Contract Law- Terms of a Contract

Contract law is a body of law that governs oral and written agreements associated with exchange of goods and services, money, and properties. Not only does contract law set out the rules and guidelines of how to form a contract but also teaches us how the parties to a contract are to fulfil it and what may happen when the terms of a contract are not fulfilled. The background or facts of the scenario are that Credit Corp (plaintiff) leased its commercial property situated in Vitogo Parade to Mr Singh (defendant) in 2002.

The lease stipulated that interest would accrue on arrears of rent and outgoings and was due to expire on 1 April 2012. Sugar City Mall was the major shopping centre in town and Singh operated a bookstore from the premises called the Book Centre. By the beginning of 2007, MH’s had opened “Mega Centre” a large shopping hub which quickly became the most popular shopping destination in town.

This new development had quickly become the most popular shopping destination and as a result, Singh suffered a substantially reduced turnover (defined as the amount of business transacted during a given period of time) and had difficulty paying the rental. Singh discussed a rent reduction with Credit Corp but the parties could not come to an agreement and as a result, Singh’s turnover continued to decline. Credit Corp was aware that the turnover was continuing to decline but wished to continue a contractual relationship with Singh.

Singh was in no doubt about what he was obliged to pay under the lease, but his turnover made it clear that he could not do so and continue to trade. For this reason Singh wrote a proposal asking that the rent be reduced. In early 2012, Singh failed to make one payment of the monthly rental and thereafter paid only half of the monthly rental after which Credit Corp sought a proposal from Singh in respect of current rent and arrears dated 15 November, promising payment of half of the rental due plus $1000 towards the arrears and no interest payable on the arrears.

The proposal stated that this new agreement was to continue until the lease expired unless circumstances improved. This offer was accepted by Credit Corp via a telephone call to Singh and said that that it would accept the proposal to pay half rent and the monthly rental towards the arrears. The parties, however, did not discuss the interest during the telephone conversation. Credit Corp did not provide a written response to Singh’s proposal and Singh continued to occupy the premises and make payments of half the rental plus $1,000 towards the arrears, without interest.

At the expiry of the lease on 1 April 2012, Singh evacuated the premises and handed in a full and final cheque on the basis that the cheque extinguished the arrears due, but without the interest content as outlined in the proposal. The issue at hand which must be dealt with comprehensively (the question of this assignment) is the query brought by Credit Corp concerning whether or not it can recover unpaid rent an interest on the arrears. The scenario for this assignment deals with an area of contract law which requires the principle of estoppel to be applied.

Estoppel can be defined as a rule that applies, in certain circumstances, to keep a party to a promise made in relation to an existing contract. In other words it is a rule of law that prevents a person from denying the truth of a statement he has made or from denying facts that he has alleged to exist. For instance, the doctrine of estoppel may, in some cases, apply to save an agreement that would otherwise fail for lack of consideration. That is, is a person makes a statement of fact and another person acts on it, the maker will be prevented from denying the truth of the statement in subsequent litigation.

In relation to the scenario in question, this principle can be used to make sense of the dilemma of the client Credit Corp concerning whether or not it can recover unpaid rent and interest on the arrears. Case authority for this issue/query brought by Credit Corp is outlined in the case Central London Property Trust v High Trees House which is what initially brought up the rule of promissory estoppels which was basically a wider doctrine of the equitable waiver principle.

In order to understand what promissory estoppel is, we must look at where the rule came from- equitable waiver. Waiver is defined as the act of abandoning or refraining from asserting a legal right whereas the rule of estoppel (as mentioned above and outlined by the judgment in the case London Property Trust v High Trees House by Lord Denning) basically means that if a person makes a statement of fact and another person acts on it, the maker will be prevented or stopped from denying the truth of the statement.

The case of London Property Trust v High Trees House was one which was quite similar to the scenario being dealt with in this assignment. A summary of this case is provided by Jennifer Corrin Care in her text- “Contract Law in the South Pacific” and basically says that Denning, in his judgment for a similar query said that the balance could not be recovered, because the plaintiffs had made a promise not to enforce their right to the balance of the rent and the defendants had acted on this promise.

