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Law problem question - Contract / Tort / Equity watch

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    I'm struggling with a problem question. There are two business owners who are both interested in purchasing a piece of property and developing it for profit - a lucrative business opportunity. A suggests to B that they shouldn't compete at the auction and only one of them should bid. If they win then they will develop the property together and share the profits. The shake hands and call it a "gentleman's agreement".

    They agree and A goes to the auction to bid, and subsequently wins. Meanwhile B falls ill and ends up in hospital, released one week after the auction. When he gets home he sees a letter from A saying that he won the auction but will not be honouring the "gentleman's agreement", i.e. he will be developing the property alone. B wants to know if he has redress.




    OK so I just need some help identifying the main areas and topics of law i need to discuss and talk about.

    I find the contractual issues in this question quite straightforward - We need to determine whether the "gentleman's agreement" is enforceable. This depends on whether consideration was provided. I would argue yes, as there is detriment to B and benefit to A. It is a lucrative business opportunity and B has forgone his right to bid at the auction in exchange for a promise. On the other hand, A may argue contract frustration as B was ill (i need to read up on this aspect of contract law as we havnt covered it yet).

    I think Equity and Tort may be relevant, but i need someone to point me in the right direction.

    Cheers guys!
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    In terms of your discussion about contract law so far, you also need to also address the "intention to create legal relations" and "certainty" issues. It is on these grounds that B's claim in contract law is likely to fail. This question focuses much more upon property law than it does any other area; I'd recommend reading the judgment of the then House of Lords in the case of Cobbe v Yeoman's Row before you approach an answer.

    In the meantime, I'm moving this thread to the study help forum, OP.
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    (Original post by Mr_Deeds)
    In terms of your discussion about contract law so far, you also need to also address the "intention to create legal relations" and "certainty" issues. It is on these grounds that B's claim in contract law is likely to fail. This question focuses much more upon property law than it does any other area; I'd recommend reading the judgment of the then House of Lords in the case of Cobbe v Yeoman's Row before you approach an answer.

    In the meantime, I'm moving this thread to the study help forum, OP.
    Hmm I'm a little confused... I thought there was a valid contract? Could you expand a little on the "certainty" and "intention to create legal relations" issues?

    In property law, I'm mainly concerned with Proprietary Estoppel?
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    (Original post by __WiZaRD__)
    Hmm I'm a little confused... I thought there was a valid contract? Could you expand a little on the "certainty" and "intention to create legal relations" issues?

    In property law, I'm mainly concerned with Proprietary Estoppel?
    I don't think that that there is. A contract will only be enforced where there's a valid offer and acceptace, consideration and where there's an intention to create legal relations; that is to say where the parties intend to be legally bound. I'm not sure that this agreement is entirely "commercial" - it seems to me as though the agreement has occurred in a social context and in the absence of some sort of agreement to the contrary, the courts will therefore presume that the parties did not intend to create legal relations. Similarly, an agreement must be expressed with sufficient certainty before the courts will enforce it. This agreement isn't clear, firm or set in stone. A gentleman's agreement means next to nothing.

    You really need to read the judgment of the court in Cobbe v Yeoman's row; it's all about proprietary estoppel and the facts of the case are extremely similar to those in the present example.
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    (Original post by Mr_Deeds)
    I don't think that that there is. A contract will only be enforced where there's a valid offer and acceptace, consideration and where there's an intention to create legal relations; that is to say where the parties intend to be legally bound. I'm not sure that this agreement is entirely "commercial" - it seems to me as though the agreement has occurred in a social context and in the absence of some sort of agreement to the contrary, the courts will therefore presume that the parties did not intend to create legal relations. Similarly, an agreement must be expressed with sufficient certainty before the courts will enforce it. This agreement isn't clear, firm or set in stone. A gentleman's agreement means next to nothing.

    You really need to read the judgment of the court in Cobbe v Yeoman's row; it's all about proprietary estoppel and the facts of the case are extremely similar to those in the present example.
    Cheers Deeds. Very Helpful.. Yea I'm in the middle of reading the case as we speak. I'll get back to you if I need any further guidance. :yep:
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    Those facts scream "fiduciary relationship" to me. An estoppel is definitely arguable, but I think you might have difficulty showing reliance. In Cobbe, the party seeking to rely on an estoppel had spent money obtaining planning permission - I can't see any obvious reliance on these facts.

    The big advantage of having a fiduciary relationship rather than a remedy in contract/tort is that the remedies are much more powerful. In contract and tort you only get compensation for loss. If you show a fiduciary relationship, an account of profits is available, and some of those profits may be held on constructive trust, see Boardman v Phipps. In addition, opportunities are property, see Regal (Hastings) v Gulliver and CMS Dolphin v Simonet. This opens the way to a constructive trust. There is extensive, controversial and messy case law on this point, mostly in relation to companies, but the principles are the same in partnerships.
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    (Original post by jacketpotato)
    Those facts scream "fiduciary relationship" to me. An estoppel is definitely arguable, but I think you might have difficulty showing reliance. In Cobbe, the party seeking to rely on an estoppel had spent money obtaining planning permission - I can't see any obvious reliance on these facts.

