Collateral Contracts and Contractual Promises MyAssignmenthelp.com

Question: Discuss about the Collateral Contracts and Contractual Promises. Answer: Introduction With regards to the issue of promissory estoppel and the collateral contracts, under the common law of contract, a landmark decision was given in the case of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. This decision is very crucial with regards to the commercial leases, as it defines how the two principles of collateral contracts and promissory estoppels can be applied in the pre contractual negotiations and the manner in which, a defense can or cannot be taken, on the basis of these two principles. Initially, in this case, it was held by the Victorian Civil and Administrative Tribunal that the statements which were made in this case by the Crown, resulted in a collateral contract being established. And due to the presence of a collateral contract, the Crown was obligated to renew the terms of the lease, which had been breached by it. This was followed by an appeal in Supreme Court of Victoria, which stated that there was an absence on the statement being promissory in nature, which is a requirement to establish a collateral contract. And they also stated that if a contract was formed on these bases, the same would be void, as well as, illusory due to the uncertainty in the statement made. However, a final verdict was made in this case by the High Court, where the majority of them held that the statement could not be held to have given rise to a collateral statement, and there was also an absence of a valid claim for estoppel. An emphasis was made by the High Court that for claiming an estoppel, there was a necessity of the representation being unambiguous, clear and precise. The given case study is based on this very case of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd. And so, the principles on which this case is based, along with the case presented by each side, have been covered below, with the two parties being Bertini and Garland. A precise statement regarding the definition of collateral contract is a separate contract, the existence of which is based on the main contract being drawn. In general, it can be defined as a single term contract, in which the contractual terms are based on the original or the main contract (Stone and Devenney 2015, p. 192). In the case of Heilbut Symons Co v Buckleton [1913] AC 30, it was stated by Lord Moulton that a collateral contract would be defined as a promise, which falls short in being a segment of a main contract and the enforceability of the same is attained through drawing a collateral contract. A collateral contract can be evidenced on the basis of principle and on the basis of authority. And it is such a contract for which, the consideration is made in another contract or the main contract. The collateral agreement is complementary to the main contract, yet, it has an autonomous existence, and there is no doubt towards the full character or the status of the same being a legally valid contract (Swarb 2017a). Hence, a collateral contract is one through which, the parties under a specific contract come together and form a new contract, where the terms of this new contract/ collateral contract is a matter incidental to the original contract. In case the main contract ceases to exist or is absent, the existence of the collateral contract also ends. Hence, even though the collateral contract is autonomous and separate, it remains as a supplement to the main contract drawn (Barrett 2009, p. 63). Majorly, two conditions have to be fulfilled in order to form a collateral contract. The first one relates to the fact that the collateral contract has to be consistent with the original contract. And the second issue is that the same has to be promissory in nature. In case both of these conditions are fulfilled in a contract, the same is deemed as a collateral contract and is enforceable in a lawful manner. And a claim can be brought forward in a Court regarding the same. The collateral contract has to be enforceable as being a part of the original contract, in addition to the same being a separate contract, which relates to the initial contract (Bailey 2016, p. 2793). There are broadly four elements of a collateral contract. The first element is that it has to be in a promissory nature. The second one is that there has to be a presence of promise, which comes after a statement. The third element relates to having a consistency amongst the original and the subsequently drawn contract. And the last element is that all the essential elements of a contract, i.e., offer and acceptance, intention, clarity, consideration and capacity have to be present in such a collateral contract (Russell 2012, p. 38). A complementary requirement, along with these four elements is that the statement which is made under this collateral contract has to be such, which induces the party into going forward with the originally drawn contract (Furst and Ramsey 2015, p. 192). In the case of Evans Sons Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078, it was held by Lord Denning MR that when a person forwards a promise or an assurance to some other person, and where the intention is to take action on it through forming a contract, the collateral contract in such cases is held is binding and holds the parties in a legal relationship (Swarb 2017b). De Lasalle v Guildford (1901) 2 KB 215 helps in providing clarity regarding the requirement of the main contract and collateral contract being consistent (University of the South Pacific 2017). Under the quoted matter, negotiations took place amongst the contracting parties, which related to the lease of a house, and this was done by a letter