The same can be applied to the scenario in the sense that the proposal made by Singh to Credit Corp to pay half the rent and the monthly rental towards the arrears was accepted by Credit Corp and Singh had acted on this promise. One of the objections to this extension of the waiver principle by Lord Denning is that his approach to the rule of estoppel as outlined in London Property Trust v High Trees House runs counter to the doctrine of consideration. Consideration is defined as “an act, forbearance, or promise by one party to a contract that constitutes the price for which he buys the promise of the other”.

Jennifer Corrin Care notes in her text that whilst Lord Denning’s version of the principle might originally have been wide enough to be in direct conflict with the requirement that a promise is only enforceable if it is supported by consideration, the principle has been narrowed down and there are now a number of conditions relevant to the principle The first condition is that promissory estoppel can only arise where there is an existing legal relationship between the parties.

This condition was met as the scenario states that Singh and Credit Corp had entered into a contractual relationship when the property was leased to Mr. Singh. Another condition is that there must have been reliance. That is, entry into a contract results from the exchange of promises. Promissory estoppel outlines, however, that the promise alleged to found the estoppel cannot be enforced unless the promisee (the person who accepts a contract or promise) has taken some action in reliance on it.

In relation to our scenario, the promisee- Credit Corp- continued with the lease and agreed to receive half the rent from the promisor (the person who offers the contract or promise)- Singh- which Singh did on the belief that Credit Corp had accepted his proposal to forego the balance. Hence, this condition is also met. The third condition is that the principle of estoppels cannot be used to found a course of action, but only as a defence. In the High Trees case, the promise to reduce the rent from 2,500 pounds to 1,250 pounds was made by the plaintiff.

Therefore, the defence of estoppel could be used by the defendant. In the scenario however, the promise was made by the defendant, so the defence of estoppel cannot be used by the plaintiff- Credit Corp. Furthermore, the restriction that estoppels may only be used as a shield and not a sword does not apply to proprietary estoppel. First, we look at the definition of proprietary estoppel – legal bar preventing a party from denying another party’s right in first partys property where the second party has incurred costs in that property to its property.

In this case the first party is Credit Corp and the second party Singh. Singh had indeed incurred costs in the property in terms of rent and this was readily accepted by Credit Corp for the period of the lease. Hence, i am of the view that proprietary estoppel does apply here making this condition unapplicable to the scenario. The fourth condition of estoppel is that it must be inequitable for the promisor to go back on the promise. The application of estoppels is discretionary in that it will not be applied if it is inequitable.

Inequitability can arise out of either the fact that the person seeking to rely on estoppel is guilty of misconduct or because there is no hardship caused to the promisee by the withdrawal of the promise. First, we look at the issue of misconduct. Depending on what the court sees as misconduct, this issue may not be one in favour of our client Credit Corp. Reason being, the facts of the scenario clearly state that Credit Corp had accepted the proposal made by Singh and remained silent on the issue or rent and interest in arrears till the period of the lease was over and Singh had left the premises.

“Behaviour which is improper and unprofessional” is the definition offered in the Miriam Webster dictionary for misconduct. In light of this definition, I am of the view that Credit Corp did indeed behave improperly and unprofessionally. The condition also states that inequitability can arise if there is no hardship caused to the promisee by the withdrawal of the promise. In relation to the scenario, Credit Corp may have suffered a loss on unpaid rent and interest in arrears but the fact remains that the promise was not withdrawn. In fact, it was seen through by both parties till the expiration of the lease.

Hence, this condition may not be applicable to Credit Corp. The fifth and final condition of estoppel is that estoppel may be only suspensory in effect. Meaning that just because the rights in question are merely suspended until such time as it is equitable or reasonable for the promisor to insist on enforcing those rights, does not mean that they are permanently extinguished. For instance, in Central London Property Trust v High Trees House, the right to the instalments of rent falling due during the war were extinguished, but the right to claim the full rent for the future was only suspended.

