Issue 1: Pre-existing Duty
The issues which have been identified in the first scenario by analyzing the facts present in the case study are as follows:
- Whether the law imposes any obligation on Visit Victoria to make the extra payment which they had promised to make to Gareth?
- Further, would the obligation of Visit Victoria be the same in case the travelers they expected to visit Melbourne did not come due to a volcanic eruption and air travel becoming impossible?
“A pre-existing duty at law is not considered as a valid consideration”
In relation to contract law the traditional rule in relation to the situation makes it clear that unless a new promise is provided which is not similar to the old promise the promise would not be a valid consideration in the eyes of law (Andrews 2015).
The primary case which brought this rule into the legal system is the landmark Harris v Watson (1791) Peake 102 case. In the case the judges made it clear that where a person already has an existing duty under a contract which needs to be performed the duty cannot be considered as a valid consideration for a new promise which is made in relation to it. In this case it had been stated by the court that the sailors who had an existing obligations under contract to stay on the ship cannot make a claim against a promise which had been made by the captain in relation to additional payments. Through this case it had been made clear that until a new promise is provided, a claim against a promise made by another person in relation to an existing contractual duty cannot be made.
The precedent ruling provided by the above discussed case had been confirmed in the case of Stilk v Myrrick [1809] EWHC KB J58. In this case also it had been stated by the court that the sailors who had an existing obligations under contract to stay on the ship cannot make a claim against a promise which had been made by the captain in relation to additional payments. This is because under the existing contract they had a duty to stay on the ship until it reached the destined port.
The provisions of this case had been followed by several other cases in Australia such as Watkins & Son v. Carrig, (N. H. 194I) 21 A. (2d) 591, Wigan v Edwards (1973) 47 A.L.J.R. 586 and Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040.
In Wigan v Edwards (1973) 47 A.L.J.R. 586 the court by a ratio of 3:2 held that the defendant was not bound to pay the plaintiff additional money for a promise which was already existing under the contract. In this case there was an agreement between the plaintiff and the defendant to purchase a house for a price of $15,000. It was stated by the plaintiff before the settlement that they had discovered defects and were not going to proceed. An additional promise had been made by the defendant that they will rectify any default with five years of purchase. Latter a claim had been brought by the plaintiff in which they stated that the defendant did not abide by their promise. The court in this case ruled that the promise of performance of an existing contractual duty cannot be considered as a promise at all at least in situation where the promise has been made to a party in a preexisting contract, it has been made under the contract to a promisee and it falls within the category of an illusory consideration.
Issue 2: Payment of Debt
However the case of Hartley v Ponsonby [1857] 7 EB 872 diverted from the decision which had been provided in the above discussed cases. In this case an exception to the traditional approach had been provided by the court where it had been stated that where a party has acted beyond an existing contractual duty the act will be considered as a valid consideration at law.
The case of William v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5 is a primary precedent case which deals with the law of contracts. In this case it had been ruled by the judge that a promise in relation to the performance of a pre-existing contractual obligation can be considered as a good consideration at law in situation where because of the act a benefit has been conferred on the other party. The court in this case changed the precedent ruling as discussed above that a good consideration cannot result out of a pre-existing contract. In the case Mr Williams had been subcontracted to complete the work for which he was entitled to receive 20000 in installments. He had been paid around 16200 for the partial work done by him. However following this he entered into a phase of financial difficulties where he found the price which had been paid to him was too low. The defendant in this case Roffey Bros would have been held liable under a penalty clause in relation to late completion of the project which they had sublet to the plaintiff and thus conducted a meeting with the plaintiff and promises to pay him an additional £575 for every flat so that the work can be completed on time. William only got £1,500 and thus he stopped after completing 8 flats. New carpenter had been brought in and a claim for the rest of the money had been made by the plaintiff.
The court in this case ruled that the plaintiff is entitled to receive (8*575) 4600 and 2200 from the original sum which was owed to him. It was further provided by the judge that as the parties had agreed that the original price of the project was too low and the raise was in relation to the interest of both the parties. It was further stated by the court that the plaintiff provided a good consideration although an existing duty at contract was being performed by him. In this case the court stated that whether there has been any change in position of the parties in relation to the contract can be analyzed through the following test.
- Where X has contract of employing Y for a specific work
- X has doubts that the contract will not be completed by Y in time
- Y is promised to be paid more by X
- X in return gets as practical benefit or obviates a loss
- There is no fraud or duress
- This would be a good consideration.
