Business Transaction Law, Test for Unconscionability - Essay Example

Running Head: BUSINESS TRANSACTION LAW Business Transaction Law Name Tutor Date Business Transaction Law Promissory Estoppel Represents a Series of Legal Doctrines That Serve both As a Shield and a Sword, Guarding Against the Unconscionable Introduction Basically, many promises made among the people of the society are not taken lightly. There is something special in them since there is a societal or some sort of an ethical get-together that allows the one who makes the promise to be regarded as being bound by his promise. Promissory estoppels is a doctrine that is used by a party that had been promised something by another to recover it regardless of whether there was consideration when the promise was being made. The person who made the promise, the promisor, is stopped or prevented from going back to his previous position whereas he had made a promise. He therefore cannot argue that the promise ought not to be upheld. However, there are some conditions that should be fulfilled on the part of the promise. One of the conditions is that the promise must have reasonably relied on the promise. Reasonable reliance should be shown. Then there is actual reliance. The promise must have relied on the promise. Upon reliance on the promise, he must have incurred a loss or a detriment. These are generally the legal requirements for the doctrine of promissory doctrine to take its coursei (Elizabeth, 2000).1 Consideration as a requirement More often than not, in case of promises or contracts, it is necessitated the law that there be consideration for it to be regarded as being binding. In this case, consideration is regarded as some forbearance on one of the parties. He ought to sacrifice something so as to get the contract honored or even enforced legally. One party will exchange consideration with the other. In addition, the consideration must be something of value. For example where a customer is buying something from a shop, the consideration in this regard will be the money he will give in return for the item he was buying. Similarly, the consideration given is supposed to be reasonably adequate in regard to the terms of the agreement. It should also be legal for it to be considered as adequate and as a result be enforceable. Therefore, a bribe will not be regarded as adequate consideration nor will a stolen item be. To add to this, the consideration cannot be something that had been give or received prior to the contract or the promise. However, due to the ideology of freedom of contract, then it means that the consideration does not need to be of the same value as the promise or subject of the contract. Nominal consideration is regarded as being sufficient since the law is not interested with what the parties basically agree on but rather to enforce their agreementii (Everett & Ranson, 1989).2 In spite of the kind of consideration requisite in a certain agreement, a number of variety of consideration is normally needed so as for a certain contract to be enforceable by law. However, the doctrine of promissory estoppels comes into force so as to promote fairness and justice. Therefore, devoid of any form of consideration, the law may enforce that promise if some elements are proven. These elements include; one of the conditions is that the promise must have reasonably relied on the promise. Reasonable reliance should be shown. Then there is actual reliance. The promise must have relied on the promise. Upon reliance on the promise, he must have incurred a loss or a detriment. It is however important to note that the doctrine of estoppels comes into force where justice needs to be doneiii (Carter & Harland, 2007).3 An example of promissory estoppels is where A makes a promise to pay B a huge amount of money in the event that B ceases or quits his job. If B, upon reliance on A’s promise quits his job, then there is no way that A can revert to his previous position and claim that the promise should not be enforced. He must go ahead and pay the amount no matter what. Such is an example of a situation where the doctrine of promissory estoppels will come into forceiv (Graw, 2008).4 Application of the doctrine So long as it is established that the promisor actually made a promise and the above elements are actually fulfilled, then the doctrine will be invoked. This is so as to ensure that fairness and justice prevail. In this regard, a closer look at Adam Kramer in his article it is possible to perceive that a cause of action can result from a promise not fulfilled. If for example someone makes a statement to another or acts in a way that will make him have a given belief or equally take a given direction, and then he later gives a different story from the one he had given initially, or equally acts differently from how he had initially, acted, he ought to be stopped from doing so by the law. This is regardless of the fact that what he is about to deny is not true. So long as it is the opposite of what one had initially done or said, then promissory estoppel will come in to ensure equity prevails. It will come in so as to assist the promisee to establish his case when he sues under a different legal principle. This may be in form of tortuous liability or a breach of contract. If examined critically, this argument may be said to have treated the doctrine of promissory estoppels both as a shield and as a swordv (Peter, 1997).5 Test for unconscionability The test for unconscionability considers various issues. These issues are generally the conduct, mental state and conditions of the parties involved. Normally, there are eight factors that are imperative and determinative. The means through which the promise and the reliance upon that particular promise were made; these are; What is basically contained in the promise or