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Intention to Create Legal Relations and Promissory Estoppel

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INTENTION TO CREATE LEGAL RELATIONS

In order to prevent the courts from being troubled by disputes concerning agreements which aren’t intended to be legally binding the courts have sought to distinguish agreements that should be legally enforceable and those which should not.

 

  1. DOMESTIC AGREEMENTS- presumption that there is not ITCLR

Facts: husband and wife, he’s employed in sri lanka, she gets sick and comes back to uk and husband promises to pay 30 maintenance pm. He doesn’t and she sues him for breach of contract

Atkin LJ:the common law doesn’t regulate the form agreement between spouses…. natural love and affection which counts for so little in these cold courts [isn’t valid consideration].

CoA refused the wife’s claim. There are times when its not appropriate for the law to intervene on contractual relationships. This is because the parties themselves didn’t intend for the promise to have contractual consequences. i.e its just an arrangement between families.

the judge found that although R hadn’t subjectively intended to be bound when they signed, the objective intention of the parties was that they would be bound. R’s subjective intentions were irrelevant to the question of whether there had been a binding contract. Parties’ intentions to be legally bound had to be ascertained objectively.

this is an exception to the rule that there is no intention to create legal relations in domestic situations. CoA held that the nature of the dealings and the fact that the Merrits had separated when they signed their contract, allowed the court to assume that their agreement was more than just a domestic agreement. What you should actually use an objective test to help you determine this.

forbearance of existing rights was sufficient consideration

domestic arrangements between parents and children are presumed not to create legal relations

Contractual intention is normally judged objectively. The facts of the case meant that the agreement between the parties was somewhere between an obviously commercial transaction and a social exchange.

 

  1. SOCIAL AGREEMENTS- courts reluctant to find contractual intention

There was no ITCLR in this case. However they did create a series of exceptions; when the parties’ ongoing relationship is always based on actions in return for an award. In this case there was no contract of hire or reward as it was a social and domestic agreement and therefore no ITCLR. The widow was therefore not entitled to compensation.

This case is different to Coward as the lifts that were offered were done so in a commercial context, he had given lifts to different people over a period of time. Judge differentiated by saying, the acts in this case always had a reward attached to it, the line between the two cases is very narrow. Therefore there was ITCLR.

 

An exception is where one party has detrimentally relied on another. In this case the young couple detrimentally relied on the old couple’s promise that they would have a place to stay.

It was clear the only reason the arrangements had been entered into was for the reward. There was a binding contract despite the family connection as the lodger was also a party to the contract. This rebutted the presumption of no ITCLR.

 

  1. COMMERCIAL AGREEMENTS- give rise to an ITCLR

The agreement had been made in a business context which raised a strong presumption that the agreement was legally binding. C could therefore enforce the agreement and claim the money.

Facts: Esso ran a promotion whereby any person purchasing four gallons of petrol would get a free coin from their World Cup Coins Collection. The question for the court was whether these coins were ‘produced in quantity for general resale’ if so they would be subject to tax and Esso would be liable to pay £200,000. Esso argued that the coins were simply a free gift and the promotion was not intended to have legal effect and also that there was no resale.

There was ITCLR, the coins were offered in a commercial context which raised a presumption that they did intend to be bound. However the coins weren’t exchanged for a money consideration and therefore weren’t for resale.

 

Exceptions= when there’s an express agreement between the two parties that there won’t be legal relations between the two parties.

Subject to contract, there’s no intent to create legal relations unless there’s a clause. In this case it was held that the honourable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal effect and was not enforceable by the courts. it is generally assumed that a contract has been intended in business. Here there was a specific clause stating that the intention of the parties was not to be legally bound in a contract. In contract law the intentions of the party’s matters and here they were clearly stated. Atkin, in the dissent, agreed that the document did not form a legally binding contract, but held that the orders and responses between the parties in the process of business constituted enforceable contracts of sale.

It is generally assumed that parties in business relationships intend to be bound. If parties expressly state in an agreement that they do not wish to be bound, the courts must respect their actual intentions. FREEDOM of CONTRACT in the UK jurisdiction/ common law in relation to contract law.

 

  1. ADVERTISEMENTS

A court will not consider a statement if they consider it to not have been seriously meant. Weeks v Tybald.

 

PROMISSORY ESTOPPEL

 

WHAT IS IT?

