Making a Contract - Analysis and Application of Common Law of Contract

This article provides an analysis and application of the common law of contract in various scenarios. It covers topics such as misrepresentation, promissory estoppel, consideration, and intention to be legally bound.

Running head: MAKING A CONTRACT
Making a Contract
Name of the Student
Name of the University
Author Note

1MAKING A CONTRACT
Table of Contents
Question 1..................................................................................................................................3
Issue........................................................................................................................................3
Rule........................................................................................................................................3
Application.............................................................................................................................3
Conclusion..............................................................................................................................4
Question 2..................................................................................................................................5
Issue........................................................................................................................................5
Rule........................................................................................................................................5
Application.............................................................................................................................6
Conclusion..............................................................................................................................6
Question 3..................................................................................................................................7
Issue........................................................................................................................................7
Rule........................................................................................................................................7
Application.............................................................................................................................7
Conclusion..............................................................................................................................8
Question 4..................................................................................................................................9
Issue........................................................................................................................................9
Rule........................................................................................................................................9
Application...........................................................................................................................10

2MAKING A CONTRACT
Conclusion............................................................................................................................10
Bibliography.............................................................................................................................11

3MAKING A CONTRACT
Question 1
Issue
The issue of this question is to determine whether Alicia have a contractual obligation
to sell her Cafe business to Rasheed.
Rule
According to the Common Law of Contract, misrepresentation refers to the giving
of information, which is false by one party to another before the formation of the contract;
however, such misrepresentation has the potential to induce the party to form the contract and
experience injury or loss1. Therefore, the court gives opportunity to the aggrieved party to
either cancel the contract or make claim for damages. Misrepresentation must be a false
statement of fact and not a statement that lays down an opinion or promise. Although the
buyers are supposed to inspect carefully before investing their money in a particular contract
of sale, yet the promisor or the seller has the little amount of latitude when selling privately to
make alluring statement for enhancing the interest of the potential buyers. A representation is
deemed to be innocent where a promisor or seller makes a particular statement believing it to
be true and bears no intention to cheat or deceive the promisee or the buyer. On the other
hand it would be deemed as a fraudulent misrepresentation where the promisor all the seller
makes a statement knowing it to be untrue and with an intention to deceive the promisee or
the buyer. An aggrieved party in context to a fraudulent misrepresentation can either opt to
rescind the contract or may choose to sue the promisor for damages for the losses.
Application
Rasheed’s misrepresentation of fact was evident to Alicia, which would act as a
defence for her to rescind the agreement. However, Alicia would be under the obligation to
1 Misrepresentation (2019) Lawhandbook.sa.gov.au <https://lawhandbook.sa.gov.au/ch10s02s06.php>.

4MAKING A CONTRACT
establish the fact that Rasheed had misrepresented the facts regarding selling the cafe and that
he did not care enough about the business.
Conclusion
Therefore, to conclude, Alicia would not have a contractual obligation to sell her Cafe
business to Rasheed

5MAKING A CONTRACT
Question 2
Issue
The issue of this question is to determine whether doctrine of promissory Estoppel
would apply to Alicia and Rasheed.
Rule
Promissory Estoppel is a kind of Estoppel, which comes into effect if a person induces
another to make an incorrect assumption regarding a future affair or event. The doctrine of
promissory Estoppel stops a party from denying a promise that was made to another, in case
the latter has relied and made significant changes based on that promise2. However, a promise
that was made or given effect to without the involvement of consideration is not enforceable.
In the case of Central London Property Trust Limited v High Trees House Limited it was
laid down by Lord Denning that promissory Estoppel comprises of3:
 A promise made by words or action that ensures the execution of the contract;
 Evidence that the inducement of entering into the contract made the promisor or
promisee change their position to accommodate themselves as per the requirement of
the promise; and
 Inequity in case the promisor is required to fulfill the promise.
In the case of Walton’s Stores (Interstate) Ltd v Maher the court removed the limitations on
the application of the rule of promissory Estoppel. Justice Brennan in this case laid down the
essentials to prove the presence of promissory or equitable Estoppel4. It is important for the
plaintiff aggrieved party to establish the facts that:
2 Gan, Orit. "Promissory Estoppel: A Call for a More Inclusive Contract Law." (2013)J. Gender Race &
Just. 16: 47
3 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
4 Walton’s Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

6MAKING A CONTRACT
 The aggrieved party assume that there would be legal relationship between him and
the defendant which the defendant would not be able to withdrawal from;
 The defendant has laid down inducement for the plaintiff to make the assumption;
 The plaintiff is believing on such assumption;
 The defendant had knowledge about the plaintiff’s actions;
 there will be detrimental consequences by the plaintiffs action, if the assumption is
not fulfilled; and
 The defendant is not succeeded to avoid the detriment by fulfilling the expectation or
assumption.
Therefore, to attract the defense of promissory Estoppel, one has to establish the above
mentioned essential requisites. A claim for establishing promissory Estoppel needs to
satisfy all the essential elements, or else the claim would not have an effect.
Application
The doctrine of Promissory or Equitable Estoppel would not be applied here, as Alicia
was under the wrong impression regarding Rasheed’s interest on the café. Additionally, the
agreement was in an unenforceable stage as it was still under the consideration of Alicia's
attorney. Alicia would be required to site that there was serious indications of
misrepresentation of fact by Rasheed. She needs to establish the fact that she would have
sustained loss or injury if she had proceeded with the agreement with Rasheed.
Conclusion
Therefore, the doctrine of promissory Estoppel would not be applied to Alicia and Rasheed.

