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Promissory Estoppel and Collateral Contracts: A Review


Task: Explain the various aspects of collateral contracts and contractual promises.


In the case of [1], a landmark decision was granted on the matter of promissory estoppel and collateral contracts. This ruling is very important in terms of commercial rentals, as it determines how the two concepts of collateral contracts and promissory estoppels can be implemented to pre-contractual deals and how, on the grounds of these two concepts, a protection can or cannot be given.

The Victorian Civil and Administrative Court originally ruled that the claims made in court by the Crown culminated in the creation of a collateral contract and because of the existence of a collateral contract, the Crown is obliged to amend the terms of the agreement that were infringed. It was prompted by an application in Victoria's Supreme Court, which ruled that the claim is promissory by nature, which is a prerequisite to set up a collateral contract and was missing.

In this case, though, the Court gave a final judgment, where the significant proportion of them claimed that the assertion could not be found to have helped contribute to a collateral statement, and a plausible argument of estoppel was also absent. The Court stressed that there was a need for the interpretation to be unambiguous, simple and accurate in order to claim an estoppel.

The case study of [1]is centered on this case. And so, the premises on which this case is founded have been discussed below, including the argument presented by each side, with Bertini and Garland being the two sides.

An accurate assertion on the interpretation of collateral contract is a different contract based on the nature of which the primary contract is written. It can usually be described as a single term contract where the terms of the agreement are based on the initial or the primary contract [2].

In the case of [3], Lord Moulton asserted that a collateral contract could be described as an assurance short of becoming a section of the primary contract and that admissibility is achieved by formulating a collateral contract. On the premise of concept and legitimacy, a collateral contract may be illustrated. And it's such an agreement for which, in another agreement or primary contract the comparison is made. The collateral contract complements the primary contract, but it has an individual presence and there is no question that the complete essence or condition of the contract is enforceable by law [4].

Consequently, a collateral agreement is one whereby the parties in a particular contract work together to create a new deal where the provisions of this new deal / collateral contract are an implicit subject to the original contract. The validity of the collateral contract also concludes in the event that the primary contract collapses or is missing. Thus, although the collateral contract is independent and distinct, it continues as an addition to the primary contract drafted [5].

Mostly, to establish a collateral contract, two conditions must be met. One is that the collateral agreement must conform with the initial contract. And also the other issue is that in essence the same must be promissory. If both of these requirements are accomplished in a contract, the same shall be considered as a collateral agreement and shall be binding in a law [6].

There are four components of a collateral contract in general. The first component is that is it must be in a promissory form. The next is that there must be a promise existence that follows after a claim. The third component is a continuity between the existing contract and the new contract drafted. And the final component is that all of a contract's important components, that is; In such a collateral contract, offer and approval, purpose, clarification, concern and capability must be visible [7].

A supplementary prerequisite, together with these components, is that the declaration rendered within this collateral contract must be such that it provokes the party to pursue the contract initially created [8]. In the case, [9], it was stated by Lord Denning MR that if an individual makes a promise or a confirmation to another individual and intends to take initiative by entering into a contract, in such instances the collateral contract is enforceable and retains the sides in a contractual relationship [10].

The case, [11]clarifies the validity of the primary contract provision and collateral agreement [12]. Negotiations occurred among all the parties involved under the mentioned subject, which connected to the rental agreement of a home, and it was accomplished by sending a letter. The landowner's tenant requested guarantees to ensure the drain was in right and proper condition and this certainty was pursued before the deal was signed. The parameters of the rental agreement between contractual sides have been upheld. The property owner was not allowed to confirm the agreement until such time as the lender showed the tenant the confirmation that the drain was in perfect condition. This promise is used as a collateral contract in this situation. The homeowner asserted the drain was in a right order, although the same injunction was missing in practise. The court found that the homeowner's depiction in this case, regarding the reasonable condition of the pipe, had to be treated as a guarantee. Furthermore, as the previous contract, this depiction was a collateral contract for the rental agreement. The possible explanation is that a term or a guarantee, that was not a term of the primary / existing contract, had to be implemented by means of the collateral contract, made by means of the depiction [13].

There is another case law, [14], which serves to illustrate that the collateral contract must conform with the primary contract [15]. The homeowner's house was sublet from Spencer to Hoyts, under this stated subject. One of the conditions in the new lease stated that four weeks ' notification being given in writing and in advance in the event that Spencer had to cancel the lease and that the same can be achieved at any point, ensuring that this provision was met. A verbal deal was made between both sides on the contract that Spencer would not suspend until the homeowner was provided the same. Although none of the aforementioned requirements was met, Spencer ended the rental agreement. Hoyts made claims in the Court that in this case, owing to the resulting promises, a collateral contract had been established. Moreover, the court dismissed the statements made by Hoyts because of the inaccuracy between the collateral and the primary contract [16].

