Common law of contract Essay Example
LEGT 1710 BUSINESS AND THE LAW
20 February 2021
Alex is demanding payment for the additional $20,000 and his share of the farm after relying on the promise of his father that he will be paid an extra pay subject to the condition that he continues to manage the farm and try to be more cordial with his difficult stepmother. First, it is necessary to determine if Alex and his father, George had the intention to enter into legal relations; Secondly, it is necessary to identify if there was a practical benefit gained by any of the parties; Lastly, it is important to identify whether promissory estoppel is applicable in this case.
Intention to Enter to Legal Relations
In order to establish the legal basis that would entitle Alex the extra $20,000, it is compulsory that we determine the intention of both parties to enter to legal relations. In the formation of a contract, it is important to identify the intention of both parties, which is usually resolved based on the nature of the transaction. As a general rule, doctrinally entrenched is the principle that with respect to agreements which relate to family, social or domestic relationships, the courts have presumed that there is no intention to create a legally binding agreement between the parties and in effect, makes the contract unenforceable.
However, this presumption can be rebutted by contrary evidence to the contrary as decided in the case of Mc Gregor V. Mc Gregor1, where the court ruled that there was a valid contract that existed between the husband and the wife, which has been breached by the husband and thus, entitled the wife to receive the arrearages that she has claimed. In holding that a legally enforceable contract existed between the parties, the court examined the circumstances under which the agreement has been entered into. In this case, the circumstances proved the agreement was not domestic in nature since it was arrived after a legal separation had taken place, where the parties had given up their respective claims on certain legal rights. The same ruling was adopted in the case of Meritt V. Meritt2, where the wife succeeded in her claim against her husband.
While in the case of Wakeling V. Ripley3, the court held that the parties intended to enter into a binding and enforceable contract between the brother and the sister, when the sister adopted the suggestion of her brother that she and her family transferred to Australia to live there, so she can take care of him and eventually inherit all his property after his death. The court held further that the circumstances were so serious that it was apparent that they did enter to a binding and enforceable contract, there being no evidence to prove the contrary. The cases of Todd V Nicol4 and Roufos V. Brewster5 adapted the same view where a similar result was reached by the court.
In the recent case of Riches V. Hogben6, the court has set-out a criteria that should be applied in resolving the issue on intention which includes: (1). What the parties said to each other, whether done orally or in writing; (2). The context in which the statements were made; (3). How the parties conducted themselves in the particular situation; and (4). How grave the consequences would be to the innocent party if the promises made by the other party were to be breached.
In the case at bar, Alex gave up his second year university study in Sydney to return to western NSW to manage and operate his father’s farm. His father, George, promised to pay him $30,000 and give him a share in the property after Alex has completed one year’s work. In addition, his father promised to pay Alex an extra $20,000 upon George’s return, if Alex resolved his difficulties with his stepmother and fulfils housework aside from his farming duties. Here, it is obvious that the circumstances were so serious since Alex gave up his one year of study in Sydney to return to NSW and manage the farm, relying in his father’s promises and believed that he personally stood to gain from his move to the farm. The consequences were so grave on the part of Alex if the promises made to him by his father were to be breached.
Hence, all surrounding circumstances and the subsequent conduct of the parties must be considered in determining whether or not it was intended that the agreement should bear legal consequences7. Therefore, after careful consideration of all surrounding facts and conduct of the parties, it can be concluded that Alex and his father had the intention to make the agreement binding and enforceable between them.
Practical Benefit Received by the Promissor
As a general rule, a promise to perform an existing duty is no consideration, when the promise is made by the party to a pre-existing contract. But when it is made to the promise under that contract, the promisor is bound is not to do more than what is required under such contract. Thus, the promise to perform an act that is already required by the contract cannot constitute consideration for a promise made in exchange for that performance8. However, as a result of recent decisions, this rule has been given a more liberal interpretation and the element of consideration has been redefined.
