Promissory Estoppel in Legal Actions - Essay Example

Heading: Promissory Estoppel Your name: Course name: Professors’ name: Date Introduction In the society today, people are entering into contracts every day in order to improve their life standards. These contractual agreements are essential, but a lot of caution needs to be taken in order to avoid unnecessary legal actions and penalties. This is because there are situations in which parties enter into unconscionable contracts. To remedy this, law has provided protection against these acts through a doctrine of promissory estoppel. Therefore, the objective of the paper is to explore the concept of unconscionability and promissory estoppel. Furthermore, it employs certain cases so as to justify the applicability of the promissory estoppel in legal actions. Estoppel Addressing the concept of estoppel is of utmost importance in the understanding of the doctrine of promissory estoppel. Estoppel is a legal term used to refer to a series of equitable and legal doctrines that stops an individual from refusing or arguing anything to the contrary of what has been legally found out to be true, either by his own action, or by the legislative or judicial officers, or representations, either implied or express1. In a situation that a court realizes that a party has a situation that calls for a form of estoppel, then the party is ‘estopped’ from arguing or claiming some related rights2. The defense party is said to be ‘estopped’ from making the related defense, or the complainant is ‘estopped’ from arguing against the defense team3. Further understanding of the concept is achieved by focusing on the main types of estoppel applied in American, Australian, and English laws. One of them is the reliance-based estoppel that entails that one party relies on something, which the other party had said or done4. Here, the party that spoke or did something is the one to be estopped by the court. The second type of estoppel is the estoppel by record5. This is the one that frequently comes up as a cause or issue of judicial or action estoppel where the judgments or orders made in the last legal proceedings bar parties from relitigating similar causes of action or issues6. Thirdly, estoppel by is often termed as formal or technical estoppels, and they entail the prevention of the defense from denying the truth of his deeds or speech by evidence rules7. Fourthly, estoppel by silence bars an individual from arguing something when he had a chance and a right to do so earlier, and this silence disadvantages another party8. Lastly, the estoppel by delay (Laches) is regarded to be both a sui generis estoppel, and a reliance-based estoppel9. Besides, reliance-based estoppel, according to the English Law, comprise of a situation in which one person argues the truth of certain facts to another; promissory estoppel in which a person promises another one, but the contract is unenforced; and proprietary estoppel whereby parties are taking a legal action concerning a land title. In addition, reliance-based estoppels necessitate that the victimized individuals demonstrate both detrimental and inducement reliance10. This implies that there must be a proof that the representor really intended the victim to base his actions on the promise or representation. Moreover, the victimized party ought to prove to the court that it was rational for him to act on the relevant promise or representation11. Additionally, the court must establish that the victim’s actions were reasonable, and acted as per the representing party’s intention12. Further, the court must be satisfied that the victimized party would suffer a detriment or loss if the representor was permitted to refuse his deeds or utterance13. Here, a detriment is measured as from the time proposed to refuse or withdraw the representation or promise, but not when both were made. Lastly, under all situations, the conduct of the representor is regarded as unconscionable to permit him to resile14. Unconscionability This is a term used in contract law in reference to a defense against the contract enforcement whose basis is on terms that are extremely unfair to one of the parties15. The contract can be termed unenforceable due to the fact that the consideration given is inadequate or lacking so that the enforcement of the contract would be unjust to the party who wants to terminate the contract16. Clearly, insufficient consideration is probably inadequate to make a given contract unenforceable17. Nevertheless, a court of law will focus on the evidence that one of the contracting parties took advantage of its great bargaining power to put provisions that made the contract largely favor its interests18. In case a court of law finds an agreement unconscionable, the party complaining of the unconscionability must provide evidence that there was problem with substance of the contract and the contract formation process19. The problem will commonly be the consideration, but could be interest payments, terms and other obligations determined by the court to be unjust. Besides, some of the procedural issues that the court can consider are superiority