Landmark Rulings
In this case it has been provided to us through the facts of the scenario that Gareth is under a contract with Visit Victoria where he needs to provide eight cars to the company daily for tourism purpose. It has been realized by Gareth that he cannot operate cars as the price provided to him under the contract is too low. He has approach Victoria letting them known about his concerns. As Victoria was expecting high demand from customers they agreed to provide Gareth with additional $50 for every car provided by Gareth. The agreement has been consented by both the parties however after the cars had been provided Victoria refused to pay Gareth. In the situation it can be stated that Gareth had an already existing duty under the contract with Victoria to provide them with 8 cars. Thus as per the case of Harris v Watson and Stilk v Myrrick he does not have any claim which he can make against Victoria for the additional payment promised to him. This is because the rules provided in these cases states that unless a new promise is provided which is not similar to the old promise the promise would not be a valid consideration in the eyes of law.
However the exception to the above discussed rule needs to be applied in the situation in order to analyze whether Gareth has a valid claim against Victoria. The primary exception which would be applicable in the case is the one which has been provided by the case of William v Roffey. In this case it had been ruled by the judge that a promise in relation to the performance of a pre-existing contractual obligation can be considered as a good consideration at law in situation where because of the act a benefit has been conferred on the other party. Here it is clear that Victoria had agreed to the fact that price which is provided to Gareth is actually law and thus decided to provided him an additional payment promise. In addition by providing the cars to Victoria, Gareth helped them to gain a practical advantage in relation to the influx of visitors to Melbourne which they would have not possible made arrangements for. This in the given situation the practical advantage which is conferred on Victoria by Gareth would be considered as a valid consideration. Thus the agreement to pay additional $50 per car between Victoria and Gareth is legally valid.
Conclusion
On the other hand where it the situation would have been such that the travelers Victoria expected to visit Melbourne did not come due to a volcanic eruption and air travel becoming impossible, the exception provided in the case of William v Roffey would not be applicable. This is because in this situation no practical advantage would have been conferred on Victoria and thus the consideration provided by Gareth would not have been a valid consideration at law. thus there would have been no legal agreement between the parties for the promise of providing $50 per car extra and the traditional approach would have prevailed.
Conclusion
Form the above discussion it is clear that for the first issue the answer is yes that the law imposes an obligation on Visit Victoria to make the extra payment which they had promised to make to Gareth. In relation to the second issue the law would have operated in favor of Victoria and they would not have been liable to pay Gareth for the promise made by them.
The issues which have been identified in the second first scenario by analyzing the facts present in the case study are as follows:
- Whether Peninsula has the right to make a valid claim for compensation worth $1200 as Gareth failed to provide them two out of five cars as promised by him?
- What remedy would Gareth have if Peninsula accepted only the three cars after considerable amount of money had been spent by Gareth to repair the car and hire the drivers?
Part payment of debt is not a valid consideration
Payments which have been made in part to fully satisfy the debt cannot be considered as valid consideration under the rules of contract law. This landmark ruling had been made in Pinnel’s case 1602 5 Rep, 117.
In this case a promise had been made by the plaintiff to the defendant that he will not make any claim in relation to the debts of £8 10 shillings if the claimant paid £5 2 shillings and 2p in full settlement of the debt. When the promise had been executed by the defendant the plaintiff made a claim in relation to the rest of the sum owed to him by the defendant. In this case it had been stated by the court that plaintiff had the right of making the claim for the rest of the sum owed to him by the defendant even where the plaintiff had made an promise to forgive the balance amount. The court in this case emphasized on the fact that the part payment of debt is a valid consideration in relation to a promise of forgiving the due amount. However such promise can only be binding where the payment has been made before the due date, with an additional chattel or to a different destination.
The exception of Promissory Estoppel
The doctrine of promissory estoppel as defined by McKendrick (2014) is an equitable doctrine which is applied in a few situations to prevent a person from going back from a promise made by a person. The doctrine is a result of an Obiter Dicta provided by Denning J in the case of Central London Property Trust Ltd v High Trees Ltd [1947] KB 130. The existence of the doctrine had been affirmed by the House of Lords in the case of Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761. The following are the requirements which need to be present for the purpose of applying the doctrine of promissory estoppel. According to the rule there must be a contractual obligation which has been modified, the promise which has been made must be clear and unambiguous, there has to be a change in the position of the parties and it must be evident to the court that it would be inequitable to let the person making the promise to go back on it.
