Elements Of A Valid Contract And The Doctrine Of Promissory Estoppel

Essential Elements of a Valid Contract

1.Issue

Whether a contract has formed between Frank and any other party?

Rule

In order to form a valid contract, the essential elements of a contract must be fulfilled by the contracting parties. These essential elements constitute a valid contract which binds the contracting parties into its legal terms and parties can legally enforce each other in case a party violated the terms of the contract. Following are essential elements of a valid contract:

1. Offer:One of the key requirements of a valid offer is that it has the power to bind the offeror to its terms. In this context, the judgement of Harvey v Facey (1893) UKPC 1 is helpful. In this case, it was held that an offer binds the offeror into its terms right after the acceptance made by the offeree (Knapp, Crystal and Prince, 2016). It is important to differentiate an offer from an invitation to treat. A general rule about advertisements was given in the case of Partridge v Crittenden (1968) 2 All ER 425 in which the court provided that generally all advertisements are treated as an invitation to treat.
2. Acceptance:A contract cannot be formed until the offeree gives a valid acceptance. Following are essential elements of a valid acceptance:
   1. The offeree must communicate it
   2. Terms must exactly match the terms mentioned in the offer
   3. It must be certain

In Entorres v Miles Far East (1955) 2 QB 327 case, the court provided that the general rule of communication is that offeree must communicate it before it becomes ineffective. In Felthouse v Bindley (1862) EWHC CP J35 case, the court provided that silence cannot constitute a valid acceptance (Gordon, 2014).

1. Consideration:The general rule of consideration in a contract provides that it must have a value in the eyes of the law as given in the judgement of Thomas v Thomas (1842) 2 QB 851 case. In Re McArdle (1951) Ch 669 case, the court held that consideration in a contract must not be past because a contract cannot be formed based on a past consideration (Angus, 2012).
2. Competence:The contracting parties must have been competent to form a legal relationship and bound themselves by the terms and conditions of the contract. Parties such as insolvent, minor and unsound mind person are not competent to form a legal contract.
3. Intention to create a legal relationship:The contracting parties must have the intention to form a legal relationship, and their intention must be free from any external force. Generally, the promises made by parties in social or domestic settings did not have intention of parties to form a legal relationship as provided in the judgement of Balfour v Balfour (1919) 2 KB 571 case; therefore, they cannot form a legal contract (Martin, 2014).

Application

In the present case study, Frank put a sign on his car to sell it for $2000. This is not an offer; instead, it is an invitation to treat. Based on this invitation, parties are required to make an offer to Frank if they are interested in purchasing his car as discussed in Partridge v Crittenden case. Bill saw the sign and offered Frank to pay $1600 for his car. In this case, an offer is made by Bill and Frank did not accept this offer, thus, a contract has not formed between the parties. As discussed in Felthouse v Bindley case, the silence of Frank cannot be constituted as acceptance. Mark made an offer and sent a cheque of $1950 to Frank. The cheque was deposited in the bank by Frank; however, Frank did not expressly give his acceptance to Mark. A suit can be filed by Mark to recover the money; however, no contract has formed between them. John gave his acceptance to purchase the car of Frank; however, the sign was an invitation to treat which cannot be accepted by parties. Tom made an offer to Frank to pay $1700 for his car and Frank told him that he would accept this offer if he did not receive a better offer. Firstly, it is a social agreement which is not enforceable, and later Frank also rejected the offer of Tom. No contract has formed between Frank and other parties, thus, he is free to sell his car to John. 

Conclusion

To conclude, no contract exists between Frank and other parties. Mark can file a suit to recover his money, and Frank can accept the offer of John to sell his car

2.Issue

Offer and Acceptance

Whether Renee can legally enforce Graphic Advertising Pty Ltd to increase her salary and provides her back pay?

Promissory estoppel is an equitable estoppel which stops a party from going back to his/her promise. The object of this estoppel is to prevent people from insisting on their strict legal rights. To implement the provision of promissory estoppel, parties have to prove that certain elements are fulfilled. Total Metal Manufacturing Ltd v Tungsten Electric Co Ltd (1955) 1 WLR 761 is a relevant case regarding the doctrine of promissory estoppel because its modern concept was developed in this case (Monaghan and Monaghan, 2013). It ensures that people did not misuse their legal rights to promising something which they are not going to fulfil. Following are key element of promissory estoppel which must be proved by parties to enforce a promise based on this doctrine.