of the bargaining position, knowledge, lack of choice and other situations regarding bargaining process20. Additionally, when a court finally establishes unconscionability, it obtains sufficient flexibility on ways of resolving the problem21. In fact, a court of law may object the enforcement of the contract, enforcement of the offending clause; undertake other measures it considers essential to make a fair result. Besides, the court does not require the award of damages22. In order to understand the concept of unconscionability, exploring certain instances is vital. In the case of Harris v Blockbuster, Inc in 2009, the plaintiff asserted that Blockbuster’s provision to impose arbitration and prevent class action lawsuits was unconscionable and illusory23. Nevertheless, it is unknown whether or not it was unconscionable, as the court of law decided that it was unenforceable (illusory), and disregarded other considerations24. Therefore, in order to have the defense of unconscionability apply, the agreement ought to have unconscionable at the moment it was made. This is because situations that arise later, which as capable of making the contract one-sided are inappropriate25. Another case in Australia concerns Commercial Bank of Australia v Amadio of 198326. This case involved an aging Italian that had inadequate command of written English sought to secure their son’s debts, which resulted from his collapsing business. The son misguided them to the degree of guarantee, and the bank never took the initiative of explaining it to the couple. Upon the son’s business failure, the couple (Amadios) had the agreement set aside because of the unconscionable operations of the bank. Consequently, Deane J recreated the Early Test in order to make it simpler for the plaintiff to succeed since the need not prove real exploitation27. Therefore, some of the major elements set by Deane J include: there is a special disadvantage held by the weaker party, in the process of transacting with the other party without a sensible extent of equity existing between them. In this case, the weaknesses are inadequate understanding of written English, age, and the inexperience with business of the couple in that they depended on the son’s expertise28. Though the situations are varied and cannot be categorized, they are capable of subjecting the other party at an adverse disadvantage29. Secondly, Deane J asserted that the disability was adequate evidence for the other party to consider it prima facie unjust that they agree the weaker party accepted the transaction30. Thirdly, the existence of these situations casts an onus upon the stronger party to demonstrate that the transaction was handled fairly, justly and reasonably31. Therefore, this and other cases have witnessed a lot of readiness of the courts to put aside contracts basing on unconscionability. Subsequently, there are recent statutory developments in Australia, such as, the Competition and Consumer Act 2010 (Cth) and the Contracts Review Act 1980 (NSW)32. Promissory or Equitable estoppel This is a legal term applied in various legal systems in order to permit a party to recover on promise even if its formation lacked a consideration33. Basically, the doctrine estops or prevents an individual from asserting that his promise should not be endorsed or upheld. Besides, the doctrine requires that there was a reasonable reliance or dependence on the promise. In addition, it also requires that the party that is attempting to enforce the promise really depended on it to his detriment. Notably, the promissory estoppel’s legal requirements differ across jurisdictions. Imperatively, promissory estoppel has four major elements that must be proved by the plaintiff34. These include the presence of a promise; a promise that was sensibly depended upon; the dependence of the promise resulted in the promisee’s loss or detriment; and that just necessitates the honoring of the promise35. Notably, promissory estoppel and estoppel by representation of fact are mutually exclusive36. This because former is founded on the promise of not enforcing a pre-existing right, whereas the latter’s basis is on the representation of the existing fact. On the other hand, proprietary estoppel works only between two parties that, at the representation moment, were in a relationship, but this is unnecessary in the estoppels by representation of fact37. Commonly, in circumstances of promises or contracts, the law requires that a consideration is for the deal is obtained by a party38. Here, consideration implies a kind of value exchanged between the contracting parties. The value can be in various forms that include refrain to do something (forbearance), affirmation to do something, or a promise39. In order to be applicable, consideration obtained should be enough, that is, sensible given the situations of the contract, and legal. Besides, a consideration cannot be for something received in the past40. At times, consideration of unimportant value (nominal consideration) is considered inadequate. Regardless of the kind of consideration essential in a certain agreement, some type of consideration is necessary