Besides the components of the collateral contract, the person who articulates a collateral contract must determine that the agreement is established in the primary contract and not as a collateral contract according to its interpretation. And that the same is achieved with respect to the initial contract or the primary contract [17].

The case [18] helps to understand the promissory aspect of the collateral contract provision. In this specific issue, Blakney bought a boat from J J. According to one of the messages left by J J, the boat's motor had the potential to reach the top speed. But, Blakney found out later that the boat's motor was much weaker compared to J J's message. This revelation arrived a little too late after the sale was concluded. As a consequence, Blakney launched legal proceedings toward J J for the violation of the collateral contract [19].

In this case, the Court claimed that there was only one perspective in the letter sent by J J to Blakney there was no reference in the same. And hence, Blakney couldn't make the same claim, because it was a contract necessity. If Blakney had to consider taking it as the basis of a collateral agreement, the speed of the boat should also have been incorporated as among the requirements of the terms and conditions written between the two. Alongside these, Blakney should've been happy and content with the scale and complexity that on his part would have been considered the boat's motor's highest possible speed [20].

The promissory estoppel is among the applied concepts under prevalent contract law. Within this principle, a promise made can be enforced by the law, even in scenarios in which the promise is made without proper consideration. However, for the general application of this principle, it must be seen that the promise was made and also that the promisee depended on the pledge by the offeror and it was completely counterproductive to a promissory estoppel [21]. This rule derives out of the need to discourage the promiser from making such a claim that the claim made in a legal issue must not be kept or that it should not be followed. Because of the promise made, this principle lets the distraught party make a recovery. It should be observed that emphasis must be created on legitimate grounds so that a statement can be retained under the principle of promissory estoppel, while the same is damaging to the grantor in definition [22].

The claimant made a claim in the context this case [23] , that they decided to replace one of the properties occupied by the defendant. Depending on the complainant's unique description, the defendant removed the structure that was there and started the development of a new building. Throughout this case, an issue was posed as to whether or not the complainant can be prevented from declining the deal that had not yet come into being. The court concluded that such a statement can be allowed to be involved to secure non-contractual insurers for purposes of equity purposes [24].In addition, the Australian Court claimed that maintaining their silence and standing without stating anything was unacceptable on the member of the party when they knew that the other entity was moving ahead on the assumption that a contractual agreement was formulated [25].

And hence, by using the promissory estoppel, the party can be prevented from turning back on their pledge, and the one that is not accompanied by consideration In order to create this principle, other items must be true, including a pre-existential contractual compulsion or a bond that is eventually changed and there must be consistency and transparency in the promise. There must also be a change in position and, lastly, the same must be treated as unjust, by virtue of which the promiser has the authority to make a reversal [26].

The starting of this principle is the case of [27], which dates back to the 1940s. In this case, Denning J proposed the same as the orbiter claim [26]. The defendant leased a certain apartment building from the complainant in this specific issue, and the cost for such spaces was appended as a ground rent of £ 2,500. This contract was obtained in the war era of 1937, which was a fresh block of apartments at the time. The defendant experienced a lot of problems in finding the right number of renters to sublet the said apartments. And because of the apartment vacancies, the defendant was unable to make further income as they still had to pay the ground rent. By 1940, the condition seemed to be at a near halt for the defendant because of the war. Therefore, the sides agreed that perhaps the payment would be halved until the war had ended. The sides had this in writing And until 1941, the defendant reimbursed the claimant a decreased amount of rent. Once the war terminated and the apartments were full, the claimant appealed to the respondent to recover the ground rent that was previously agreed on. In this situation, it was established that owing to the scope of this rule, the claimant was prevented from collecting the rent for the shortened duration. And so, the complainant can not turn back on the deal they made to the ensuing arrangement, even in the lack of reasonable consideration [28].

The measures that can be done in the event of violation of a collateral contract are the same as in the situation of violation of the standard contract. A person may, henceforth, sue for punitive damages wherein remuneration is provided by the violating party for the breach of contract [29]The disturbed individual may also request, depending on the circumstances, to withdraw from the agreement or to avoid the infringer from doing something through obtaining a subpoena or by obtaining authorization for specific performance by requiring the infringer to carry out certain activities [30].

