Business Law - Intention to Create Legal Relations - Case Study Example

Business Law In our problem, Margaret agreed to give the unsold dolls to Emily, her youngest daughter in return for her services in the antique shop after her retirement. Emily agreed to look after the business after her mother’s retirement. However, Margaret changed her mind after her retirement and decided to give away the unsold dolls to a charity, and obtain proceeds of their sale through auction. In order to advise Emily, with regard to her legal rights to claim redressal in a court of law, for the losses suffered by her due to her mother’s failure in fulfilling her part of agreement, the following issues have to be considered. Issue The issues to be considered are: Whether there is a legally binding agreement between Margaret and Emily. Whether the doctrine of promissory estoppel applies to this particular problem. Whether any claim can be raised by Emily, with regard to the loss sustained by her, due to the giving of the unsold dolls to charities by her mother for auctioning. Rule Estoppel becomes applicable, only if the representation relied upon by the person claiming the benefit is unambiguous. In addition, the person claiming estoppel should undergo a detriment if there is a departure from the terms of the promise. As opined in Legione v Hateley, the party claiming estoppel should be placed in a situation wherein there would be a detriment to it, if the promise was to be broken (Gillies, 2004, p. 178). In order to deem the promise of the promisor to be consideration, it has to be proved that the promise was given or the act performed on the basis of the promisor’s request. Moreover, there should have been reliance upon the promise made by the promisor. Application The doctrine of promissory estoppel emerged with the decision in Central London Property Trust Ltd v High Trees House Ltd. Such existence has been subsequently confirmed in rulings made in England and Australia. This all important principle was defined in the following manner, during the ruling in Combe v Combe. Whenever, one of the parties makes to the other party a promise that has the intention of influencing the legal relations between them, and if the other party relies on this promise and acts on it, then the first party cannot revert to the prior legal relationship between them (Gillies, 2004, p. 178). Thus, promissory estoppel has an effect that is similar to a breach of promise. In instances, wherein a party convinces another party that a contract would emerge from their negotiations and subsequently fails to keep its word, the court can prevent such a party from resorting to the defense of absence of contract (Miller & Cross, 2012, p. 321).In such cases, it is deemed that a contract between these parties is in place. In order to establish promissory estoppel, the following conditions have to be proved. The presumption of a specific legal relationship between the first and second parties. The second party was responsible for the assumption. The first party’s actions or absence of actions were the outcome of such assumption. The second party had intended the first party to act. The first party would undergo a detriment if this assumption failed. The second party had not taken measures to establish that the assumption was false (Clark, 2009). In Popiw v Popiw, the husband orally offered to make the estranged wife a joint owner of the house. This was done with the express intention of enticing her back. However, there was no improvement in their relationship and the wife left after a few weeks. With regard to agreements in a domestic context between family members or friends, it is in general assumed that there is no intention to create legal relations. However, it is a simple matter to rebut this assumption. Thus, in the Popiw v Popiw case, the court ruled that the agreement between the estranged couple was primarily intended to create a legal relationship (Popiw v Popiw , 1959). However, in Balfour v Balfour, although the husband had promised to pay an allowance to his wife, there was no intention among either of the parties that a legal relation was to emerge from this promise. Consequently, the court held that there was no intention to create a legal relation. This ruling has been generalized and the legal stance is that in all cases involving an agreement between friends or members of a family in a domestic setting, there can be no intention to create a legal relationship (Balfour v Balfour , 1919). Similarly in our case it is crucial to recognize that Margaret and Emily are mother and daughter. As such there was no commercial relationship between them. In accordance with the above discussion, there is a strong presumption with respect to family agreements that no legally binding intention can subsist between family members. Consideration results in detriment to the promise or benefit to the promisor. Each of the parties has to provide consideration to the other party. Whenever, one of the parties receives some benefit, interest, profit or right it constitutes valuable consideration. It also transpires when one of the parties is subjected to loss, responsibility, detriment or forbearance (Young, 2009, p. 44). As per the above discussion and the case law, a legally binding intention cannot be made out from the relationship of a mother and daughter. Moreover, since Emily has not done anything additional towards consideration for taking dolls, no legally binding contract was formed between Margaret and Emily. Moreover, for applying promissory estoppel, there should be reliance and detriment in respect of a promise. In our case, such detriment cannot be established. Hence the doctrine of promissory estoppels is not applicable to this case. In Dunton v Dunton, an estranged wife was promised an allowance by her husband, provided she conducted herself in an orderly, respectable and virtuous fashion. The court held that there was a clear intention to create legal relations. In addition, there was consideration, as the estranged wife had consented to restrain her deportment, in exchange for the allowance (Dunton v Dunton , 1892). As a matter of fact, in the majority of these cases, the parties involved had not really considered the legal consequences of the promise made. It was only when their relationship deteriorated to the extent of their considering the legal ramifications of the promise that complications came to the fore. Wherever, the parties had been unable to settle their dispute, the courts had to be approached for resolving the quagmire. As such, the courts do not dismiss a case, merely on the grounds that there was no intention to create a legal relationship (Australian National University College of Law, n.d.). Thus, in Carlill v Carbolic Smoke Ball Co, it was held that a unilateral offer for sale of goods by advertisement, waives notification of acceptance by