Enforceable Contract: Fran And Marco's Business Law And Ethics Essay.

Background of the Case

Fran runs a small business called Fran’s Fine Treats supplying gourmet chocolates to foodstores and health spas. Recently her products have grown in popularity, and the business is growing significantly. 

Fran decides to hire an assistant to help her with deliveries. She approaches her brother Marco, who owns a van. Marco was planning to take on a well-paying job opportunity in a nearby town, but he agrees to stay local instead, so that he can help Fran grow her business. Marco is concerned about wear and tear on his van, and about insurance in case he is involved in a traffic accident while making deliveries. So he wants to make sure the arrangement with Fran is formalised. He gets the advice of a lawyer, who helps to draft an employment agreement setting out hours, rate of pay, reimbursement for fuel and maintenance costs, responsibility for vehicle insurance and various other details. 

After both Fran and Marco have inspected the document prepared by the lawyer, and discussed all its contents, they both sign it and have their signatures witnessed. Two days later, Fran regrets her decision and wants to hire her niece Jane instead. 

As Fran’s business is expanding she needs more room for preparing and storing her chocolates. On her daily walks with her dog, she has noticed a small warehouse space near her house, which has a closing down sale sign displayed at the front. She knocks and enters the premises and speaks to Octavia who is packing boxes inside. Octavia is the owner of the space, but is planning to move interstate. He is looking for someone to rent the space after he is gone. 

“I’d like to get the matter sorted quickly – if I can find a tenant before I leave then I won’t need to pay a real estate agent to find one for me. I’ve already got a draft lease agreement covering all the essentials.” 

Fran thinks the location will be perfect for her business, but she is concerned that the kitchen at the warehouse doesn’t have an extractor fan. She says this to Octavia and he says that he will organize and pay for installation of a fan, as long as she is serious about renting the property. Fran reassures him that she is, but that she wants time to look at the draft lease agreement properly before signing it and returning it to him. 

Essential Aspects of an Enforceable Contract

Octavia emails Fran with the agreement and says that he has booked someone to come and install a fan. He says in the email, ‘please let me know if you’re not going to go ahead, in which case I’ll cancel the fan installation’. 

Fran responds saying ‘Everything’s fine. I’ll look at the lease tonight and bring it around to the warehouse tomorrow’. That afternoon, an electrician comes and installs the fan into the kitchen at the warehouse. 

Later the same evening, Fran discusses her plans with some friends. They encourage her to consider opening her own shop, rather than only selling the chocolates to other businesses for retail. Fran now thinks that a warehouse setting will not be appropriate. She decides to look for a shop front in an area with good visibility and foot traffic.

First thing the next morning, Fran contacts Octavia and announces that she will no longer be renting the warehouse space. 

Fran finds a shop suitable for her business, and enters into a lease agreement without any troubles. She then advertises online for an assistant to help her in the shop. After interviewing several applicants, she decides on Dante. He is keen to learn and has some experience as an amateur chef. Fran hires Dante as an apprentice chocolatier. 

Their written agreement contains a restraint of trade clause. This clause forbids Dante from opening a competitor business in the same area or supplying to the same clients as Fran’s business, for one year after leaving the apprenticeship.

Six months into the apprenticeship, Dante feels he has learned all that he can from Fran. He quits. 

Two weeks after Dante has gone, Fran finds out that he has approached several of her clients, and has begun providing two of them with similar gourmet chocolates at a lower price. Fran wants to enforce the restraint of trade clause, but Dante says that the employment contract isn’t binding on him. 

Rather than advertising online, Fran thinks that she is more likely to find someone trustworthy if she relies on existing networks to find someone who comes recommended. Fran sits at her desk to start preparing a notice to display in the front window. The sign offers a month’s supply of free chocolates to anyone who can recommend a suitable, trustworthy assistant or apprentice. 

One of her regular customers, Arjun, comes in to pick up his regular weekly order.

Enactment of Contract by Fran and Marco

“Where’s Dante these days?” Arjun says. 

“He quit¨ responds Fran. “I need to find a new assistant or apprentice to replace him.” “I know someone perfect. My neighbor has some experience in food preparation and is looking to start an apprenticeship. She’s honest and a hard-worker. Here, I’ll write down her name and number for you.” 

As Arjun picks up a paper and pen from Fran’s desk he sees the sign for the first time.