In the case of Williams V. Roffey Bros & Nicholls (Contractors) Ltd.9, the court held that Williams claim for damages should be granted since Roffey Bros received a practical benefit which amounted to a sufficient consideration to bind Roffey Bros to their promise of additional payment to Williams. The court held that should the promise provide something that is beyond the terms of the existing contractual duty to the promisor, that extra may constitute a good consideration10. Therefore, the performance of an existing contractual duty can support a promise that has been made in exchange for the performance, provided that the promisor receives a recognisable practical benefit from that performance and is not acting under any kind of duress11.
In the case of Alex, his father promised to pay him additional $20,000 aside from the original consideration of $30,000 and share in the property if he chooses to stay in the farm and makes an extra effort to try to be patient with his stepmother’s untoward behavior and perform house work aside from his farming duties. As a result of his father’s promise, Alex stayed and continued to manage the farm for a year. His father gained a practical benefit since Alex was able to handle the farm’s operations for one year despite his father’s absence.
Therefore, Alex should be entitled to receive the additional $20,000 payment which constitutes as an additional consideration which made the promise of his father legally binding.
The same principle was applied in the case of Musumeci V. Winadell Pty. Ltd12 when the court ruled that promise to the party providing the practical benefit includes not only promise of extra payment of the promisor, but may also be in the form of granting of a concession, in exchange of the performance of the contractual obligation of the promisee.
The promises which occurred in the cases Williams V. Roffey Bros & Nicholls (Contractors) Ltd.13 and Musumeci V. Winadell Pty. Ltd 14 are enforceable by applying the doctrine of promissory estoppel.
The case of Walstons Stores V. Maher15 has laid down the prerequisites before the doctrine of promissory estoppel can be applied. Brennan J stated equitable estoppel can be established provided that the following requisites are present: (1).plaintiff assumed a particular legal relationship that existed between the plaintiff and the defendant, or a expected legal relationship existed between the parties, making it impossible for the defendant to withdraw from such legal relationship; (2). Defendant induced the plaintiff to adopt the expectation or assumption; (3). Plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4). Defendant knew or intended him to do so; (5). Plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6). Defendant has failed to act to avoid that detriment whether by fulfilling the assumption of expectation or otherwise.
In the case of Alex, all the requisites are present. He was made to believe by his father that he will be paid the extra $20,000 if he opted to stay in the farm and operate it, aside from the prior promise of $30,000 and a share in the property upon completion of one year’s work while his father was away to take care of his ailing mother. His father induced Alex to rely on such expectation as he decided to forego his second year university study as he was promised to receive the total sum of $50,000 and a share in the property. Failure of his father to fulfill the expectation will cause a serious detriment on Alex. Therefore, after having complied with all the six requisites to warrant a claim on the basis of promissory estoppel, Alex is entitled to receive the additional $20,000 consideration which was promised by his father.
In essence, the High court ruled that promissory estoppel can only exist where there is both unconscionable conduct by the promisor and detrimental reliance on that conduct by the promisee. For the conduct to be unconscionable, mere reliance on executor promise to do an act is not sufficient. There must be an assumption that was relied by the promise that the contract will come into existence or the promise will be performed, and that the party relied on such assumption to his detriment to the knowledge of the promisor. The detrimental reliance must be serious enough to cause a material disadvantage suffered by the promise due to the promisor’s unconscionable conduct16. The vital component of estoppel is unconscionability. Thus, a person will be estopped or precluded to deny such promise if it will be unconscionable to depart from the assumption which was relied upon by the other party.17
The promisor’s representation must be clear and unequivocal18 and must have knowledge of promisee’s reliance on his representation. The promisor’s representation should also be supported by reasonable circumstances.
In the case of Mobil Oil Australia Ltd V. Lyndell Nominees Pty Ltd.19, the remedy of altering the legal relationship between the parties on the basis of promissory estoppel is not always the appropriate remedy as an action for damages can also be recovered by the promise. The direct enforcement of estoppel now becomes the cause of action of the party asserting such claim.20
In the similar case of Thompson V. Palmer21, Dixon J explained that the object of estoppels is to prevent an unjust departure by one person from an assumption which was adopted by another which forms the basis of some act or omission will operate to the detriment of the other party, provided that the assumption will be adhered to.
Promises which are supported by consideration are enforceable contracts22.