In the case of Combe v Combe [1951] 2 KB 215 a promise had been made by the husband to maintain payment in relation to his wife which he subsequently failed to fulfill. A claim had been brought by the wife under the doctrine. The claim of the wife had been rejected by the court by citing that the wife attempted to use the doctrine as a sword and not as a shield. There was not pre-existing contract which had been modified later by the promise.
In the case of Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972] AC 741 a contract in relation to sale of coffee was agreed to be paid in pound and sterling. A mistaken invoice had been sent by the seller which provided for the payment in Kenyan Shillings. Value of both the currency was equal at the time. The delivery and invoice was accepted by the buyer without any objection. The value of pound fell and the buyer made a claim in relation to pound sterling as provided in the contract. The court in this case held that by accepting the invoice subsequently resulted in an unambiguous and implied promise of accepting the terms.
The case of D & C Builders v Rees [1966] 2 WLR 28 was in relation to the issue where it was evident to the court that it would be inequitable to let the person making the promise to go back on it. In this case it had been stated by the court that whether an advantage has been taken by a party in relation to the position of the other party the doctrine of promissory estopples cannot be applied in the situation.
In the given situation it has been provided that Gareth had a contract with Peninsula Tours that he would provided them with five cars daily. However due to breakdown of a few cars and resignations of drivers it was informed to peninsula by Gareth that he would only be able to provide three cars per day to them. In the given situation the principles of the Pinnel case may be applied. This is because Gareth had the obligation to provide Peninsula with Five cars and now he is providing them with only three cars. In this case it is further clear that in the promise of providing lesser cars do not come with any additional consideration which is provided by Gareth. Thus Peninsula in this case has the right to make a claim for the loss which has been faced by them due to the non performance of promise on the part of Gareth. In this situation therefore as there is no additional consideration which is provided by Gareth it can be stated that Peninsula has the right to make an claim in relation to the loss which has been incurred by them. However in the given situation through the application of the Combe v Combe case it can be stated that as an pre existing contractual duty which Gareth owed to Peninsula of supply five cars has been modified to supply of three cars and had been accepted by Peninsula without any obligation the doctrine of promissory estopple would help Gareth to defend the claim.
In addition in relation to the second issue where the remedy which Gareth would have if Peninsula accepted only the three cars after considerable amount of money had been spent by Gareth to repair the car and hire the drivers has to be analyzed the principles of promissory estoppel has to be applied.
It has been provided through the case of Combe v Combe that the doctrine cannot be used as a sword and can only be a applied as a shield. This means that the doctrine can be applied to avoid a claim or defend it and not as a basis of making a claim. Although as per the case of D & C Builders v Rees it would be evident to the court in this situation that it would be inequitable to let the person making the promise to go back on it the case cannot be applied here. This is because Peninsula has neither expressly or implied stated that they are going to accept two cars after repairs by Gareth.
Conclusion
In relation to the first issue it can be sated that the doctrine of promissory estoppel will help Gareth defend a claim for $1200 from Peninsula. In relation to the second issue Gareth cannot make a successful claim to force Peninsula to accept the car.
The issues which have been identified in the first scenario by analyzing the facts present in the case study are as follows:
- The contractual position of Gareth with Event Rental Pty Ltd
- The contractual position of Gareth with the singer
- The claim which has been made by Julie
“A contract can be discharged through the doctrine of frustration”
Parties to the contract have the right to discharge the contract under the doctrine of frustration. As stated by Poole (2016) a contract may be regarded as a frustrated contract where a change in circumstances are found to exist subsequent to the formation of the contract which is not within the control of the parties to the contract and makes the contract performance impossible or deprives it of its commercial purpose. Where the contract is found to be frustrated parties to it are discharged from any future obligations and no party has the right to make a claim for its breach.
A contract may be regarded as a frustrated contract when the subject matter of the contract has been destroyed by circumstances which were beyond the control of the parties to the contract as provided through the case of Taylor v Caldwell 3 B & S 826. In this case the claimant had booked a music hall for a function and spent a considerable amount in relation to the function. However the hall was destroyed by fire before the program. A claim was made by the plaintiff for recovering the loss for the hall owner. The court denied the claim and held that the contract had been frustrated.