It’s all about enforceability. Consideration is what was offered in return for the performance, is it cash performance of duty, so there’s an exchange. Promissory estoppel works where there’s no consideration and only where there is no consideration. Equitable doctrine means that it’s available only at the discretion of the court and may be used only as a ‘shield not a sword.’ Its relevant only when contracts are modified, and there is no fresh consideration for the change. e.g Foakes and Beer. You’re estopped from going back on promise, you cant then sue as B relies on the fact that a promise has been made. In the law of contracts, the doctrine that provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present. A promisor—one who makes a promise—makes a gratuitous promise that he should reasonably have expected to induce action or forbearance of a definite and substantial character on the part of the promisee. The promisee justifiably relies on the promise. A substantial detriment e.g an economic loss ensues to the promisee from action or forbearance. Injustice can be avoided only by enforcing the promise

 

DEVELOPMENT OF THE DOCTRINE

DECISION: The HOUSE OF LORDS said that there was no estoppel in this situation. The The HOUSE OF LORDS said that estoppel can only work when the statement is about an existing fact, not a promise. As soon as it becomes a promise, it crosses into the territory of contract law.  A representation as to the future must be embodied as a contract or be nothing. This case has been held to be authority for the proposition that estoppel was limited to representations of present fact, and could not be extended to representations of intention.

o   Thomas Hughes owned property leased to the Metropolitan Railway Company at 216 Euston Road. Under the lease, Hughes was entitled to compel the tenant to repair the building within six months of notice. Notice was given on October 22, 1874 from which the tenants had until April 22, 1875 to finish the repairs. On November 28, the tenant railway company sent a letter proposing to purchase of the building from Hughes. Negotiations began and continued until December 30th, at which point nothing was settled. Once the six months had elapsed the landlord sued the tenant for breach of contract and tried to evict the company. The tenant completed the repairs in June. Hughes was successful at trial but was overturned on appeal.

o   If a promise is implied in negotiations and one party relies on that promise then it is inequitable to allow the other party to act as though the promise does not exist. The defendants relied on this promise, and therefore it would be unfair to make them liable in this case. The implied promise is enough to allow estoppel to apply.

The Important case: Central London Property v High Trees:

  1. The first requirement of promissory estoppel is that the promisor must give clear and unambiguous statement that he does not intend to enforce his legal rights. The promise may be express or implied.
  2. The second requirement is that promisee must have acted on that promise made by the promisor.
  3. The third requirement of promissory estoppel is that it would be inequitable for the promisor to renege on his promise and claim his strict legal rights after the promisee had relied on it.
  4. The fourth requirement of promissory estoppel is that it cannot not be enforce against the promissor. Thus it can be used only as a defence and thus cannot be used as a sword.

 

LIMITATIONS/CRITERIA OF THE DOCTRINE

 

  1. EXISTING CONTRACTUAL RELATIONSHIP

Relationship between the two can be based on a statutory relationship, it didn’t have to be contractual. The statutory relationship in this case was the Bill of Exchange rights Donaldson J. held that contractual relationship is irrelevant provided that there is “a pre-existing legal relationship which could, in certain circumstances, give rise to liabilities and penalties”.

in relation to promissory estoppel, the test of a legal relationship between the parties is satisfied when they are engaged in correspondence and one party intends that correspondence to have legal effect and the other, knowing of that intention, requests information or purports to grant extensions of time which would only be of relevance if the correspondence between them affected their mutual rights and obligations

Courts said you didn’t need a contract but the essence of a contract. Both believed that they were in a contractual relationship but they weren’t

The only thing that seems to be important is that the relationship must be of a legal nature.

 

  1. CLEAR AND UNEQUIVOCAL PROMISE

This must affect the legal relationship between the two parties.

The content of the promise must be such that the promisee believes that the promisor won’t insist on full legal rights.

Involves the payment for cocoa, the promise is the promise to allow the payment in pounds and not in Nigerian dollars. Promise to ensure that the value of the contract stays the same.

HOL says there’s no clear or unequivocal promise. The relationship between the parties was too vague. The test for this is an objective test. Courts held, that the representation had not been sufficiently precise to found a variation of the contracts, or an estoppel.

A representation must be clear and unequivocal, and if a representation is not so made, it matters not that the representee should have misconstrued it and relied upon it. Held: that the representation had not been sufficiently precise to found a variation of the contracts, or an estoppel.