1. Pre-contractual or legal relationship:The first element of promissory estoppel is that the parties must be pre-contractual or legal relationship which is then modified by the promise. In Brikom Investments Ltd v Carr (1979) CA case, Lord Denning provided that the doctrine of promissory estoppel arise when a promise is made by contracting parties based on negotiating a contract (Furmston, Cheshire and Fifoot, 2012).
2. Promise must be clear and unambiguous:Another element is that the promise made by the party must be clear and unambiguous statement in which he/she clearly mentioned his/her intention not to enforce his/her legal rights. The promise can be expressed or implied.
3. Change in position of parties:The promise must result in changing the position of the parties. In Ajayi v Briscoe (1964) 1 WLR 1326 case, the court provided that the party must act based on the reliance on the promise and suffered detriment which results in changing their position (Graw, 2012). Although suffering a detriment is not an essential element of promissory estoppel and parties which did not suffered a detriment can still rely on the doctrine of promissory estoppel.
4. It is inequitable to let the promisor go back on the promise:Another element of the doctrine of promissory estoppel is that it would be inequitable to let promisor renege to his/her promise. It must be inequitable to let the promisor go back on the promise made by him based on his/her strict legal rights as given in the judgement of D & C Builders v Rees (1966) 2 WLR 28 case (Barker, 2014).

Application

In the given case study, Julius promised Renee that he would increase her salary and also give her back pay if she continues to work for Graphic Advertising Pty Ltd. To recover such salary and back pay, Renee can implement the provision of promissory estoppel. To implement the provision of promissory estoppel, certain elements must be fulfilled by the parties. Firstly, a pre-existing contractual relationship must exist between parties as given in Brikom Investments Ltd v Carr case. Moreover, Julius clearly mentioned the promise and its terms were unambiguous. He clearly mentioned that the salary of Renee would be increased by $150 and this increase will be backdated from 1 December. After the promise of Julius, the contractual relationship between Graphic Advertising Pty Ltd and Renee were changed which is an essential element of the doctrine of promissory estoppel as discussed in Ajayi v Briscoe case. It was also the reason due to which Renee declined the offer of Cool Advert. The promise for increase in salary is justifiable because Renee’s work is excellent, and she was struggling with her current salary to cover rent and childcare expenses (D & C Builders v Rees). If the court would let Julius go back on his promise, then it will be inequitable for Renee.

Conclusion

To conclude, the elements of the doctrine of promissory estoppel discussed above are fulfilled in this case. Thus, Renee can rely on this equitable doctrine to legally enforce Julius and Graphic Advertising Pty Ltd to increase her salary along with back pay. 

References

Ajayi v Briscoe (1964) 1 WLR 1326

Angus, T. (2012) Curtis and others v Pulbrook and others. Trusts & Trustees, 18(9), pp.870-875.

Balfour v Balfour (1919) 2 KB 571

Barker, D. (2014) Law made simple. Abingdon: Routledge.

Brikom Investments Ltd v Carr (1979) CA

D & C Builders v Rees (1966) 2 WLR 28

Entorres v Miles Far East (1955) 2 QB 327

Felthouse v Bindley (1862) EWHC CP J35

Furmston, M.P., Cheshire, G.C. and Fifoot, C.H.S. (2012) Cheshire, Fifoot and Furmston’s law of contract. Oxford: Oxford University Press.

Gordon, B. (2014) Acceptance by conduct in ecommerce transactions in Australia. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 28(2), p.3.

Graw, S. (2012) An introduction to the law of contract. Toronto: Thomson Reuters.

Harvey v Facey (1893) UKPC 1

Knapp, C.L., Crystal, N.M. and Prince, H.G. (2016) Problems in Contract Law: cases and materials. Alphen aan den Rijn: Wolters Kluwer Law & Business.

Martin, J. (2014) Key Cases: The English Legal System. Abingdon: Routledge.

Monaghan, C. and Monaghan, N. (2013) Beginning Contract Law. Abingdon: Routledge.

Partridge v Crittenden (1968) 2 All ER 425

Re McArdle (1951) Ch 669

Thomas v Thomas (1842) 2 QB 851

Total Metal Manufacturing Ltd v Tungsten Electric Co Ltd (1955) 1 WLR 761