Business Law Assignment: Contract Formation and Promissory Estoppel

This assignment discusses the elements of contract formation and the doctrine of promissory estoppel. It analyzes different scenarios and provides legal analysis based on relevant case laws. The first question discusses the formation of a contract based on different scenarios, while the second question analyzes the liability of Graphic Advertising Pty Ltd to pay promised increase and back pay to Renee based on the doctrine of promissory estoppel. The assignment includes relevant case laws and legal analysis.

Business Law Assignment

Question 1
Issue
The key issue is whether Frank entered into an agreement with any of the parties?
Rule
A contract forms a binding agreement between two or more parties which can be
enforceable by the law. Certain elements must be fulfilled by the parties to form a contract.
Following are different elements which must be present while forming a contract.
 Offer
Firstly, an offer must be made which has the power to bind the offeror, person making the
offer, to its terms as given in Harvey v Facey [1893] UKPC 1. It is important for parties to
differentiate between an offer and an invitation to treat because a contract cannot be
formed by accepting an invitation to treat. In Partridge v Crittenden [1968] 2 All ER 435 case,
it was held that advertisements are also generally considered as invitations to treat
(McKendrick, 2014). However, in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 case, the
court provided that the advertisement was a unilateral contract. The key feature of this
contract is that it can be accepted by anyone who complies with its terms.
 Acceptance
Another element of a contract is acceptance of the offeree; without a valid acceptance, a
contract cannot be formed. The offeree must communicate the acceptance which is similar
to the terms of the offer and it is certain. In Felthouse v Bindley [1862] EWHC CP J35 case, it
was held that silence of a party does not generally amount to an acceptance.
 Capacity
The parties to a contract must be the capacity to bind each other in a legal relationship. It is
necessary that parties are competent to enter into a contract. A minor, insolvent or
unsound mind person is not competent to form a legal contract (Mason, 2016).
 Intention of parties
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While forming a contract, parties must have valid intention in order to enforce themselves
by the terms and conditions of the contract. On the other hand, not every agreement is
enforceable by the court, for example, social and domestic agreements are not legally
enforceable because of lack of intention of parties (Jones v Padavatton [1969] 1 WLR 328).
 Consideration
With a valid consideration, a contract cannot be formed. It is referred to the bargain of the
contract. One party suffer a detriment, and another receives a benefit which is referred to
the consideration. In Thomas v Thomas [1842] 2 QB 851 case, it was held that a
consideration which did not have a value as per the law is not valid (Chen-Wishart, 2012).
Application
In this case, the sign put by Frank is not an offer; instead, it is an invitation to treat. Thus,
parties cannot accept the invitation to treat of Frank, and they are required to make an offer
to purchase Frank’s car.
a. In the first scenario, Bill calls Frank and offers him $1,600 for his car. An offer is made
by Bill that is not yet accepted by Frank. No contract has formed between parties.
b. Mark made an offer to Frank that he would pick up his car on Friday and he also sent
him a cheque for $1,950. Although, Frank deposited the cheque of Mark, however, a
contract has not formed between the parties because Frank did not communicate
his acceptance and he did not comply with the agreement’s conditions. Mark can file
a suit against Frank to recover his money; however, they did not enter into a
contract.
c. John told Frank that he accepted his offer; however, Frank is not bound because the
sign was an invitation to treat. However, Frank has not entered into a contract with
any other party; thus, he has the right to sell his car to John for $2,000 by accepting
his offer.
d. Tom offered to pay $1,700 for Frank’s car, and Frank told him that he would sell his
car if he does not receive a better offer by weekend. It is a social agreement which
cannot be enforceable by the law. Furthermore, Frank also rejected the offer from
Tom by email because he got a better offer.
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Conclusion
In conclusion, Frank did not enter into a contract with any of the parties. The sign put up by
him is an invitation to offer which cannot be accepted by parties. Thus, Frank has the right
to accept the offer of any party. He did not enter into a contract with Bill, and his agreement
with Tom was social which is not enforceable. Furthermore, Frank has not provided his
acceptance by depositing Mark’s cheque; thus, he is free to accept the offer of John.
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Question 2
Issue