If or not, Bertini can make an effective claim with respect to a collateral contract getting created, together with the validity of promissory estoppel, which leads to the solutions obtainable.
The presented situation shows that Bertini can effectively make a case as per the problem of collateral contract principle. However, the lease will be considered the primary contract and there was a lot of bargaining on both sides for the same. The result of these negotiation process was that the contract terms were completed as a five-year timespan. In this case, however, Garland made a declaration stating that the contract must be signed by Bertini in accordance with the agreement that was in place and that the eatery should be rehabilitated according to the scales he wanted before a major world event occurred in Melbourne. He claimed in this declaration that Garland should look after Bertini during the period of the reinstatement. [31]

Garland's remark here is the basis of a collateral contract. This can be confirmed by this very declaration due to the existence of all the necessary components of the collateral contract. In the case study in question, Garland's claim is promissory in essence as it agrees to check after Bertini in the future at a certain point in time. Apart from this, the rental agreement and the collateral statement made are clearly compatible. The explanation for continuity is that both are connected and since the timeline of both agreements are aligned and the collateral contract will be enforced at the completion of the first contract. Therefore, when the five-year term for the rental agreement expired, Bertini's care will continue via the collateral contract [31]

Bertini's evident dependence on the promises made to be a collateral contract remained. Bertini strongly assumed he would be taken good care of at the end of the contract term and so he pursued the maintenance costs, which were substantial in price because they accumulated to $2 million. If he did not think that somehow the contract will be prolonged, he wouldn't have incurred this expenditure. In fact, thanks to the continuation of the contract period to another five-year duration, he was able to earn $200,000 as the value of normal benefits and $100,000 as the value of extraordinary benefits as a consequence of the lucrative contracts / offers he received for the anticipated extension of the contract term. [24].

It also demonstrates the existence of the components needed to be available in order to achieve a promissory estoppel case. Although there has been a discrepancy in consideration as one of the components in any legal contract, this very premise of promissory estoppel does not involve the same as was formed in the case [27]. There is an absence of consideration in the mentioned case, and the judge still prevented the respondent from turning back on the commitment initiated. Therefore, Bertini can easily prevent Garland from turning on his statements conveyed while rendering the commitment or the constructed collateral contract, using this concept of promissory estoppel. A further point that enables to demonstrate that there was indeed a collateral contract is the point that Garland's portrayal caused Bertini to enter into the five-year primary rental contract. He was always interested in entering a ten-year contract but trusted in Garland's promise. And since all the components desired to establish a contract and a collateral contract, throughout this case, evidently existed, Garland could be prevented from breaching the promise he made.

In summary, Bertini can easily obtain the assistance of problems arising from the 2 principles of promissory estoppel and collateral contract Garland had provided some assertion in this situation, which led to the collateral settlement. According to this interpretation, Garland owes Bertini a duty to make a bid according to Bertini's preferred conditions, that is for another 5-year duration. So, if this issue was brought up before the relevant authority, Bertini's allegations would be enforced and an adequate settlement amount would be granted, on top the interest levied on it. Moreover, because of the lack of transparency with respect to the assertion, it is hard to obtain an order for Garland to join onto a prolonged rental in accordance with Bertini's terms. [32].

If Garland could develop a successful appeal with respect to a collateral contract getting established, together with the scope of promissory estoppel, which leads to the accessible solutions or not?
As Bertini claimed that the assertion was a collateral contract, the same must be proven to be false in forming Garland's defense, after which only the relevance of the promissory estoppel concept must be questioned. If it can be found that in this situation there was no collateral contract, the whole thing can be shut down. To make such a determination, it is important to take into account the viewpoint that a rational person would have. [33].

If the conditions were addressed to a rational person under similar conditions, such a rational man would have developed a belief that Bertini would be taken good care of when the five-year lease restitution period comes. Moreover, such a person might not perceive that Garland's assertion was a legally enforceable formal agreement on the closing date of the initial contract period for another five-year lease term. That's because what could be perceived to be 'taking care' of is lacking clarification. There is a likelihood that the statement will fail based on promissory estoppel. It is because there is no proof that Garland has been prevented from rescinding the legal relationship, which is a prerequisite for a promissory estoppel case [34].

One other problem in this case involves the guarantees offered by his property owner Garland to Bertini, owing to the addition of lease term pursuant to estoppel's pertinence. As well as if there was genuinely an actual contract amongst the two when the rental duration lapsed, where Bertini had to be given a new rental contract on Bertini's specified standings and which coincided to the stipulations of the contract initially drawn up [35].

All that can be done is to acknowledge that the claim made was a depiction and that it did not create estoppel. There is conclusive proof that Garland had no idea to reinstate the lease because it outright forbade a ten-year contract and did not move on Bertini's demands [30]. It was put in place to ensure harmony with Garland's various other occupants. Therefore, Bertini's belief that the contract will be prolonged was entirely unfounded. A rational individual would not have given such a point of view [34]

This was accompanied by vagueness in Garland's claim based on this [18] case. It has never been indicated the standard of care or on what grounds Bertini would have been cared for. This argument was therefore ambiguous and inaccurate as well. Nowhere in this argument was it suggested that the term of the contract be extended and the commitment could not be upheld [35]

In conclusion, in this case, there is indeed a general lack in both concepts. Bertini's arguments cannot therefore be moved ahead. Because of the uncertainty in it, the claim made cannot be viewed as a justification for promissory estoppel or the same as a collateral contract. This statement was inherently only reassuring and thus could not be used as a basis for Bertini's assertions under the two concepts [21]. As a result, Garland will create a successful defence due to the absence of both collateral contract and promissory estoppel values.