so as make a contract legitimate and legally enforceable41. Nevertheless, because of the courts objective to enhance fairness, they at time employ the promissory estoppel doctrine. Hence, although there is no enforceable contract, the court can enforce a promise if the essential elements of detriment and reasonable reliance are proven. Additionally, a court demands clarity in the contract, and thus, mostly, consideration is necessary42. More so, the promissory estoppel doctrine is restricted to those cases that necessitate the prevention of injustice. This implies that the doctrine is not often used as it was used to promote justice43. There is a clear difference between promissory estoppel and the doctrine of estoppel. While promissory estoppel depends on a statement of promise, estoppel depends on a statement of fact44. There have been controversies about the two doctrines in the legal systems. This is brought about by the need make certain decisions by enforcing factual consideration, and on contrast, the need for fairness and enforcement of promises that were sensibly depended upon45. Most important, a court of law can still enforce a contract on the basis of promoting fairness even though promissory estoppel is inapplicable and that the contract lacked a consideration46. This is possible through the imposition of obligations on the contracting parties through quasi contract. Quasi contract entails a contract implied-in-law47. For instance if A knows that B is washing A’s car, but A does not sign a contract and does not promise any payment for B’s services, the court can impose a quasi contract to hold A responsible for B’s cost of services. The current promissory estoppel concept was formed in the cases involving Total Metal Ltd v Tungsten Electric Co Ltd of 195548, and Central London Property trust Ltd v High Tree House Ltd of 197449. Besides, the concept can be traced back to Hughes Metropolitan Railway of 187750. In this case, the landlord offered his tenant a duration of six months for repairing the property, or else he risked forfeiture51. In the course of the six months, both the tenant and the landlord opened up a negotiation concerning the sale of the lease. But after six months, the negotiation failed, and the tenant did not repair the property. Therefore, the landlord decided to seek legal action on forfeiture. Ultimately, the court held that the landlord had made the tenant by his behavior believe that h would not enforce forfeiture. Therefore, promissory estoppel was applied to shield the tenant from the landlord’s unconscionable acts. What is more, the significance of promissory estoppel is seen in the case of the Central London Property trust Ltd v High Tree House Ltd, whereby the landlord promised to obtain from the tenant half ground rent due to the reduced number of tenants at wartime period. After the war, the houses were occupied and the landlord sued the tenant for the arrears of the wartime period. However, the court held that the landlord had no right to the arrears incurred during war52. Explicitly, the doctrine of promissory estoppel was applied in order to secure the tenants for the landlord’s unfair arguments. Furthermore, promissory estoppel in the presence of a contractual relationship between parties. This is equivalent to the legal relationship existing between the promisor and the promisee53. It is not settled whether the promissory estoppel can come up in pre-contractual relationships. Nevertheless, Lord Denning argues, in relation to Brinkom Investments Ltd v Carr of 197954 that promissory estoppel can arise from a promise that contracting parties make when negotiating. Similarly, Donaldson J, in Durham Fancy Goods v Michael Jackson case, contends that a contractual relationship is invalid provided that there is an already existing legal association that could, in some situations, lead to penalties and liabilities55. Requirements of Promissory Estoppel In order for promissory estoppel to hold in a court of law, there are certain requirements to be met by the contracting parties56. Firstly, the promisor ought to give an explicit and unambiguous that he has no intentions of enforcing his legal rights57. Here, the promise may be implied or express. Secondly, the promisee must prove to have acted on the promise given by the promisor. Here, the promissory estoppel may come up in a situation where a promisee, upon dependence of the promise, incurs detriment or loss58. Therefore, there ought to be a change in the promisee’s circumstances, for any promissory estoppel plea to succeed. Thirdly, promissory estoppel requires that it would be unfair for the promisor to go back on his promise and advocate for his strict legal rights after the promisee’s reliance on it. Fourthly, promissory estoppel cannot be enforced against the promisor59. Therefore, it is only applicable as a defense, and therefore, it cannot be employed as a sword. Notable, promissory estoppel cannot create a cause legal action, and that the requirement of a consideration in contract formation is highly appropriate60. Therefore, promissory estoppel is a rule of proof that deters the promisor from