    The big advantage of having a fiduciary relationship rather than a remedy in contract/tort is that the remedies are much more powerful. In contract and tort you only get compensation for loss. If you show a fiduciary relationship, an account of profits is available, and some of those profits may be held on constructive trust, see Boardman v Phipps. In addition, opportunities are property, see Regal (Hastings) v Gulliver and CMS Dolphin v Simonet. This opens the way to a constructive trust. There is extensive, controversial and messy case law on this point, mostly in relation to companies, but the principles are the same in partnerships.
    On proprietary estoppel, arguing that B forgave his right to bid at the auction in reliance of his belief that he would acquire some right over the land... would that not be sufficient to show reliance / detriment? given that it was a very lucrative business opportunity..


    As for fiduciary duties, we havnt covered this on the course yet - screwed!! So I guess i have a lot of work to do tonight!!
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    (Original post by __WiZaRD__)
    On proprietary estoppel, arguing that B forgave his right to bid at the auction in reliance of his belief that he would acquire some right over the land... would that not be sufficient to show reliance / detriment? given that it was a very lucrative business opportunity.
    I'd be inclined to agree with this but would also be interested to hear JP's ideas. In my opinion, B will not have any redress not because of a failure to satisfy the requirements for proprietary estoppel but because of the obiter dictum of Lord Scott in Cobbe. He basically stated that the property developer knew that his agreement was unenforceable and that the doctrine of estoppel should not intervene in business transactions where there isn't an inequality of bargaining power. This is almost exactly the same situation here.
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    Hmm. Forgoing the opportunity to bid would count as consideration, but I don't think it is enough to found an estoppel. Its probably arguable, and I don't really have any case law to back that up I'm afraid as its been a good 2 years since I did proprietary estoppel, but from what I recall estoppels aren't imposed willy-nilly as they are a discretionary and exceptional equitable remedy. Not bidding in an auction seems kind of weak to me - certainly all the proprietary cases I remember involve something much more significant, i.e. the claimant spending a significant amount of money or building something.

    I'm also a little unsure as to how a proprietary remedy over the property would operate, particularly as the claimant hasn't actually paid any money. Allowing him to claim a proprietary estoppel over the property when he didn't pay any of the purchase price would be unjust enrichment. I don't actually know how this would work, but if it was my essay I'd raise the point and research. Though I suppose this would be the case for fiduciary remedies as well, though the courts are much more willing to give strong remedies in the context of fiduciary relationships.

    Fiduciary relationships are definitely the first thing I'd explore in answering the question (I'd do proprietary estoppel too), but if you haven't been taught about them for that module I'm sure you aren't required to go into it - if you don't really know what I'm talking about with fiduciary relationships and restitution you should probably just ignore me. But if you do want to talk about them, feel free to discuss, I do like my fiduciary relationships... (god I feel sad typing that on a Friday night :rofl:)
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    (Original post by jacketpotato)
    Hmm. Forgoing the opportunity to bid would count as consideration, but I don't think it is enough to found an estoppel. Its probably arguable, and I don't really have any case law to back that up I'm afraid as its been a good 2 years since I did proprietary estoppel, but from what I recall estoppels aren't imposed willy-nilly as they are a discretionary and exceptional equitable remedy. Not bidding in an auction seems kind of weak to me - certainly all the proprietary cases I remember involve something much more significant, i.e. the claimant spending a significant amount of money or building something.

    I'm also a little unsure as to how a proprietary remedy over the property would operate, particularly as the claimant hasn't actually paid any money. Allowing him to claim a proprietary estoppel over the property when he didn't pay any of the purchase price would be unjust enrichment. I don't actually know how this would work, but if it was my essay I'd raise the point and research. Though I suppose this would be the case for fiduciary remedies as well, though the courts are much more willing to give strong remedies in the context of fiduciary relationships.

    Fiduciary relationships are definitely the first thing I'd explore in answering the question (I'd do proprietary estoppel too), but if you haven't been taught about them for that module I'm sure you aren't required to go into it - if you don't really know what I'm talking about with fiduciary relationships and restitution you should probably just ignore me. But if you do want to talk about them, feel free to discuss, I do like my fiduciary relationships... (god I feel sad typing that on a Friday night :rofl:)
    Well I'm on the GDL and im doing the Preparing for Practice coursework and we are supposed to use any law that is within the consigns of the course. Fiduciary relationships, is, and I should be covering within the next two weeks actually. And it does seem the most relevant. So, i certainly wont be ignoring you!! lol.

