Law of Contract - Case Study Example

Law of Contract of the of the Law of Contract Eileen and Paul purchased a very large house, with the intention of converting it into apartments. They were assisted in their endeavour, to a major extent, by their friend Anne. One of these flats was rented out to Mike, while construction was in progress. The latter paid reduced rent, as the work was incomplete. After the completion of the work, Eileen and Paul allow Anne to stay in one of the apartments, in exchange for her help. These apartments prove to be in great demand, and Eileen and Paul have a change of mind and ask Anne to either pay rent or vacate the flat. They also ask Mike to enhance the rent with retrospective effect, from the time of completion of the flats. For advising Eileen and Paul in respect of their problems with Mike and Anne, the following issues have to be considered. Whether, there is any legally binding contract between Anne and Eileen and Paul. Whether Eileen and Paul can demand the arrears of rent from Mike, with retrospective effect. The principle of Promissory Estoppel has to be examined for answering these issues. In general, consideration is a very important factor in contracts, and renders a promise enforceable. The promisee has to provide something in exchange for the promise, which is termed as consideration. In the absence of consideration, a promise is in general, rendered unenforceable. In essence, the promisee has to provide something to the promisor, in exchange for the promise (Capper, 2008, p. 105). In our problem, Mike was paying rent at a lower rate, since the construction work was in progress in the building. However, he had been paying a much higher rent, initially. The following case law indicates the attitude of the courts in deciding issues related to the principle of promissory estoppel. In Williams v Roffey, the court held that the performance of a previous contractual duty was consideration for a subsequent contract. The reasoning behind this ruling is the proper performance of the original contractual obligation would give rise to a practical benefit for the parties to the contract (Williams v Roffey Brothers & Nicholls (Contractors) Ltd, 1991).If the promisee performs something with regard to an earlier contract, which benefits the promisor, then the performance is considered as good consideration. The only requirement is that the performance must have resulted in some practical benefit to the promisor. However, in Re Selectmove Ltd, the appellate court held that the promise of the plaintiff to the Inland Revenue required the payment of arrears. As there were no immediate payments by the plaintiff, there was no good consideration (Re Selectmove Ltd, 1995). In Central London Property Trust Ltd V. High Trees House Ltd, sparse occupancy, occasioned by the World War, had caused the landlord to charge reduced rent. Subsequently, occupancy increased to the extent that there were no vacant flats. The tenants opposed the landlord’s attempt to charge the higher rent, and the court ruled that the tenants had to pay higher rent from the time of full occupancy (Central London Property Trust Ltd v High Trees House Ltd, 1947). This case constitutes the best decision in the Commonwealth and England. It deems reliance to be the basis for altering a contract (Teeven, 2002, p. 350). However, higher rent was not permitted from the very beginning; this constitutes the principle of promissory estoppels. Moreover, in Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd, the patent owners had promised to defer periodic payments due to them, from the outbreak of war (Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd , 1955). The House of Lords held this promise to be binding during the period of suspension. This decision suggests that the principle of estoppel is in general, suspensory. As per the decision in Central London Property Trust Ltd, Mike has to pay the enhanced rent only after the completion of the construction of flats. However, Eileen and Paul demanded him to pay the full rent with retrospective effect, which includes arrears for the previous three months. In Ward v Byham, the court held that if a party performed additional duty that was in the interest of the public, then such additional performance would be sufficient consideration (Ward v Byham, 1956). In Jorden v Money, it was held estoppel had to be founded on a statement of fact and not a mere promise. This disallows the utilisation of estoppel to enforce a promise (Jorden v Money, 1854). In Foakes v Beer, their Lordships ruled that an enforceable agreement implied the payment of interest, even though the agreement had been silent about it. In this case Foakes beseeched Beer to accept part payments for the amount owed to her. Thereafter Foakes obtained an agreement from her that seemed to forego the interest owed to her. Specifically, the House of Lords held that the promise to repay a debt did not constitute sufficient consideration (Foakes v Beer, 1884). This was due to the fact that no additional benefit would accrue to Beer, other than what was already owed to her. In accordance with the principle of promissory Estoppel, Eileen and Paul are precluded from demanding rent arrears for the past three months, retrospectively. Moreover, this is in accordance with the ruling in the case of Central London Property Trust Ltd, where the court decided that a claim for arrears with retrospective effect would be precluded by the doctrine of promissory estoppel. Similarly, in our problem, Eileen and Paul can demand enhancement of the rent, only for the period that is subsequent to the completion of the construction