Contract Law - Assignment on Agreement, Intention, and Estoppel

This document provides a comprehensive analysis of three contract law problem questions. The first question examines the formation of a valid agreement between two parties, focusing on offer, counter-offer, and acceptance, including whether silence can constitute acceptance. The second question explores the intention to create legal relations in a domestic setting, analyzing the presumption of intention in commercial versus domestic agreements and whether an agreement between a father and son for yard work is legally binding. The third question deals with promissory estoppel, examining whether an agreement to reduce payments is effective and whether the original amount can be claimed after circumstances change. Each question is answered using the IRAC method, incorporating relevant legal principles and case law to support the conclusions.

Question One:
The issue in this case scenario concerns whether there exists a valid agreement between
Elaine and Fran after various stages of negotiations. The question further extends to whether
Elaine can take the silence by Fran after 5 pm as acceptance of the new terms.
For there to exist a valid agreement between two parties, consensus ad idem, the ‘meeting of
the minds’ must be established. This is shown from the existence of a valid offer and the
acceptance of an offer. For an offer to be considered valid, it must be specific and definite, so
that the party intended to accept understands it completely (Elliot and Quinn, 2017).
Acceptance, on the other hand, must be unequivocal, unconditional and must be intimated to
the offeror for it to be considered valid (Ali, 2020).
The original offer was made by Elaine for $10.00. When Fran asked for $15.00 instead, this
amounted to a counter-offer. Counter-offers operate as a rejection of the original offer, as was
held in Hyde v Wrench (Hyde v Wrench, 1840). At this point, the offer now stood at $15.00.
Elaine made a counter offer of $12.00. This was the offer in operation at that moment. After
further negotiations, the last offer as made by Elaine, stood at $13.00 per hour and use of her
products. Elaine further stated that if there was no further statement from Fran, she would
consider this as acceptance. The rule as established in Felthouse v Bindley (Felthouse v
Bindley , 1862) is that silence cannot amount to acceptance. One can therefore not impose on
another party the obligation to accept an offer. Further, as stated above, acceptance must be
intimated to the offeror by the offeree. This acceptance can be implied, for example, by Fran
coming to work. The acceptance can also be an express statement to Elaine. This did not
happen.
For these reasons, the offer was not accepted by Fran and therefore, no valid agreement
existed between the two parties.

Question Two:
Did Richard and his father make an arrangement that was intended to give rise to a legally
binding agreement?
It is a well settled principle of law that an agreement is not binding if the intention of the two
parties to be bound by the agreement is not apparent. Before the Ermogenous approach to the
use of presumptions, the presence of intention followed a subjective test. The presumption
was that all commercial transactions are considered to have the requisite intention while
every domestic arrangement does not. However, as per Ermogenous v Greek Orthodox
Community of SA Inc (Ermogenous v Greek Orthodox Community of SA Inc, 2002), the test
should be objective in nature. The question of intention can be determined by considering the
situation at hand, that is, the relationship between the parties (Gibson, 2018). The party that
alleges the existence of this intention bears the onus of proving it. Professor John McCamus
explained that, “commercial arrangements between family members may obviously be
intended to create enforceable agreements,” (McCamus, 2005). This means that it is possible
for domestic arrangement to have intention to create legally binding agreements.
A legally binding agreement is one which the courts can be expected to enforce. For a
contract to be valid, this element must be present. There are circumstances in which this
intention is evident from the facts as it was expressly stated, or perhaps, the agreement was in
writing. However, when this is not apparent, especially in the non-commercial setting, an
objective test must be adopted, in which the question of intention can be determined by
considering the relationship the parties have. As stated in Ermogenous, Richard would have
the onus of proving, upon the preponderance of probabilities, that the agreement had the
requisite intention. The agreement between Richard and his father was for Richard to tend to