“Oh great” he says. “I’ll take the month’s supply of free chocolates with me now thanks.” 

Legal citation is different to other styles of citation, such as Harvard or other in-text citation. Legal citation involves providing the most relevant legal authority for any statement of legal rules or principles. Citations are provided in footnotes. (If you’re working in MS Word simply go to the ‘References’ tab and click on ‘Insert Footnote’.) 

For the purposes of BLST2BSL Introduction to Business Law and Ethics, we do not expect you to learn the Australian Legal Guide to Citation, which is the usual approach to legal citation in Australia. That Guide is incredibly complex. Instead, you can simply follow these instructions for citations in your common law assignment. 

As stated above in the Assignment Instructions, where you state a legal principle which comes from a case, you must provide a citation to the relevant case. You are not expected to read the cases themselves: as long as a case is summarised in the textbook, you can cite the case itself. An example of this would be if you said this in your assignment: 

“If a letter of comfort includes statements which are not promissory, then it probably was not intended to be legally binding.”¹ 

Alternatively, you could mention the case name in the sentence of your assignment itself, and just put the case citation in a footnote, like this: 

“As in the case of Commonwealth Bank of Australia v TLI Management Pty Ltd² a letter of comfort with only non-promissory statements was probably not intended as legally binding. Either way, we expect you to provide a citation to the relevant case for the legal principle you are stating. 

If you are stating a legal principle that is covered in the textbook or lecture and which does not have a relevant case provided in the textbook, you should cite the textbook. An example of this would be:

“If an agreement is executed as a deed then there is no requirement for both parties to provide consideration.”³

Please also note that you are not expected to use any materials beyond the lectures and the set textbook. But if you do, you must provide appropriate citations. No bibliography is required. Finally, remember that footnote citations do not count towards your word count so don’t hesitate to provide citations for any statement of legal principle. If in doubt, provide a citation.

The issue is to comment on whether Fran and Marco have enacted an enforceable contract or not.

The contract would be enforceable only when the below highlighted essentials are fulfilled.

• Presence of valid agreement (lawful offer and acceptance)
• Presence of mutual consideration
• Capacity of the parties and intention of the parties to enter into contractual relationship

When the contractual parties are connected through domestic relations, then the imperative aspect that the honourable court would take a note of is intention of the parties to enter into contractual relation. In pre-contractual phase, if the parties do not represent the intention to create legal relations, then no enforceable contract would form between the parties in these cases. The verdict announced in Jones v Padavatton[1] case is the testimony of this aspect. According to this case, there was an promise on part of the defendant that if the plantiff would fulfil a promise, then reward would be given which was later broken. The court held that the promise was non-enforceable due to lack of intention of parties to legally enforce promise.[2]

It can be seen from the given case facts, that Fran and Marco are connected with domestic relation (brothers). Hence, the major aspect is to determine whether the parties have intention to enter into legal relationship or not. Based on the case facts, it can be seen that both the parties have mutually accepted the terms and conditions of agreement and have drafted the employment agreement with the help of a lawyer. Further, they have signed the legal employment agreement in the presence of witness. Therefore it can be concluded that enactment of contract by using the requisite legal measures such as witness, service of lawyer is the indication of the intention of Fran and Marco to enact legally enforceable contract. Hence, the contract is enforceable on the parties and both the parties have to complete the respective contractual liabilities.

If Fran does not fulfil the contractual duties, then Marco has the legal right to sue Fran and claim for the damages.

Conclusion

Fran and Marco both have clear intention to make legal relation and therefore, legally enforceable contract is present between the parties. Hence, Fran cannot hire Jane in place of Marco because Fran is bounded with contractual obligation.

The central issue is to comment whether there is an application of doctrine of promissory estoppel based on the given circumstances.

The doctrine of promissory estoppel would be applicable only when the second party who has initiated or worked based on the promise made by the first party. It means, when the offeror has stated a promise to offeree and the offeree by relying on the promise has enacted some work and later on the offeror has denied to complete the promise, then in such cases doctrine of promissory estoppel would be applicable. In this case, the parties would said to be in legal relation and has to complete the contractual relations[3].

Essential Aspects of an Enforceable Contract

The following aspects must be present for the validation of doctrine of promissory estoppel[4].