implication (Carlill v Carbolic Smoke ball company , 1839). A clear demonstration of the intention principle is provided in the ruling in Australian Woollen Mills Pty Ltd v The Commonwealth. In this case, the Commonwealth of Australia undertook to subsidize wool manufacturers who purchased Australian wool for local manufacturing (Seddon, 2009, p. 100). Subsequently, this subsidy was withdrawn, and the plaintiff claimed some amounts on the grounds that these were due under a unilateral contract. This was dismissed by the High Court, which held that there was no offer from the Commonwealth (Seddon, 2009, p. 100). This was upheld by the Privy Council, on the grounds that there was no intention to create legal relations. In Waltons Stores (Interstate) Ltd v Maher, a prospective tenant promised to enter a lease agreement regarding a major commercial site. Subsequently, the tenant decided to withdraw from this promise, but failed to inform the owner about this change of plans. The owner, made significant alterations to the property based on the specifications insisted upon by the prospective tenant (Waltons Stores (Interstate) Ltd v Maher, 1988). The trial and appellate courts ruled in favor of the owner on the basis of common law estoppel. The High Court took a different view and concluded that the tenant was estopped from denying its promise, or in other words this court prevented the tenant from withdrawing from its promise on the basis of promissory estoppel (Waltons Stores (Interstate) Ltd v Maher, 1988). This ruling was more accurate. This revolutionary decision of the High Court endowed promissory estoppel with a much wider application. It was based on a number of American authorities and had relied upon Australian and English dicta. This expansion of the ambit of promissory estoppel was even extended to pre – contractual relations. Subsequent to this decision, promissory estoppel acquired the capacity to defeat the cause of action initiated by another, as well as supporting one’s own cause of action (Mooney, 2000). The importance of promissory estoppel stems from the fact that it empowers a party to recover on a promise, even though the promise had been made without consideration. It prevents a party from contending that its promise is not to be upheld. Promissory estoppel requires that the reliance on the promise should be reasonable, and that the party attempting to enforce this promise should have relied on the promise to its detriment (Miller, 2012, p. 173). In Jones v Padavatton, a mother promised her daughter $200 if she would repair to London from the US and study for the bar, while staying with her. Despite the misgivings of the daughter who had a well – paid job in the US, the mother was successful in her endeavors. Subsequently, the daughter realized that the amount promised to her was not in US dollars but in Trinidad dollars, which rendered the amount merely half of what she had anticipated (Jones v Padavatton, 1968). Subsequently, the mother purchased a house for her and asked her to rent out some rooms in it, so that she could obtain additional income. After the passage of some time, the daughter discontinued her legal studies and married. Moreover, she refused to vacate the house provided for her by her mother (Jones v Padavatton, 1968). The court had to determine the existence or otherwise of a legally binding agreement between the mother and daughter. It held that the agreement between these disputants was nothing more than a domestic arrangement, which in turn implied that the parties had no intention to be legally bound by the agreement (Jones v Padavatton, 1968). The objective behind the requirement of intention with respect to the creation of legal relations in the law of contracts is to segregate cases that are inappropriate for action to be taken by a court. It is important to realize that a binding contract does not ensue from each and every agreement. There are several instances of agreements, wherein the parties have no intention to be legally bound by their agreement (e – lawresources.co.uk, n.d.). Thus, the law draws a clear distinction between commercial agreements, which have a binding nature; and social or domestic agreements, which do not have a binding nature. It is the general presumption of the courts, with regard to commercial and business agreements that there is an intention to create legal relations. This was the opinion of the court in Edwards v Skyways Ltd. Promises are enforced, as this protects the promisee’s expectation and reliance (Bronaugh, 2009, p. 57). Conclusion In our problem, although the agreement was related to a business deal, a legally binding intention cannot be deduced from this relationship. On many occasions, courts decide cases by stating that family agreements lack legally binding intention. Similarly in our case, strong evidence should be provided to rebut the presumption of lack of legally binding intention in family agreement between the daughter and her mother. Since Emily cannot establish evidence to rebut the presumption of lack of legal intention between her and her mother, while making the agreement, she cannot claim any relief under the provisions of law in a court, in this regard. List of References Australian National University College of Law, n.d. Intention to create legal relations. [Online] Available at: http://law.anu.edu.au/colin/Lectures/intent.htm [Accessed 23 May 2012]. Australian Woollen Mills Pry Ltd v Commonwealth (1955) 93 CLR 546. Balfour v Balfour (1919) 2 KB 571 . Bronaugh, R. N., 2009. Exploring Contract Law. Hart Publishing. Carlill v Carbolic Smoke ball company (1839). Central London Property Trust Ltd v High Trees House Ltd (1947) 1 KB 130. Clark, S., 2009. Promissory Estoppel. [Online] Available at: http://stevenclark.com.au/2009/11/19/contracts-101-part-13-promissory-estoppel/ [Accessed 23 May 2012]. Combe v Combe (1951) 2 KB 215. Dunton v Dunton (1892) 18 VLR 114 . e – lawresources.co.uk, n.d. Intention to create legal relations. [Online] Available at: http://www.e-lawresources.co.uk/Intention-to-create-legal-relations.php [Accessed 23 May 2012]. Edwards v Skyways Ltd (1964) 1 WLR 349 . Gillies, P., 2004. Business Law. 12 ed. Federation Press. Jones v Padavatton (1968) EWCA Civ 4. Legione v Hateley (1983) 152 CLR 406. Miller, R. L., 2012. Fundamentals of Business Law: Excerpted Cases. 3 ed. Cengage Learning. Miller, R. L. & Cross, F. B., 2012. Business Law. 12 ed. Cengage Learning. Mooney, R. J., 2000. Hands Across the Water: The Continuing Convergence of American and Australian Contract Law. [Online] Available at: http://www.austlii.edu.au/au/journals/UNSWLJ/2000/15.html [Accessed 23 May 2012]. Popiw v Popiw (1959) VR 197. Seddon, N., 2009. Government Contracts: Federal, State and Local. 4 ed. s.l.:Federation Press. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Young, M., 2009. Understanding Contract Law. Routledge. Read More