being sent. The tenant applied for assurances from the landlord, regarding ensuring that the drain was in good and proper order and this assurance was sought even before the contract was signed. The terms of the lease were affirmed between the contractual parties. The tenant did not let the landlord conclude the deal till such time period where the landlord gave the assurance to the tenant, as per which the drain was stated as being in a proper order. This assurance, in this case, was taken to be a collateral contract. The landlord claimed that the drain was in a proper order, even though in reality, the same lacked order. The court established that the representation which was made in this case by the landlord, pertaining to the condition of the drain being proper, had to be considered as being a warranty. Further, this representation was a collateral contract to the lease, as being the original contract. The reason for this stems from the fact that a term, or a promise, which was not a term of the main/ original contract, had to be enforced through the collateral contract, made through the representation (Swarb 2017c). There is one more case law, i.e., the case of Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133, which helps in clarifying that the collateral contract has to be consistent with the main contract (Gibson and Fraser 2014, p. 487). Under the quoted matter, the building of the landlord was sublet from Spencer to Hoyts. One of the terms in the sublease provided that there was a requirement of four weeks notice in advance and in writing in case the lease had to be terminated by Spencer and the same could be done at any time, provided this condition was fulfilled. A verbal agreement was attained between the parties regarding the lease to not be terminated by Spencer, till the same it was given to the landlord. Even though none of the conditions stated above were satisfied, Spencer terminated the sublease. Hoyts made a claim before the Court that a collateral contract was formed in this case, due to the ensuing assurances. However, the claims made by Hoyts were quashed by the court as a result of the inconsistency between the collateral and the main contract (Jade 2017a). Apart from the elements of the collateral contract, the individual who formulates a collateral contract has to establish that the contract was formed in the main contract, and not as per the representation of it being a collateral contract. And that the same is made in consideration of the original or the main contract (McFarlane, Hopkins and Nield 2012, p. 203). The case of J J Savage and Sons Pty Ltd v Blakney [1970] HCA 6 helps in attaining clarity on the promissory nature of the statement made for the collateral contract. In this particular matter, a boat was purchased from J J by Blakney. As per one of the letters which was written by J J, the engine of the particular boat had the ability of attaining the maximum speed. However, Blakney came to know later that that engine of the boat was a lot slower when compared to the letter written by J J. This discovery came in a little too late, after the deal was completed. As a result of this, Blakney initiated legal actions against J J for the breach, which took place of the collateral contract (Jade 2017b). In this case, it was stated by the High Court that the letter which was sent by J J to Blakney contained only an opinion and there was no representation in the same. And so, the same could not be claimed by Blakney, as it was just a requirement of the contract. If Blakney had to take it as the base of a collateral contract, he should have inserted the boats speed as being one of the specifications in the terms of contract drawn between the two. Along with these, Blakney should have satisfied himself about the magnitude or the value which would have been deemed as the maximum speed of the engine of the boat on his part. So, the claim of Blakney regarding the collateral contract in this case, due to the lack of clarity in the terms, and an opinion was made drawn instead of a representation (Australian Contract Law 2017). One of the applicable principles under the common law of contract is the promissory estoppel. Under this doctrine, the law can enforce a promise which has been made, even in such situations where the promise is made without a formal consideration. Though, for the applicability of this doctrine, it has to be shown that a promise was made, and that the promisee relied upon the promise made by the promisor and which ultimately proved to be detrimental for such a promisee (Helewitz 2007, p. 91). This doctrine stems from the need of stopping the promisor from undertaking such a contention that the promise which has been made, should not be upheld in a lawful matter or that the same should not be enforced. This doctrine helps the aggrieved party in making a recovery, due to the promise made. It is to be noted that the reliance is required to be made on the basis of reasonable matter, so that a claim can be held under the doctrine of promissory estoppel, along with the same being detrimenta l in nature for the promisee (Blum 2007, p. 207). In the case of Waltons Stores (Interstate) Ltd v Maher (1988) 76 ALR 513, the plaintiff made a representation that they wanted to replace one of the buildings, which was owned by the defendant. Relying upon this particular representation made by the plaintiff, the defendant demolished that building that was there and initiated the construction of a brand new building. A question was raised in this matter, regarding whether or not the plaintiff could be estopped from saying no to the contract, which was not yet brought into existence. The court held that this claim could be allowed for the reasons