In relation to the scenario for the assignment, the right to falling rent and interest during Singh’s business turnover were decreased as much as the proposal from Singh stated, but the right to claim the full rent for the future was only suspended. Also, the lease had expired and a new contractual agreement would have to be reached in order to collect rent from the plaintiff Singh in the future. Hence, this condition also does not work in favour of Credit Corp. Also interesting to note is the defence that may be raised by Singh if Credit Corp were to pursue this query in a court of law.

Credit Corp may raise the argument that the unpaid rent and interest on arrears were all clearly stated in the original contract between Singh and Credit Corp and also that Credit Corp had not said anything about forgoing the outstanding rent and interest at the end of the lease completely. Singh, however, in accordance with basic contract law rules, has a stronger defence than that of Credit Corps in that silence on the part of Credit Corp concerning the outstanding rent and interest does not constitute acceptance.

Acceptance is defined as “an agreement to the terms of an offer that converts the offer into a legally binding contract”. Myers v Bavadra and Another defines acceptance as “an unequivocal communication to the offerer by the offeree of agreement to both the terms of the offer, and that the offeree commits himself to the contract”. One of the basic rules of acceptance provided in our lecture notes is that acceptance must be expressed or implied- silence is not sufficient. It is evident from the details of the scenario that the parties did not discuss the interest during the telephone conversation.

Hence, Credit Corp may not be able to use this to their advantage in a court of law. In conclusion, after conducting research on the principle of promissory estoppel and its conditions, I am of the understanding that although two of the conditions for estoppel were met (there was an existing legal relationship and reliance), this is not sufficient for Credit Corp to recover unpaid rent an interest on the arrears as most of the conditions of the principle of promissory estoppel were not met. BIBLIOGRAPHY.

BOOKS Elizabeth A. Martin, A Concise Dictionary of Law, 2nd edition, Oxford University Press, Suffolk, 1983 Jennifer C. Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001 INTERNET SOURCES Contract Law definition (2006) Notes on Contract Law <http://www. businessdictionary. com/definition/contract-law. html > at 23rd May, 2012 Proprietary estoppel definition (2007).

Business law < www. biztaxlaw. com> at 26th May 2012. Turnover definition (2004) Business Loss < www.thefreedictionary. com> at 23rd May, 2012 ——————————————– [ 2 ]. Contract Law definition (2006) Notes on Contract Law at 23rd May, 2012 [ 3 ]. Turnover definition (2004) Business Loss < www. thefreedictionary. com> at 23rd May, 2012 [ 4 ]. Jennifer C. Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001, pg 81 [ 5 ]. Elizabeth A. Martin, A Concise Dictionary of Law, 2nd edition, Oxford University Press, Suffolk, 1983, pg 153 [ 6 ]. Jennifer C.

Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001, pg 81 [ 7 ]. ibid [ 8 ]. Elizabeth A. Martin, A Concise Dictionary of Law, 2nd edition, Oxford University Press, Suffolk, 1983, pg 440 [ 9 ]. Elizabeth A. Martin, A Concise Dictionary of Law, 2nd edition, Oxford University Press, Suffolk, 1983 pg 87 [ 10 ]. Jennifer C. Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001, pg83 [ 11 ]. Combe v Combe [1951] 2KB 215 [ 12 ]. Jennifer C.

Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001, pg83 [ 13 ]. Jennifer C. Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001, pg86 [ 14 ]. 13. Proprietary estoppel definition (2007) Business law < www. biztaxlaw. com> at 26th May 2012. [ 16 ]. Elizabeth A. Martin, A Concise Dictionary of Law, 2nd edition, Oxford University Press, Suffolk, 1983 pg 283 [ 17 ]. Jennifer C. Care, Contract Law in the South Pacific, Cavendish Publishing Limited, Sydney, 2001 pg 40.