what the promise generally bears; Knowhow of the parties involved in the promise; If the parties to in the agreement showed any interest as far as the promisor’s reliance to the promise is concerned; What is basically enshrined by the parties’ relationship; The strength of the parties in relation to each other; If there had been any relationship between the parties prior to the promise and the extent of their relationship; and Anything that the promisee might have done so as to bring to a stop the loss being incurred by the promisorvi (Jeffrey, 2007).6 There have been various arguments and confirmations by various judges that the doctrine should not be used as a sword but solely as a shield. This implies that one cannot depend on the doctrine to create new rights. Various judges have made this assertion crystal clear and one of them is Denning J in the Court of Appeal. This was in the case of Combe v Combe (1951) 2 KB 215.7 Promissory estoppel only acts as a defense to a cause of actionvii. According to them, it cannot be used to create or come up with a cause of action. The doctrine operates as a defense to a cause of action and not to found a cause of action in itself. Lord Denning J’s assertion was confirmed in the case of Baird Textile Holdings Ltd v Marks Spencer (2001) EWCA Civ 274.8 In this particular case, Baird Company had been in a business relationship with M & S Company for several yearsviii. The former had been making some clothes for the latter. M & S was involved in selling of clothes as a retailer. In fact, it was the most successful clothes retailer in England. However, as the two companies’ relationship continued, M & S decided to stop buying clothes from Baird Company but instead go for the cheaper clothes elsewhere. This was a decision arrived at after it had decided that it was the high time that it cemented its position as the most successful company in England. As a result, Baird suffered huge amounts of loss. The company claimed that their close relationship with M & S resulted into a behavior which made Baird believe that M & S would at no any single moment pull out of the relationship without giving a reasonable notice. It was held that the claim given by Baird that M & S could not pull out of the relationship by buying clothes elsewhere was a claim intended to create a cause of action. It was further stated that promissory estoppels could not at any time create a cause of action thus rendering the case by Baird unsuccessful on the grounds of promissory estoppelix (Steven, 2010).9 Just as it will be indicated as the essay progresses, an aspect of unconscionability is fulfilled in case one of the parties involved makes the other party to kind of come up with a certain supposition which will consequently make him rely on his promise. A promise, kind of special relationship between the promisor and the promisee, for example, a responsibility of information, some sort of dishonest behavior by the promise and lastly, irreversible change of a certain situation on the part of the promisor as a result of the promise made to him. These are basically some of the conditions that may trigger the doctrine of promissory estoppels to bear an enforceable obligationx (Gillies, 2004). 10 Unconscionable means not controlled by the sense of right and wrong; unscrupulous: unconscionable conduct is one that is immoral or dishonest and very ruthless. This ruthlessness of the situation is what basically calls for the promise to be enforced. This doctrine will come into play and will have acted both as a sword and as a shield. It shields the promisor against any further detriment. As a sword, the doctrine will ensure that the promise is enforced devoid of any consideration but for the sake of justice. This doctrine has come up so as to pursue justice on the part of the promisorxi (Allen & Hiscock, 1992).11 For example in Australia, it was taken up in the case of Legione v. Hateley (1983) 152 CLR 406.12 Nevertheless, the plaintiffs did not successes since not all the conditions necessary were metxii. For example, the reliance on the part of the promisor’s side was not reasonable which rendered the doctrine inapplicable. Progress has been made as far as this doctrine is concerned. It has even gone further to cover cases where there is no that kind of special relationship between the promisor and the promisee, hence the idea that “Promissory Estoppel represents a series of legal doctrines that serve both as a shield and a sword, guarding against the unconscionable.”xiii In the case Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 38713, Mason CJ and Wilson J held that; “if estoppel is proven, it gives rise to equity in favour of the plaintiff, and the court will do the minimum equity that is just in the circumstances. From this case, it is also possible for the promise to come from silence or inaction” (Henry, 2006).14 Tort of negligence A closer look at the ideologies developed as a result of the law of tort, then one gets to understand why the doctrine of promissory estoppels will come in and enforce a promise or award damages. This will be because of the loss incurred as a result of negligence on the part of the promise. And it is very important to note that damages are awarded as a result of breach of contract or tort. Therefore the law of tort further anchors this ideology that “Promissory Estoppel represents a series of legal doctrines that serve both as a shield and a sword, guarding against the unconscionable”xiv (Harold, 1981). In the case of Hedley Byrne v Heller [1964] AC 465,15 the law of tort of negligence was applied to award damages to the plaintiff who had incurred a loss as a result of relying on the defendant’s reckless statement.xv It would therefore be in order if one perceives as not being correct actions of a promisee who fails to fulfill his