of the powers of equity to intervene for the protection of non-contractual assurances (Webstroke Law 2014). Moreover, the High Court of Australia believed that it was unconscionable on part of the party to maintain their silence and stand without saying anything, when they were aware of the fact that the other party was proceeding on the presumption that a binding agreement had been drawn (S warb 2016d). And so, through the use of promissory estoppel, the party can be stopped from making a back turn on the promise made by them, and the one which is unsupported through a consideration. For establishing this doctrine, certain things have to be present, which include a pre-existential lawful obligation or a legal contract, which is later on amended and there needs to be clearness and clarity in the promise, there also has to be change of position and last but not the least, the same is to be considered as inequitable, through which, the promisor has the power of making a back turn on the issue of the promise (E-Law Resources 2017a). The inception point of this doctrine lies in the case dating back to 1940s, under the matter of Central London Property Trust Ltd v High Trees Ltd [1947] KB 130. The same was initiated by Denning J as the orbiter statement in this case (E-Law Resources 2017a). In this particular matter, the defendant leased a certain block of flats from the plaintiff and the price for these blocks was affixed as a ground rent of 2,500. This lease was taken in the year of 1937, which was a war period and these were new block of flats back then. A lot of difficulty was faced being faced by the defendant for getting full number of tenants for the available flats for rent. And due to the vacancy in the flats, the defendant could not make any profits as the ground rent still had to be paid by them. Till 1940, due to the period of war, the situation seemed to be at a standstill for the defendant. Hence, both of the parties agreed that the rent would be reduced at half, till the time the war period was over . This was got in writing by the parties. And till the period of 1941, the defendant paid reduced amount of rent to the plaintiff. When the war ended, and the flats became fully occupied, the plaintiff made an application to the defendant to restore the originally agreed upon ground rent. It was held in this case that the plaintiff was stopped from recovering the rent for the reduced period due to the applicability of this principle. And so, the plaintiff could not make a back turn on the promise they made, even in absence of valid consideration, for the subsequent agreement (E-Law Resources 2017b). The remedies which can be attained in case of a collateral contract being breached are same as the case of violating the normal contract. So, an individual can apply for penal damages, whereby monetary compensation is awarded for the breaching the contract, to the aggrieved party by the breaching party (Latimer 2012, p. 469). The aggrieved party can also apply, depending upon the case, for getting the contract rescinded, or stopping the breaching party from doing something by getting an injunction order or by attaining an order for specific performance through which the breaching party is ordered to carry out certain activity (Clarke 2016). Whether a successful claim can be made by Bertini with regards to a collateral contract being formed, along with the applicability of promissory estoppel, which gives rise to the available remedies, or not? The given scenario depict that a case can easily be made by Bertini as per the issue revolving around the concept of collateral contract. Here, the lease would be deemed as the main contract and for the same, a lot of negotiations underwent on part of both the parties. The outcome of these negotiations was the terms of the contract being finalized as being a period of five years. Though, one statement was made in this case by Garland, whereby he mentioned that the lease should be signed by Bertini as per the negotiations taken place and should also refurbish the restaurant as per the levels desired by him, before a major global level event took place in Melbourne. In this statement he stated that Garland would look after Bertini when the renewal time would be due (Jade 2017c). The statement made by Garland here forms the base of a collateral agreement. This can be stated due to the presence of all the requisite elements of the collateral contract through this very statement. In the given case study, the statement which has been made by Garland has a nature of being promissory as it promises to look after Bertini at a certain point of time in future. Other than this, there is an apparent consistency between the lease agreement and the collateral statement made. The reason for consistency is that both of these are related and because the time lines of both these contracts are synchronized, whereby at the end of first contract, the collateral contract would be applied. So, when the period of five years would end for the lease agreement, the taking care of Bertini through the collateral contract would begin (Jade 2017c). There was an obvious reliance on part of Bertini regarding the promise which was made being a collateral contract. Bertini genuinely believed that he would be taken care of at the end of the lease period and so he undertook the refurbishment expenses, which were very high in value as they amounted to $2 million. He would not have undertaken this expense, if he did not believe that the lease would be extended. Moreover, due to the extension of the lease term to a further period of five years, he had a chance of gaining $200,000 as the value of ordinary profits and $100,000 as the value of exceptional profits, as a result