7MAKING A CONTRACT
Question 3
Issue
The issue of this question is to determine whether Ting can recover $800 from Alicia.
Rule
The basic and fundamental essential of a contract is the agreement or consensus ad
idem which involves the meeting of minds of the parties involved. An agreement usually
consists of an offer made by the offeror and acceptance which is accepted by the offeree. It is
usually suggested that an agreement should be made in writing so that it is easier to establish
its authenticity on a later date. An agreement to be valid, a pre agreed consideration amount
is essential which is to be agreed by the parties to the contract before making the agreement
enforceable. Unless the parties agree on the consideration amount the agreement cannot come
into existence. In the Carlill v Carbolic Smoke Ball Company case, it was held that
consideration is referred to the price which is agreed by the promisor pertaining to the
promise that he made5. Therefore once a promise is made regarding the value of
consideration and the parties agrees on it, there cannot be an alternative to escape from
executing the promise. In circumstances where the promisor fails to fulfil or execute the
promise, the promisee is liable to claim damages against the promisor.
Application
In the given case Alicia had promised Ting to pay $800 on the completion of the sign
board work. Therefore on a later date she cannot refuse to pay less even if the sign board does
not stay fixed on its place. It is absolutely against the principles of contract that the promisor
would pay lesser than the agreed consideration to the promisee. Alicia could have asked Ting
5 Carlill v. Carbolic Smoke Ball Company Court of Appeal [1893] 1 QB 256

8MAKING A CONTRACT
to repair the sign board without charging extra for it was not staying fixed and had chances of
falling down; but she had no authority to cut down the consideration.
Conclusion
Therefore, Ting would be able to recover $800 from Alicia.

9MAKING A CONTRACT
Question 4
Issue
The issue of this question is to determine whether Ron is entitled to the coffee card for
12 free coffees
Rule
Intention to be legally bound by an agreement is another essential element to form a
contract, apart from the elements of offer and acceptance and consideration. The parties
indulging to form an agreement must have the intention to make the agreement legally
binding and eventually form a lawful contract. The factor of intention of the parties to be
legally bound is significant for determining and distinguishing the enforceable agreements
(lawful contracts) from the non enforceable agreements (non-contractual) in the court. The
existence of the intention of the parties to be legally bound can be determined by the fact that
the parties have de knowledge and information about all the intricate details regarding the
agreement. In the case of Teen Ranch Pty LTD v. Brown, it was held that there must be an
intention to form legally binding relationship between the parties, in absence of which a non
enforceable agreement would not hold any value6. In this case, Brown worked for Teen
Ranch as a volunteer where he was being provided with accommodation food and few other
camp facilities, but no remuneration. Brown claimed compensation on account of injury and
argued that he was in a contract of employment with the camp. However, it was held that
although Brown derived certain benefits from the camp yet there was no intention between
the parties to form a legally binding relationship. Hence the claim was rejected. On the other
hand, in the Carlill v. Carbolic Smoke Ball Company case, the court had granted damages on
the account that there were proper legal relationship between the company and Carlill as she
6 Teen Ranch Pty LTD v. Brown (1995) 38 ALR 5-036

10MAKING A CONTRACT
bought the carbolic smoke ball based on the information that it would prevent influenza7. The
plaintiff here had absolute intention to form a binding relationship with the company, hence
bought the product and used it accordingly.
Application
In the given situation, Ron had no knowledge or information about the fact that Alicia
was giving away gift coffee cards for bringing spare coffee mugs for the café. Ron had no
intention to enter into an agreement with Alicia for he had no knowledge about Alicia offer.
Ron was only helping Alicia by donating spare coffee mugs to her without any agreement of
consideration. Hence there is no intentional binding agreement between Ron and Alicia
regarding her offer to bring spare coffee mugs in-exchange of free coffee gift card.
Conclusion
Therefore to conclude, Ron would not be entitled to the coffee card for 12 free coffees.
7 Carlill v. Carbolic Smoke Ball Company Court of Appeal [1893] 1 QB 256

11MAKING A CONTRACT
Bibliography
Articles/Books
Gan, Orit. "Promissory Estoppel: A Call for a More Inclusive Contract Law." (2013)J.
Gender Race & Just. 16: 47
Case laws
Carlill v. Carbolic Smoke Ball Company Court of Appeal [1893] 1 QB 256
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
Teen Ranch Pty LTD v. Brown (1995) 38 ALR 5-036
Walton’s Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Websites
Misrepresentation (2019) Lawhandbook.sa.gov.au
https://lawhandbook.sa.gov.au/ch10s02s06.php