work. Originally Mike was paying rent at a higher rate. It was reduced due to the disturbance caused by the construction work, which was in progress in the building. Therefore, Mike is not required to pay the originally agreed upon rent, for the period, in which the construction had been in progress. In our problem, Anne offered to help Eileen and Paul in renovating their old house and converting it into apartments. It is to be examined whether there is any legally binding contract between these parties. Anne’s offer was accepted by Eileen and Paul and Anne brought about the completion of the work in a trouble free manner. Anne was friend of Eileen and Paul, and she offered her help in renovating the house and converting it into flats, in order to continue and strengthen her friendship with them. In Parker v Clark, it was held that on occasion, domestic arrangements could result in legally binding obligations. The domestic arrangements, in this instance, had a major impact on the life of the plaintiffs. The Clarks had asked their niece and her spouse to provide them with domestic support. In return, the Clarks had allowed them to live without rent, in their house (Parker v Clark, 1960). The Parkers sold their dwelling and commenced to live with the Clarks. Subsequently, the latter asked the Parkers to vacate their house. The court held that this arrangement had altered the life of the Parkers to such an extent that a contract could be presumed between them and the Clarks (Parker v Clark, 1960). In general, the courts take an objective view of the intention of the parties. Therefore, the important element is whether a reasonable person would have found an intention, among the parties, to form a legal relationship. This is to be inferred from the language employed by the parties and the context. Intention is the most important element in deciding the legally binding nature of an agreement. With regard to relationships and promises among family members or friends, the courts will examine the true intention of the parties to the contract. They scrutinise the legally binding nature of the intention of the concerned parties. On many occasions, the courts had opined that family arrangements or friendship agreements were beyond the purview of binding contracts. However, courts will take into account, the statements of the parties and the relevant circumstances, while deciding such issues. For example, in Re Casey’s Patents, the plaintiff had been promised a one third share as consideration for managing specific patents for the defendants. As it was reasonable to assume that the plaintiff had expected some remuneration for his work, the promise made by the defendants was enforceable (Re Caseys Patents, 1892). However, it was decided that past consideration is invalid in the following case. In Roscorla v Thomas, the plaintiff was unable to sue the defendant for the latter’s false promise. This was due to the fact that the promise had been made after the sale, and as the plaintiff had not provided any consideration for the promise (Roscorla v Thomas , 1842). The exception to the rule that past consideration was not good consideration was provided in the decision in Pau On v Lau Yiu Long. Specifically, it was held that for a new contract, an advantage or disadvantage undergone in the past constituted valuable consideration, if payment was forthcoming (Pao On v Lau Yiu Long, 1980). Moreover, in Re McArdle, McArdle’s wife made substantial changes to the house left by him to his children. Subsequently, she obtained the signature of these children on a document consenting to contribute to the expenditure incurred. A perusal of this document gave the impression that the work had not been completed. In reality, the work had been completed; hence, the consideration was totally past consideration (Re McArdle, 1951). Consequently, the promise of the children was a promise, in which there was no consideration. In our problem, Anne had done a very strenuous job in completing the work by September. Due to her initiative in completing the work at such a fast pace, Eileen and Paul were benefited by obtaining a substantial increase in the rental value of their apartments. This would constitute practical benefit, under the principle of promissory estoppel. Moreover, Eileen and Paul had hinted that they would render justice to her. As consideration for her work, they offered one of the flats to her, so that she could live in it without having to pay rent. As per the case law discussed above, Anne is entitled to reside in one of the flats, as originally offered by Eileen and Paul, in return for her hard work. Thus, Eileen and Paul cannot ask Anne to vacate the flat, in order to procure rent. Under the principle of promissory estoppel Eileen and Paul will be estopped from asking Anne to vacate the flat for financial gain. References Roscorla v Thomas , 3 QB 234 (1842). Jorden v Money, 5 HLC 185 (1854). Foakes v Beer, UK HL 1 (House of Lords 1884). Re Caseys Patents, 1 CH 104 (1892). Central London Property Trust Ltd v High Trees House Ltd, KB 130 (Kings Bench 1947). Re McArdle, 1 All ER 905 (1951). Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd , 1WLR 761 (1955). Ward v Byham, 1 WLR 496 (1956). Parker v Clark, 1 WLR 286 (1960). Pao On v Lau Yiu Long, AC 614 (1980). Williams v Roffey Brothers & Nicholls (Contractors) Ltd, 1 QB 1 (1991). Re Selectmove Ltd, 1 WLR 474 (1995). Capper , D. (2008). The Extinctive Effect of Promissory Estoppel. Common Law World Review, 37(2), 105 – 116. Teeven, K. M. (2002). The Advent of Recovery on Market Transactions in the Absence of a Bargain. American Business Law Journal, 39, 289 – 377. Read More