of the lucrative deals/ offers, which he got for the expected renewal of the lease period (Freeman 2016). This shows the presence of the elements required to be present for establishing a case of promissory estoppel also. Even though there was a shortfall of a consideration, as being one of the elements in every legally binding contract, the same is not required due to this very principle of promissory estoppel, in the same manner as was established in the case of Central London Property Trust Ltd v High Trees Ltd. In the quoted case, there was a lack of consideration and still the court estopped the defendant from making a back turn on the undertaken promise. Hence, using his principle of promissory estoppel, Garland can be easily stopped by Bertini on taking a walk back on his words spoken while making the promise or the drawn collateral contract. Another point which helps in establishing that a collateral contract was indeed made was the point that this representation made by Garland induced Bertini into entering into the main contract for the lease of five years. He always wanted to enter a ten year lease but believed in the statement made by Garland. And as all the elements required forming a contract and a collateral contract were clearly present in this case, Garland can be estopped from violating the statement which was made by him. To conclude, Bertini can easily attain the help of issues which are borne out of the two concepts of promissory estoppel and collateral contract. In this case, Garland had made certain representation, which gave rise to the collateral contract. As per this representation, Garland owes an obligation to Bertini to make an offer as per the terms desired by Bertini, i.e., for a further period of 5 years. So, when this matter would be raised before the appropriate authority, the claims of Bertini would be upheld and he would be awarded a suitable amount of damages, in addition to an interest on the same. However due to the lack of clarity in this matter regarding to the statement, attaining an order for getting Garland to enter into an extended lease as per the terms desired by Bertini is difficult (High Court of Australia 2016). Whether a successful defense can be established by Garland with regards to a collateral contract being formed, along with the applicability of promissory estoppel, which gives rise to the available remedies, or not? As a claim has been made by Bertini regarding the statement being a collateral contract, the same has to be proved as wrong for establishing defense for Garland, and after that only the applicability of the principle of promissory estoppel is to be contested. In case it can be established that a collateral contract was not present in this case, the entire case can be wrapped up. For making such a decision, the view which a reasonable individual would have, needs to be considered (Corrs Chambers Westgarth 2016). If the circumstances were presented before a reasonable individual in similar situation, a view would have been formed by such a reasonable individual that Bertini would have been taken care of when the time of the renewal of the five year lease came. However, such an individual would not make an interpretation that the statement of Garland was a binding contractual obligation for another period of five years lease upon the expiry of original lease period. This is because there is lack in clarity in what can be deemed as taking care of. There is also a chance of the claim failing on the basis of promissory estoppel. This is because of an absence of establishing that Garland was stopped from withdrawing the lawful relation, which is a requirement for establishing a case of promissory estoppel (Kent 2016). Another issue in this case relates to the assurances which were given to Bertini by his landlord Garland, due to the lease period being extended due to the applicability of estoppel. And that if an enforceable contract was actually formed between these two, when the period of the lease expired, whereby Bertini had to be granted a new lease on the desired terms of Bertini and which corresponded to the terms of the originally drawn lease (Time Base 2016). The most that can be done is considering that the statement which was made was a representation and that it failed to give rise to an estoppel. There is also clear evidence which depicts that garland had no notion of renewing the lease as he had explicitly denied a ten year lease and did not budge on the requests made by Bertini (Clarke, 2016). This was done to have uniformity with the other tenants of Garland. Hence, this expectation on part of Bertini that the lease would be extended was completely baseless. A reasonable person would not have made such a view point (Australasian Legal Information Institute 2016). This was coupled with a lack of clarity in the statement made by Garland based on the case of J J Savage and Sons Pty Ltd v Blakney. The level of taking care or on what basis Bertini would have been taken care of was never stated. Hence, this statement was vague and was also incomplete. Nothing in this statement suggested an extension of the term period of the lease and so, the promise could not be enforced (Doyles Construction Lawyers 2014). Conclusion To conclude, there is a clear lack of both of the principles in this case. Hence, the contentions of Bertini cannot be carried forward. The statement made could not be deemed as a base for promissory estoppel or the same as being a collateral contract due to the ambiguity in it. This statement was just encouraging in nature and could not be used as being a base for the claims made by Bertini under the two principles (Boys and Thorpe 2016). 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