denying the truth of the promise, which the promisee had to depend upon. It is noteworthy that the courts employ an objective test to establish whether the reliance on the promise was reasonable or not61. Hence, some of the promises, such as, threats would not lead to promissory estoppel whereby the court finds maintains that dependence was insufficient. What is more, if it established that the promisee did not depend on the promise, there would be a valid assertion that it was unfair for the promisor to renege on the promise62. Imperatively, promissory estoppel can permanently terminate the promisor’s rights to demand huge compensation after part-payment63. Nonetheless, in case of periodic payments, promissory estoppel just suspends the promisor’s right to claim debt till that time when it becomes fair to demand the remainder. Therefore, in this case, promissory estoppel may terminate the promisor’s right to demand payment for the suspended time, but he can claim payments for the consequent periods upon giving a reasonable notice, or when there is a change in the situations that gave rise to the promise. In the case of Legion v Hateley (HPH 214)64, the high court recognized the promissory estoppel concept, but did not eventually apply it. This is because the absence of the essential element on the facts. This case entailed a contract to purchase and sell a piece of land by the parties. Under the contract, the buyers were allowed pay a deposit and, and occupy the land as they prepare to settle the balance at a later date65. The buyers moved to the land and constructed a house. Nonetheless, when the year passed and they were meant to clear the balance, the buyers had problems. Therefore, failure to clear the balance would mean that they would lose the deposit, land, and the house. The sellers extended the deadline from 1st July to 10th August through a notice. Failure to pay the money by 14th august, the sellers ended the contract and claimed payments on grounds that time was important. Notably, the buyers asserted that the case raised a promissory estoppel that would prevent the vendors form claiming their strict legal rights; deadline. However, the High Court decided that the conversation could not give rise to an estoppel. The court’s verdict was based on the fact that the applicability of a promissory estoppel required the presence of clear and unambiguous statement, representation or promise66. Conclusion Promissory estoppel is a legal term applied by various legal systems in order to permit a party to recover on promise even if its formation lacked a consideration. This helps in the prevention of a claim by the promisor from reneging on his promise. For it to hold in court of law, it should have certain elements that include the presence of a promise; a promise that was sensibly depended upon; the dependence of the promise resulted in the promisee’s loss or detriment; and that just necessitates the honoring of the promise. Besides, a promissory estoppel should meet certain requirements that include: an explicit and unambiguous statement by the promisor; a proof that the promisee acted on the promise; that it would be unfair for the promisor to go back on his promise; and that cannot be enforced against the promisor. Therefore, in my opinion the promissory estoppel should be employed as a defense to shield the promisee from the promisor’s unconscionable acts, but not as a sword since it cannot be applied against the promisor. Bibliography Books Brian A Blum, Contracts: examples & explanations (Wolters Kluwer Law & Business, 2007) Denis S K Ong, Trusts law in Australia (Federation Press, 2007). Martin Hogg, Promises and contract law: comparative perspectives (Cambridge University Press, 2011). Matthew Groves, Law and government in Australia (Federation Press, 2005). Mel Kenny, James Devenney and Lorna Fox O'Mahony, Unconscionability in European private financial transactions: protecting the vulnerable (Cambridge University Press, 2010). Robert W Emerson, Business law (Barron's Educational Series, 2009). Steven Emanuel, Contracts (Aspen Publishers, 2006). W D Duncan, Joint ventures law in Australia (Federation Press, 2005). Journals Anthony L Fargo and Laurence B Alexander, ‘Testing the Boundaries of the First Amendment Press Clause: A Proposal for Protecting the Media from Newsgathering Torts’ (2009) 32 Harvard Journal of Law & Public Policy 13-17. I Glenn Cohen, ‘The Constitution and the Rights Not to Procreate’ (2008) 60 Stanford Law Review 8-13. Tess Wilkinson-Ryan and David A Hoffman, ‘Breach Is for Suckers’ (2010) 63 Vanderbilt Law Review 10-16. T Leigh Anenson, ‘The Triumph of Equity: Equitable Estoppel in Modern Litigation’ (2008) 27 The Review of Litigation 12-15. Cases Brinkom Investments Ltd v Carr (1979) CA Central London Property trust Ltd v High Tree House Ltd (1974) 1 KB 130. Commercial Bank of Australia v Amadio (1983) 151 CRL 447. Durham Fancy Goods v Michael Jackson (1969) 2 QB 839 Harris v Blockbuster, Inc (2009) 3 WL 1011732 Hughes Metropolitan Railway (1877) 2 AC 439. Legion v Hateley (1983) 152 CLR 406. Total Metal Ltd v Tungsten Electric Co Ltd (1955) 1 WLR 761. Read More