promise, even as the promisor claims that he has incurred a loss as a result of relying on that promise. Such an argument could be thoroughly complemented by Brennan J’s statements in the Waltons Stores case where he further argued that the plaintiff took a special status in regard to the promisee. Similarly, it should be shown that the defendant actually encouraged the plaintiff to develop some expectation. Consequently, the defendant reverts to his previous position prior to the agreement which would occasion a loss to the promisee. But while Lord Denning J insisted on the fact that it is not a must for reliance to detriment to be present, recent decisions arrived at by some judges indicate that the reliance should have caused the loss. The attention of the case of Emery & Another v UCB Corporate Services (2001) EWCA Civ 67516 is called for. In this particular case, peter Gibson LJ indicated that for promissory estoppels to come into being there should be various factors.xvi One of them is that there ought to be a clear and unambiguous promise that stern legal rights will not be claimed, that the promise has actually acted in reliance on the basis of the promise and lastly that it would be completely inequitable for the promisor to reneged the promise. This means that there should be some form of a detriment on the promise if he reasonably relied on the promisexvii (Constance, 2008). 17 In the case of Central London Property Trust Ltd v High Trees House Ltd (1947) KB 130,18 the plaintiffs had rented their block of flats to the defendants for a time period of 99 years. This was at a rate of £2500 per year.xviii This was in the year 1937. However, in the year 1940 there was war which resulted in the flats not being rented. As a result, the plaintiffs decided to cut the rent from £2500 to £1250. But as soon as the war was over, the plaintiffs decided to ask for the full amount of rent as it was before the war had commenced. It was held that they were rightly entitled to do so. It was further stated that the plaintiffs could under no whichever circumstances sue for the full rent for the period the contract is covering. Denning J went on to state the following: “The logical consequence no doubt is that a promise to accept a smaller sum, if acted upon, is binding notwithstanding the absence of consideration.”xix Lord Denning J had based his assertion upon that of Lord Cairns who in the case of Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 19where he intended to argue that promissory estoppels is an ideology which all courts of equity prevail if it is actually established that a promise has without doubt been made by the promisor to the promisee, either by word of mouth or through some actions intended to mean soxx (Gregory, 2010).20 Test of equitability Consequently, the promisee reasonably believes in the promise and takes a certain stand in regard to the promise, the promisor will not at any given time be allowed to act or say otherwise in a manner suggesting that he is resending his promise. Basically, this is the stand that Lord Denning J took in regard to promissory estoppels. This way the doctrine will come to the rescue of the affected party to ensure that equity is achieved. It is also imperative to bear in mind that this doctrine serves equity since it is a creation of equity. Thus the reason as to why Lord Denning J insisted on the courts of equityxxi (Casenote Legal Briefs, 2009).21 Accordingly, promissory estoppels being a creation of equity, it is important to look at the behavior of the parties. At this point a maxim of equity will come in. this is the maxim that states: he who comes to equity must come with clean hands. A party cannot come to a court of equity seeking equity whereas he has not done equity on his part. He must have acted justly in a way that the other party will not be at a compromise. In the case of D & C Builders v Rees (1966) 2 QB 617,22 the plaintiffs were claiming for a full payment of £480 where they had been in a building work as laborersxxii. However, the defendant, who was the owner of the building, had offered £300. Nonetheless, the plaintiffs accepted. This being the case, the defendant went further to delay the pay and indicated that it was either the £300 or nothing regardless of the fact that he knew of the financial constrain the plaintiffs were going through. This promoted the plaintiffs to sue for the balance. Lord Denning J held that the plaintiffs were entitled to the full payment since the defendant had not acted equitablyxxiii (Samuel, 1999).23 Conclusion Even as the ideology of Promissory Estoppel is being applied, there are certain requirements that need to be met. One of the qualifications is that the creditor should only be prevented from insisting those particular rights if it would eventually lead to an inequitability. In some instances, a claim of promissory estoppels circumvents Frauds Statute in extremely serious cases but just after a clear and convincing evidence is tabled in court of equity demonstrating that there was an oral promise whereby the promise practically relied to his or her damage. The evidence is supposed to show that the inequality/injustice can be shunned only through enforcement of the promise. Even presuming the promissory estoppel plaintiff can fulfill this weight of proving that he/she will not recover the complete benefit of his bargain. As a result, the remedy will be restricted to reimbursement in the amount of his/her reliance damages. In case there is an agreement where the creditor willfully without any duress of some sort takes the part payment, then he would not later on claim the balance as this would amount to inequitability. It is important to note that the creditor cannot be bound unless there is an agreement between the partiesxxiv (Daniel & Yvonne, 2010).24 Endnotes Read More