    I agree with you on Proprietary Estoppel. But is it not possible to establish Promissory Estoppel?
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    Also a problem with establishing a fiduciary relationship when the relationship is not fiduciary per se: does there not need to a sharing of confidential information as in A-G v Blake?
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    (Original post by __WiZaRD__)
    Well I'm on the GDL and im doing the Preparing for Practice coursework and we are supposed to use any law that is within the consigns of the course. Fiduciary relationships, is, and I should be covering within the next two weeks actually. And it does seem the most relevant. So, i certainly wont be ignoring you!! lol.

    I agree with you on Proprietary Estoppel. But is it not possible to establish Promissory Estoppel?
    Promissory estoppel is only a defence, not a cause of action

    (Original post by __WiZaRD__)
    Also a problem with establishing a fiduciary relationship when the relationship is not fiduciary per se: does there not need to a sharing of confidential information as in A-G v Blake?
    This *might* be a fiduciary relationship. Basically, the courts are very flexible and circumstantial when looking at what constitutes a fiduciary relationship. A business partnership is a pretty standard example, though admittedly the partnership on these facts isn't a massive one, but it is nevertheless a partnership. You don't necessarily need a sharing of confidential information for a fiduciary relationship, though it is one factor that might indicate such a relationship.
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    (Original post by jacketpotato)
    Promissory estoppel is only a defence, not a cause of action


    This *might* be a fiduciary relationship. Basically, the courts are very flexible and circumstantial when looking at what constitutes a fiduciary relationship. A business partnership is a pretty standard example, though admittedly the partnership on these facts isn't a massive one, but it is nevertheless a partnership. You don't necessarily need a sharing of confidential information for a fiduciary relationship, though it is one factor that might indicate such a relationship.
    It's been awhile since I practised in the UK (and even longer since I studied equity!), but I'm struggling to see what there is in the problem question which gives rise to the fiduciary relationship here?

    JVs, for example, don't give rise to fid rels. The facts of this question are a long way from suggesting that these two were partners in my view.
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    (Original post by chalks)
    It's been awhile since I practised in the UK (and even longer since I studied equity!), but I'm struggling to see what there is in the problem question which gives rise to the fiduciary relationship here?

    JVs, for example, don't give rise to fid rels. The facts of this question are a long way from suggesting that these two were partners in my view.
    Good to see you about Chalks

    The aspect that says "fiduciary relationship" to me is the insubordination.

    In a Joint Venture, the parties have protected themselves through contract and will have set out all the protections they require in the JV Agreement. There is limited insubordination or reliance on the good faith of the other party. However, if the parties don't adequately protect themselves through contract, or if there is some inequality/insubordination, then you can still end up with a fiduciary relationship.
    Here, B has subordinated himself to the actions of A without any contractual protection. He is reliant on the good faith and loyalty of A, and A appears to have undertaken to respect that.

    There is definitely a lot of uncertainty though, its certainly not definite that there will be a fiduciary relationship, but I think there's a strong argument for it. For example, Professor Oakley tried to define fiduciary relationships as having four "hallmarks":
    i) undertaking given by the fiduciary to the other party
    ii) reliance placed on the fiduciary by that party
    iii) fiduciary having control over the other party’s property
    iv) the other party’s legal position is capable of being affected by a power or discretion held by the fiduciary
    Three of the boxes are ticked on these facts, I think there a strong chance of a fiduciary relationship.

    This reminds me, Op you should look at the case of Farah Constructions Ltd v Fay-Dee Ltd. Its an Australian case, but is well known over here amongst academics because it tackles some very controversial points about remedies and unjust enrichment, and is directly on point as it concerns fiduciary relationships in the context of an agreement to develop a piece of property and share the profits.
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    (Original post by chalks)
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    (Original post by jacketpotato)
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    (Original post by Mr_Deeds)
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    I'm in a race against time to get this thing written up, so sorry for lack of discussion... After hours and hours of research and reading iv cracked it..

    If you guys are still interested refer to Banner Homes v Luff Developments - identical case which gave rise to a constructive trust applying the principles in Pallant v Morgan (known as the Pallant v Morgan equity).

    Cheers for all the help!!
    Wish me luck, Its due tomorrow morning.. all nighter beckons!
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    jeezz....just saw this..we got the same question this year !
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    I would really like to know your result in this problem question
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    do u still have your report from your year?
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    (Original post by __WiZaRD__)
    I'm in a race against time to get this thing written up, so sorry for lack of discussion... After hours and hours of research and reading iv cracked it..

    If you guys are still interested refer to Banner Homes v Luff Developments - identical case which gave rise to a constructive trust applying the principles in Pallant v Morgan (known as the Pallant v Morgan equity).

    Cheers for all the help!!
    Wish me luck, Its due tomorrow morning.. all nighter beckons!
    hey! do u still have your report?
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    If you're talking about the problem question in the OP then just read Banner Homes (particularly the criteria given by Chadwick LJ for a constructive trust to arise under the rule in Pallant v Morgan).
 
 
 
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