In the case a Codelfa Construction Pty Limited v SRA of New South Wales (1982) 149 CLR 337 the test of frustrated contract had been applied in Australia. In this case the plaintiff had been prevented by the local council laws to work at a specific time after the contract was formed. However the project could not be completed in time because of the prevention to work by law. the court in this case held that the contract was frustrated.
In the case of Davis Contractors Limited v Fareham Urban District Council [1956] AC 969 it had been stated by the court that a contract would not be declared as a frustrated contract where a party has struck a bad bargain or faces a hardship, material loss or inconvenience in relation to the performance of the contract.
However there are certain circumstances in which a contract is held not to be frustrated. These include the situation where the contract has become expensive or difficult to perform, there is a fault on the part of the parties which has led to the impossibility of performance, the frustration could have been foreseen and where a Force majeure clause is present. The provisions that the contract will not be frustrated only because its performance has become difficult had been discussed in the case of Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93. In this case it had been rule by the court that the contract was not eligible to be called frustrated as it was possible for the parties to perform the contract without causing damage. The fact that the contract has become difficult to perform is not considered for frustration of contract.
It has been provided in the given situation that there has been a contract between Gareth and Event Rental Pty whereby the latter was supposed to provide “large tents, portable stage, electrical sound systems and marquees”. However there was a serious accident which had been met by the car two days before the program and thus they were not able to provide Gareth with the equipments required for the purpose of the program. In the given situation it is clear that the contract between Gareth and Event Rental has been frustrated. This is because the accident was beyond the control of the parties to the contract and it has made the performance of the contract impossible. In the given situation there is no claim which either party has in relation to one another as per the doctrine of frustration. There was no fault which either parties had in relation to the frustration of the contract as it would have not been possible to control the accident. In addition the accident which took place could not be foreseen by the parties to the contract. Further it can be stated that the contract is impossible to perform and is not merely difficult. Thus the application of the doctrine of frustration in the given situation can be evidently done.
In relation to the second issue it has been provide that there was a contract between Gareth and a singer under which he was to sing for the program. The singer had made a refusal to sing as he did not like the quality of the sound system which was provided by Gareth. The sound system has been provided of a poor quality because the contract between Gareth and Event Rental was discharged due to frustration and the good quality sound system could not reach the program. In the given situation the singer may make a claim that as the sound system with which he was to perform is no longer available the contract between him and Gareth is frustrated. However the singer will not have a successful claim in the given situation as difficulty of performance does not make a contract invalid as per the case of Davis Contractors Limited v Fareham Urban District Council. He can use the new system which has been provided by Gareth and continue the performance. Thus as this has not been done by the singer Gareth has a valid claim against him for the breach of contact.
In the given situation it has been further provided that Julie has traveled inter-state and has not been able to attend the show. In the given situation it is clear that the contract between Gareth and Julie has been discharged due to frustration. This is because there is no fault of Gareth in relation to the non performance of the contract as the situation was beyond his control. Thus as this is a frustrated contract Julie is only entitled to rescind the contract which means she can claim refund for the $800 and not any additional compensation.
Conclusion
- It can be concluded that the contract between Gareth and Event Rental has been frustrated.
- Gareth has a valid claim against the singer for the breach of contact.
- Julie is only entitled to rescind the contract which means she can claim refund for the $800 and not any additional compensation
References
Andrews, N., 2015. Contract law. Cambridge University Press.
Central London Property Trust Ltd v High Trees Ltd [1947] KB 130
Codelfa Construction Pty Limited v SRA of New South Wales (1982) 149 CLR 337
Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040
Combe v Combe [1951] 2 KB 215
D & C Builders v Rees [1966] 2 WLR 28
Davis Contractors Limited v Fareham Urban District Council [1956] AC 969
Harris v Watson (1791) Peake 102 case
Hartley v Ponsonby [1857] 7 EB 872
McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
Pinnel’s case 1602 5 Rep, 117.
Poole, J., 2016. Textbook on contract law. Oxford University Press.
Stilk v Myrrick [1809] EWHC KB J58
Taylor v Caldwell 3 B & S 826
Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93
Watkins & Son v. Carrig, (N. H. 194I) 21 A. (2d) 591
Wigan v Edwards (1973) 47 A.L.J.R. 586
William v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ
Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972] AC 741
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