• Offeror (A) party has made an unambiguous promise or representation to offeree (B).
• Offeree (B) has initiated some work based on the representation of the offeror.
• However, if offeror has denied completing the promise, then the offeree would suffer significant losses.
• Also, it is essential that offeror does not inform the offeree regarding the possibility that he/she may not complete the promise.

If the above four factors are present, then the doctrine of promissory estoppel would valid.

Based on the given case facts, it can be said that the four conditions required for the validation of doctrine of promissory estoppel are applicable.

• Fran has stated Octavia that she is ready to rent his warehouse only when he can install an extractor fan in the kitchen.
• Octavia is ready to install an extractor fan in the kitchen at her own expense.
• Further, Octavia has confirmed from Fran regarding the rent of warehouse. Fran has given his assurance that he will rent the warehouse.
• Also, no potential warning has made on behalf of Fran that to Octavia that he will not rent the warehouse.

It can be said based on the above understanding that Octavia has commenced installation of an extractor fan in the kitchen only by relying on the promise of Fran that he will rent her warehouse. Hence, it can be said that Fran has made a promise regarding the rent of warehouse and later on has retracted from his promise and also, Octavia has installed extractor fan by depending on Fran’s promise and therefore, doctrine of promissory estoppel is applicable here.

Conclusion

Due to the application of doctrine of promissory estoppel, Fran and Octavia would said to be in legal relation and hence, Fran has to rent Octavia’s warehouse or has to make the payment of the incurred damages.

The key issue is to ascertain if there is an enforceable contract between Dante and Fran especially with reference to the restraint of trade clause.

The restraint of trade clause is inserted in order to safeguard the legitimate business interest of the party which inserted the clause. In order for these clauses to be enforceable, it is imperative that these should not be too restrictive and thus should be reasonable considering the underlying purpose as highlighted in the verdict of Adamson v New South Wales Rugby League Ltd[5] case. Further, the restraint of trade clause would be considered as enforceable if it is actually desired for protecting the business interests in line with the Southern Cross Computer Systems Pty Ltd v Palmer[6] case. Also, the geography and time restraints should not be too harsh and based on the underlying business interests as has been highlighted in Complete Business Strategies Pty Ltd v AFA Wealth Pty Ltd[7] case.

Based on the given facts, it is apparent that a restraint of clause is essential to protect the business interests considering that Dante is learning key skills regarding cake making and hence can potentially open a competitive business and thereby target Fran’s clients. This is exactly the situation in this case where Dante after learning all the necessary skills during the six month apprenticeship let Fran and opened a competing business and started targeting Fran’s client and hence adversely impacting his business.  Further, the nature of the restraint of trade clause is such that it is reasonable since it forbade opening the business in the same area and approaching his clients only. Thus, the clause is not restrictive and is aimed at only ensuring that legitimate business interests of Fran are not adversely impacted.

Conclusion

Based on the above, it would be reasonable to conclude that the restraint of trade clause would be considered valid and hence would be applicable. As a result, Fran can demand an injunction order besides recovering any damage caused to the business due to Dante’s business.

The main issue is to ascertain if there is any legal liability on the part of Fran to provide Arjun with a free supply of chocolates for one month.

One of the key requirements for formation of an enforceable contract is that mutual consideration needs to be present so that there is incentive on part of the parties to enter into contractual relation. In this regards, it is imperative that any contract based on past consideration would not be termed as a valid consideration in line with the verdict in Re McArdle (1951) case. In this particular case, the act of decoration was performed first and later there was a promise made to reward the same. This contract was classified as void and hence no legal liability arises on the promisor[8].

In accordance with the details provided, it is evident that Fran needed an apprentice for her ship and hence was willing to put a unilateral offer whereby any person who would extent an apprentice would be given a month supply of chocolates.  Fran was involved in preparation of this notice when one of her regular customers, Arjun entered the shop. He enquired about Dante and Fran told him that he had quit. Arjun on his own without being aware of the offer extended his help with regards to contract of his neighbour who can be a perfect choice for the apprentice that Fran is seeking. After the extension of these details, ne observed the notice that Fran was preparing to paste. It is apparent that consideration has been extended by Arjun before any promise by Fran is made regarding compensating him with chocolates. Thus, Arjun’s act would be termed as past consideration and therefore there is no enforceable contract between Fran and Arjun.

Conclusion

Owing to lack of any enforceable contract between the parties, there is no legal obligation on Fran’s part to provide Arjun with a month’s free supply of chocolates.