kevin, Michael persuaded Lisa to set up a meeting between himself and Kevin. The meeting between Kevin and Michael took place on 26th October over lunch at a dim sum restaurant, where the following words were exchanged:

Michael: You know about my plans to expand the dry-cleaning business. Because we are family, I thought we might be able to help each other out. Kevin: You need my vacant Kennedy Town shop? Michael: That's right. It would be perfect. I could take the shop for two years starting 1st January. While I am establishing the business, I would not pay you any rent in the first year, but in the second year I would pay you double the usual rent for a shop in that area; say, $100,000 per month payable on the last day of every month? If I'm late in making a payment, the rent for that month would be $110,000. Norma can vouch for me. Also, I would need you to completely renovate the shop's wiring and plumbing at your expense and to my specifications before I moved in. Kevin: That sounds okay - it's a deal. [They shook hands].

The next day, Kevin asked Norma if she would guarantee Michael's rental obligations on the Kennedy Town shop in exchange for Michael being given possession of the premises. Norma replied with a letter in which she thanked Kevin for his willingness to help Michael, and concluded with the following words: 'Michael has always been a reliable businessman, and I stand by him in all his ventures'.

In November and December last year, Kevin spent $150,000 on renovations to the shop's wiring and plumbing in accordance with Michael's specifications. Michael took possession of the shop in Kennedy Town on 1st January this year. In February, Michael informed the District Council that Kevin was his 'landlord'.

Michael's new business has not prospered. Yesterday, he told Kevin that he would be 'closing the Kennedy Town shop at the end of this month' and returning the shop's keys to Kevin. When Kevin protested that 'we have a deal until the end of next year', Michael replied, 'it was only a family arrangement, and thanks for all your help'.

1. Does Kevin have a contract with Michael? 2. AssumingthatKevinhasacontractwithMichael,willNormabe

liable for Michael's rental obligations should he fail to comply with them?