[1] Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd, 2016.

[2] H. Hunter, “Modern Law of Contracts,” 2017.

[3] Heilbut Symons & Co v Buckleton, 1913.

[4] J. Liew, “In Defence of Ingram v Little: Understanding Collateral Offer and Acceptance,” Oxford University, Undergraduate, p. 34, 2017.

[5] D. Work and K. Barrett, “Defective construction work,” 2008.

[6] M. Dmitriev and J. Hoddenbagh, “ Collateral constraints and state-contingent contracts,” 2016.

[7] D. McLauchlan, “The Inconsistent Collateral Contract,” Dalhousie LJ, vol. 3, p. 136, 1976.

[8] S. Furst and V. Ramsey, “Keating on Construction Contracts eBook,” Sweet & Maxwell, 2015.

[9] Evans & Sons Ltd v Andrea Merzario Ltd, 1976.

[10] M. Young, “Understanding contract law,” Routledge, 2009.

[11] De Lasalle v Guildford, 1901.

[12] H. Beale, B. Fauvarque-Cosson, J. Rutgers and S. Vogenauer, “Cases, materials and text on contract law,” Bloomsbury Publishing, 2019.

[13] D. Bower, “CHAPTER TWO Contractor selection, contract award and contract law in the UK,” In Management of Procurement. Thomas Telford Publishing., pp. 15-33, 2003.

[14] Hoyt's Pty Ltd v Spencer, 1919.

[15] A. Edwards, “Leading cases in contract law [Book Review].,” Bar News: The Journal of the NSW Bar Association, p. 61, 2017.

[16] R. Beech-Jones, “The trials of justice Murphy,” Bar News: The Journal of the NSW Bar Association, vol. Summer 2017, p. 61, 2017.

[17] M. A. Clarke., R. Hooley, R. Munday, L. Seal, A. Tettenborn and P. Turner, “Commercial law: Text, cases, and materials,” Oxford University Press, 2017.

[18] JJ Savage & Sons Pty Ltd v Blakney, 1970.

[19] J. V. Gooley, P. Radan and I. Vickovich, “Principles of Australian Contract Law: Cases and Materials,” LexisNexis Butterworths, 2007.

[20] W. Courtney and J. Carter, “Implied Terms: What is the Role of Construction?,” Journal of Contract Law, vol. 31, no. 1, pp. 151-167, 2014.

[21] E. Alden, “Promissory Estoppel and the Origins of Contract Law,” NEULJ, vol. 9, p. 1, 2017.

[22] O. Gan, “The Justice Element of Promissory Estoppel,” John's L. Rev., vol. 89, p. 55, 2015.

[23] Waltons Stores (Interstate) Ltd v Maher, 1988.

[24] P. Martin, “Estoppel: Binding promise without a contract: Court of appeal considers proprietary estoppel,” LSJ: Law Society of NSW Journal, vol. 23, p. 93, 2016.

[25] M. Bow and L. Field, “Proprietary estoppel and the risks of mixing family and business,” LSJ: Law Society of NSW Journal, vol. 25, p. 84, 2016.

[26] P. Pardolesi, “Promissory estoppel,” Comparative Contract Law, p. 469, 2017.

[27] Central London Property Trust Ltd v High Trees Ltd, 1947.


[29] P. Latimer, “Protecting consumers from unfair contract terms: Australian comparisons,” 2016.

[30] D. Campbell, “Better than F uller: A Two Interests Model of Remedies for Breach of Contract,” The Modern Law Review, vol. 78, no. 2, pp. 296-323, 2015.

[31] R. Merkin. and J. Devenney, “Estoppel and promises: the importance of coherence, rationalisation, and adhering to basic principles. In Essays in Memory of Professor Jill Poole,” Informa Law from Routledge, pp. 153-168, 2018.

[32] M. Gapes, “ Unenforceable promise or binding contractual term?,” REIQ Journal, p. 41, 2017.

[33] M. Anderson and V. Warner, “Drafting and negotiating commercial contracts,” Bloomsbury Publishing, 2016.

[34] B. Vass, “ High Court revisits promissory statements, collateral contracts and estoppel,” The Proctor, vol. 39, no. 9, p. 17, 2016.

[35] L. Moretti, “Certainty and promissory estoppel after crown Melbourne ltd v cosmopolitan hotel (Vic) Pty ltd.,” Moretti, L., 2017. Certainty and promissory estoppel afterCommercial Law Quarterly: The Journal of the Commercial Law Association of Australia, vol. 31, no. 3, p. 3, 2017.

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