Susan runs a store that sells furniture. One day, Brittney, a customer, walks in the store. After looking around the store, Brittney approaches Susan to buy an expensive wooden chair for $1,200. Susan gives Brittney a written contract for the purchase, which Brittney reads.

While Brittney is reading the contract, Susan tells Brittney, If you sign now, we can also deliver to you a free luxury wooden table to go with the chair.

Brittney tells Susan, Oh that would be perfect, and signs the written contract for the purchase of the chair.

A week later, Brittney receives the chair by delivery, but not the table.

Upset, Brittney goes back to the store to confront Susan. Susan tells Brittney that, Sorry, we ran out of luxury tables. And our written contract only mentions the luxury chair, which we have delivered, and the $1,200 which you have paid.

Susan refuses to give Brittney the luxury table.

Advise Brittney if she can enforce Susans oral promise to give Brittney the luxury table. Please only use the material in Contracts 2 to answer the question. Do not discuss terms and representations and/or conditions or warranties in your answer.

Please note: a written contract, has been formed.

Model Answer

Issue 1

Can Susan bring an action against Brittney under contract law for damages?

Law

If the contract is in writing it is generally difficult to establish that a verbal representation made during negotiations was intended to become a term of the contract.

This is due to the parol evidence rule, which states that there the terms of an agreement are contained in a written contract, and that contract appears to be entire, there is a presumption that the document contains all the terms of the contract, and neither party is allowed to introduce evidence of oral statements that would add to, vary or contradict the contract: Mercantile Bank of Sydney v Taylor.

Promissory Estoppel

Promissory Estoppel was developed to allow for promises to be enforced even though the technical legal requirements of contract law may have not been satisfied.

In order for the Doctrine of Promissory Estoppel to be satisfied, these five elements must be present:

1. Some sort of legal relationship either exists or is anticipated between the parties;

2. The promisor makes a clear and unambiguous promise;

3. The promisee relies on the promise - by changing their circumstances;

4. The promise will suffer a material detriment/disadvantage if the promisor does not keep their promise;

5. It would be unconscionable if the promisor did not keep their promise.

Application

Here, the contract for the purchase of the expensive wooden chair was in writing. Under the parol evidence rule, because the written contract appears to be entire (setting out a specific price for a specific product), there is a presumption it contains all the terms of the contract. As a starting point, Brittney cannot rely on Susans verbal promise to give Brittney the luxury table, as it is excluded by the parol evidence rule.

Conclusion

The starting point is that Susans promise to give Brittney the luxury table is not a term of the contract due to the parol evidence rule.

Issue 2

Does Susans verbal promise create a collateral contract?

Law

Although extrinsic evidence is not admissible under the parol evidence rule to add to, vary or contradict the terms of an apparently entire written contract, such evidence can be admitted to show that a collateral contract exists.

4 elements must be met to establish a collateral contract:

1. The defendant makes an oral statement and the primary main contract is written.

2. The oral statement was intended as a promise, made to induce entry into the main contract.

3. The collateral contract is not inconsistent with the terms of the main written contract.

4. Entry into the main contract is consideration for enforcing the promise made under the collateral contract: De Lassalle v Guildford.

In De Lassalle v Guildford, De Lasalle leased a house from Guildford. Prior to signing the lease, Guildford told De Lasalle the drains were in order. However, the written lease did not say anything about drains. It turned out the drains were blocked, causing De Lassalles house to become flooded. Despite the parol evidence rule excluding Guildfords verbal promise, the Court said that verbal promise was made in exchange for De Lassalles promise to enter into the main written contract, being the written lease. The oral statement therefore amounted to a Collateral Contract.

Breach of the oral statement/promise entitles the innocent party to damages.

Application

Brittney can argue that there is a collateral contract. Here, the main written contract appears to be entire, as it solely deals with the purchase of the table, and nothing more.

Applying the 4 elements:

1. Susan made an oral statement.

2. The oral statement made by Susan was intended as a promise to Brittney.

3. The oral statement made by Susan is not inconsistent with the terms of the main written contract entered into by Brittney.

4. Entry into the main contract is consideration for enforcing the oral promise.

This is similar to De Lassalle v Guildford where entry into the written lease was the consideration for the verbal promise that the drains in the house were in order. Here, entry into the written contract for the purchase of the chair was the consideration for Susans verbal promise to give Brittney the table.

Conclusion

On the balance of probabilities, whilst the parol evidence rule would mean that the oral statement made by Susan would not be enforceable as a term of the contract, Susans verbal promise does however give rise to a collateral contract, which means that Brittney can enforce the promise and sue for damages.

ANSWER ANALYSIS

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