The key issue is whether Graphic Advertising Pty Ltd can be held liable by Renee to pay her
promised increase and the back pay?
Rule
Promissory estoppel is referred to an equitable doctrine. The importance of this doctrine
was given in Crabb v Arun DC [1976] 1 Ch 1790 case, in which the court provided that this
remedy stops a person from insisting on his strict legal right in case where it is inequitable
for him to do so. In simple words, this doctrine can stop a person in some instances from
going back on a promise which is not supported by consideration (Gan, 2013). This principle
was developed by Denning J in the obiter statement of Central London Property Trust Ltd v
High Trees Ltd [1947] KB 130. In order to rely on the doctrine of promissory estoppel,
certain requirements are necessary to be fulfilled by the parties.
 Pre-existing contract must be modified
Firstly, a pre-existing contract must exist between parties and its terms must be changed.
The Combe v Combe [1951] 2 KB 215 case is relevant in this contract. In this case, a
promised was made by husband to his wife regarding maintenance payment, but, he did not
fulfil his promise. The wife filed a suited against the husband that was rejected by the court
by providing that no pre-existing agreement exists between the parties which were later
modified by a promise (Rankin, 2011).
 Clear and unambiguous promise
Another key requirement is that the promise made by the party must be clear and
unambiguous. The promise can either be expressed or implied.
 Change of position
It is necessary that the promise made by the party must change their position in the
contract. In the case of Alan v El Nasr [1972] 2 WLR 800, Lord Denning provided that while
determining the doctrine of promissory estoppel, the concept of detrimental reliance is not
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relevant. The only key factor which is necessary is that the contracting position is changed
by the promisor.
 Inequitable to go back to the promise
Finally, it is necessary that it must be inequitable for the court to all the promisor to go back
to his/her promise. In D & C Builders v Rees [1966] 2 WLR 28 case, it was held by the court
that the promise must cause detriment to the promisee (Young, 2016).
Application
In the present scenario, Renee can rely on the doctrine of promissory estoppel in order to
held Graphic Advertising Pty Ltd liable to pay her increase salary along with the back pay.
Firstly, it is necessary to ensure that all the necessary elements of promissory estoppel are
fulfilled in this case. Renee is the employee of Graphic Advertising Pty Ltd, thus, a pre-
existing contract exists between the parties which were modified by Julius by promising
Renee that he will increase his salary (Combe v Combe). The promise made by Julius was
clear and unambiguous, and he clearly provided that he will increase the salary of Renee by
$150 and also backdate this increase by 1 December.
Due to this promise, the position of parties changed in the contract because Renee declined
the offer of Cool Advert right after Julius promised to increase her salary (Alan v El Nasr).
Finally, Renee was struggling to cover her rent and childcare expenses at her current salary.
She got an offer from Cool Advert for $1,100 per week which would have covered her
expenses; however, she declined such offer based on the promise of Julius. Thus, it is
inequitable to let Julius go back to his promise because it will be unjust for Renee. Based on
these elements, Renee can hold Julius liable to act on his promise and increase her salary.
She can also claim the back pay in lump sum from Julius as per his promise.
Conclusion
In conclusion, Julius is liable to increase the salary of Renee based on the doctrine of
promissory estoppel. All the elements of promissory estoppel are fulfilled in this case based
on which Julius is liable to act on his promise. Furthermore, Renee can also claim back pay
from Julius as per his promise.
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References
Alan v El Nasr [1972] 2 WLR 800
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Central London Property Trust Ltd v High Trees Ltd [1947] KB 130
Chen-Wishart, M. (2012) Contract law. Oxford: Oxford University Press.
Combe v Combe [1951] 2 KB 215
Crabb v Arun DC [1976] 1 Ch 1790
D & C Builders v Rees [1966] 2 WLR 28
Felthouse v Bindley [1862] EWHC CP J35
Gan, O. (2013) Promissory Estoppel: A Call for a More Inclusive Contract Law. J. Gender Race
& Just., 16, p.47.
Harvey v Facey [1893] UKPC 1
Jones v Padavatton [1969] 1 WLR 328
Mason, K. (2016) Mason and Carter's restitution law in Australia. London: LexisNexis
Butterworths.
McKendrick, E. (2014) Contract law: text, cases, and materials. Oxford: Oxford University
Press.
Partridge v Crittenden [1968] 2 All ER 435
Rankin, W.D. (2011) Concerning an Expectancy Based Remedial Theory of Promissory
Estoppel. U. Toronto Fac. L. Rev., 69, p.116.
Thomas v Thomas [1842] 2 QB 851
Young, P. (2016) Unconscionability and promissory estoppel. Australian Law Journal, 90(12),
pp.878-888.
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