The concept of estoppel is to provide a protection to a person from any injurious consequence that may arise on the basis of such person’s reliance on a promise supported by a consideration. Thus, well-settled is the rule that unconscionability is treated as the touchdown for all relevant forms of estoppel.23
Finally, it can be concluded that Alex is entitled to receive the additional $20,000 and a share in the farm on the basis of the doctrine of promissory estoppel. He was made to believe by his father that he will receive the extra pay if Alex continued to perform his contractual obligation, thereby causing a practical benefit on the part of his father. Thus, such promise made by the father became part of the consideration and was also intended to create legal relations based on the clear intention of both parties to make the agreement legally binding between them.
Carter, J. W., Peden, E. and Tolhurst, G. J. 2007. Contract Law in Australia. 5th ed. Australia:
Khoury, D. and Yamouni, Y.S. 2007. Understanding Contract Law. 7th ed. Australia: LexisNexis
Khoury, D. and Yamouni, Y.S. 2010. Understanding Contract Law. 8th ed. Australia: LexisNexis
Latimer, P. 2010. Australian Business Law. 29th ed. Australia: CCH Australia Ltd.
Amalgamated Investment and Property Co. Ltd V. Texas Commerce International Bank Ltd. (1982) QB 84 at 106.
Legione V. Hoteley (1983) 57 ALJR 292.
Mc Gregor V. Mc Gregor (1888) 21 QBD 424.
Meritt V. Meritt (1970) 2 All ER 760.
Mobil Oil Australia Ltd V. Lyndell Nominees Pty Ltd. (1998) 153 ALR 198.
Musumeci V. Winadell Pty. Ltd (1994) 34 NSWLR 723.
Riches V. Hogben (1986) 1 Qd R 315.
Roufos V. Brewster (1971) 2 SASR 218.
Taylors Fashions Ltd V. Liverpool Victoria Trustees Co. Ltd (1982) QB 133n at 151.
Todd V Nicol (1957) SASR 721.
Thompson V. Palmer (1933) 49 CLR 507.
Walstons Stores V. Maher (1988) 164 CLR 387
Wakeling V. Ripley (1951) 51 SR (NSW) 183.
Williams V. Roffey Bros & Nicholls (Contractors) Ltd (1990) All ER 512.
1 (1888) 21 QBD 424.
2 (1970) 2 All ER 760.
3 (1951) 51 SR (NSW) 183.
4 (1957) SASR 721.
5 (1971) 2 SASR 218.
6 (1986) 1 Qd R 315.
7 Ibid; Wakeling V. Ripley (1951) 51 SR (NSW) 183.
8 Daniel Khoury and Yvonne S Yamouni, Understanding Contract Law (LexisNexis Butterworths,8th edition,2007).
9 (1990) All ER 512.
10 Ibid; Daniel Khoury and Yvonne S Yamouni, Understanding Contract Law (LexisNexis Butterworths, 8th edition, 2010).
11 Ibid; Daniel Khoury and Yvonne S Yamouni, Understanding Contract Law (LexisNexis Butterworths, 8th edition, 2010).
12 (1994) 34 NSWLR 723.
13 Ibid; (1990) All ER 512.
14 (1994) 34 NSWLR 723.
15 (1988) 164 CLR 387
16 Thompson V. Palmer (1933) 49 CLR 507.
17 JW Carter, Elisabeth Peden and GJ Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th edition, 2007).
18 Legione V. Hoteley (1983) 57 ALJR 292.
19 (1998) 153 ALR 198.
20 Ibid; JW Carter, Elisabeth Peden and GJ Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th edition, 2007).
21 Ibid; Thompson V. Palmer (1933) 49 CLR 507 and 547.
22 Ibid; JW Carter, Elisabeth Peden and GJ Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th edition, 2007).
23 See, eg Amalgamated Investment and Property Co. Ltd V. Texas Commerce International Bank Ltd. (1982) QB 84 at 106; Taylors Fashions Ltd V. Liverpool Victoria Trustees Co. Ltd (1982) QB 133n at 151; Ibid; Walstons Store V. Maher (1988) 164 CLR 387
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