the front and backyards for a payment of $200 every week. This was a responsibility had
earlier been borne by a garden contractor who was receiving a pay of $350 every week. In
this case, he saves his father $150 while doing it. Further, the work appears to be very
difficult. This arises from the fact that the property is one hectare in size. Mowing the lawn
only consumes half of one’s day. Further, since the arrangement had continued over several
weeks before his father began to cry foul, it suffices to say that the arrangement resembled
that of employment. It appears that although this arrangement was made in the context of a
family home, a domestic setting, the agreement was commercial in nature. It is therefore
unconscionable for Richard’s father to treat the arrangement in any other way.
Even though the arrangement arises from a domestic setting, the arrangement is commercial
in nature. This suffices to rebut the presumption that domestic arrangements are not intended
to create legally binding agreements. The intention to relate in a legally binding manner is
therefore evident.
Question Three:
The issue in question is whether the agreement between Steve and Andrew to reduce Steve’s
payments to Andrew from $10,000 to $5,000 was effective and whether Andrew would
expect Steve to pay the $15,000 that was forfeited for the three years in which the rent was
reduced.
The rule of promissory estoppel, as established under common law, operates such that where
there exists a pre-existing contract between parties and one party makes a promise to the
other with the effect of modifying the pre-existing arrangement, if the other party relies on
this promise thereby changing his legal position, it is unequitable for the promisor to go back
on their promise. This is an exception to the strict rule of consideration such that any promise
must be accompanied by valuable consideration for it to be actionable. This rule was

developed in obiter by Denning LJ in the landmark case of Central London Property Trust
Ltd v High Trees Ltd (Central London Property Trust LTD v High Trees LTD, 1947)(High
Trees Case).
Steve and Andrew had an existing contractual arrangement in which Steve was to pay an
annual rent of $10,000 for the use of Andrew’s boat. This satisfies the first requirement of
promissory estoppel as per the ruling in Combe v Combe (Combe v Combe, 1951). Owing to
the difficulties that arose from the decline in scallop numbers Steve was unable to meet the
annual rental charge unless the catch is improved. For this reason, he approached Andrew for
a reduction in the rent. According to Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product
Marketing Co. Ltd (Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co.
Ltd, 1972), the representation had to be clear and ambiguous. This was also fulfilled in
Andrews case. He had made the representation to Steve in a clear and unambiguous manner.
This reduction was given, thus altering the earlier on agreement. Steve then relied on this
representation from 2017 to 2020. The reliance was to his detriment. After the scallop
numbers rose again, he was able to meet the payments as earlier on agreed. However, the
expectation of Andrew that Steve should pay the $15,000 that had been foregone should not
stand. Lord Denning stated as follows in the High Trees Case: "In my opinion, the time has
now come for the validity of such a promise to be recognised. The logical consequence, no
doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is
binding notwithstanding the absence of consideration." It is important to note that before the
establishment of this rule, for one to make modifications to a previously existing
arrangement, one had to satisfy all the requisite elements of a contract.
Andrew cannot claim the funds that accrued for the three years. He can only be paid for the
subsequent years after the conditions for the reduction of rent had stopped occurring, that is,
the decline in the number of scallops in the water.

References
Ali, 2020. Legal Rules Regarding Acceptance. [online] Slideshare.net. Available at:
<https://www.slideshare.net/frazali927/legal-rules-regarding-acceptance> [Accessed 18 April
2020].
Central London Property Trust LTD v High Trees LTD (1947) KB.
Combe v Combe (1951) KB.
Elliot, C. and Quinn, F., 2017. Contract Law. 11th ed. Pearson.
Ermogenous v Greek Orthodox Community of SA Inc (2002) HCA.
Felthouse v Bindley (1862) EWHC.
Gibson, A., 2018. Business Law. 10th ed. s.l.:Pearson Australia.
Hyde v Wrench (1840) EWHC.
McCamus, J. D., 2005. The Law of Contracts. 2nd ed. s.l.:Irwin Law.
Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd (1972) AC.