 

  1. RELIANCE BY PROMISE

All that matters is a change in relationship between the two parties/contract. Denning- don’t need a detriment we just need a change. The only thing you need is a change in position of the parties e.g: a lost opportunity to enter into another contract, allocate money differently. It must be inequitable for our promisor to go back on the promise, i.e it must be unfair for them to go back.

 

Lord Goff- need not be detrimental, what we need is a reliance of some kind, such as a change of position; such as a loss of opportunity or the redirecting of money saved from other expenses. The promise itself doesn’t need to have been the sole reason for the change of position, but it must be an inducement. Estoppel only takes effect where equity demands. There must be action taken on the representation by the representer but no detriment to the representee is needed.Estoppel is only a defence for the defendant.

Detrimental reliance is not required for promissory estoppel to apply. Promissory estoppel requires that the claimant party rely on the actions of the other party and alter their position as a result.

 

  1. INEQUITABLE FOR PROMISOR TO RESILE (ABANDON A POSITION OR COURSE OF ACTION)

Facts: Plaintiff builder did work for d and they are owed about £500 by d. Plaintiff presses d for payment and eventually gets £300, no consideration in the case, but there is a change which is the promise to take less.

Denning states that in this case there is no consideration; therefore the agreement will not stand in common law but might be allowed in equity. However, he states that the pressure placed on D. & C. by Rees forced them to accept an agreement that was unsatisfactory. Therefore it would not be inequitable to allow the creditor to claim the rest of the money, and thus the appeal is dismissed.

 

  1. SUSPENSORY EFFECT

Tool Metal Manufacturing v Tungsten Electric:

Tungsten- reaffirms what comes out in high trees. If promisor insists on their full contractual rights then they have to give notice to the promisee. Estoppel doesn’t extinguish the main legal rights under the main contract at all.

Held: TMM could not enforce the compensation payments during the war years but could enforce them on termination of the war. TMM were estopped from going back on their promise to waive the payments in equity. Generally promissory estoppel will merely suspend legal rights rather than extinguish them. However, where periodic payments are involved and a promise has been made to reduce the payments because of pressing circumstances which are not likely to persist, promissory estoppel can be used to extinguish legal rights.

 

  1. SHIED AND NOT A SWORD:

“Much as I am inclined to favour the principle in High Trees, it is important that it should not be stretched too far, lest it should be endangered.” Per Denning LJ. Denning, writing for the court, clarifies his words concerning estoppel from High Trees. He clearly states that it cannot be used as a cause of action, but only as a defence when someone is trying to claim that a promise they made did not have consideration and is therefore not binding; estoppel is a “shield”, not a “sword”.

 

  1. Promises prohibited by legislation:

 

PROMISSORY ESTOPPEL AND CONSIDERATION: EROSION OF THE RULE IN FOAKES V BEER

 

Collier v P&MJ Wright:

Arden LJ held that Foakes v Beer applied, but referring to the ‘brilliant dictum’ of Denning J in High Trees, held that promissory estoppel could aid Mr Collier. Where he had been assured that he could repay only part of the debt, he had relied on the assurance by making his payments, Wright Ltd resiling from the promise ‘would of itself be inequitable’ [42].

“Where a debtor offered to pay part only of the amount he owed and the evidence showed the creditor voluntarily accepted that offer, and relying on that acceptance the debtor paid that part of the amount he owed in full, the creditor would be bound to accept that sum in full and final satisfaction of the whole debt by virtue of the doctrine of promissory estoppel.”

 

  1. PROPRIETARY ESTOPPEL

Crabb v Arun:

 

Cobbe v Yeoman’s Row Management:

 

Thorner v Major:

 

  1. ESTOPPEL BY CONVENTION

 

Amalgamated Investment and Property v Texas Commerce:

where parties in their course of dealing in a transaction had acted upon an agreed assumption that a particular state of facts between them is to be accepted as true, each is to be regarded estopped as against the other from questioning with regard to that transaction the truth of the statement of facts so assumed

 

Petromec Inc v Petroleo Brasiliero:

Held:  knowingly creating or lending encouragement to an existing assumption might have the same effect as a representation and might in appropriate circumstances be sufficient to support an estoppel. an agreement to negotiate in good faith was unenforceable as being devoid of legal content

 

Johnson v Gore Wood:

 

 

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