Promissory estoppel

Promissory estoppel can be defined as a promise that the promisor must anticipate rationally in order to initiate an action, or forbearance on the part of the promisee or a third party. Furthermore, the promise must induce such an action or forbearance. In addition, if the avoidance of injustice in possible only by its enforcement, then such a promise will be binding.

Under the principle of promissory estoppel, a promisor who induces a promisee to change its stance substantially is precluded by estoppel from refusing to accept the binding nature of the promise on the grounds that there is a lack of consideration. Therefore, promissory estoppel constitutes an alternative for consideration and it also plays a major role in enforcing a promise that has no consideration (Smith v. Harriman Utility Board).

The requirements of promissory estoppel are a promise that is crystal clear without ambiguity in its terms and conditions, the proof that the claimant had relied on the promise, such reliance of the claimant should be reasonable and foreseeable, and damages should have emerged from that reliance. Promissory estoppel is a vital device in protecting the interests of the parties to a contract. It is a means of remedy for reimbursing a claimant who had suffered injury due to a promise or representation of other party. In such cases the courts have awarded compensation for breaches of contractual obligations (Feldman, 2004).

The doctrine of promissory estoppel under common law requires that a party to a contract, seeking the court’s intervention to obtain legal remedy, has to establish that he had acted with a clear conscience. A right of action is bestowed on a person who suffered damage or a loss due to a breach of the law and the courts enforce this right to remedy. However, the state of the claimant’s conscience cannot be proved in claiming a relief. In cases where the plaintiff has said or done something in such a way that had induced the defendant to change his behavior and that reliance was reasonable, the courts may deny awarding a remedy to the plaintiff. The courts have been bestowed with this discretionary power.

However, the fact remains that estoppel cannot be considered to be a remedy by the law in jurisdictions of the common law. Promissory estoppel is only a shield and not a sword and courts consider the principles of equity. Promissory estoppel is merely a defense, which prevents a plaintiff from seeking action through legal rights, or from invoking a set of facts that would endorse enforceable rights where such enforcement or reliance becomes unfair to the defendant. The area of this remedy is restricted because it contravenes the legal rights of the defendant.

The proof of the existence of a contract requires consideration to be extant for that agreement. Thus a contract entails a quid pro quo. Consideration can assume any form and it can be either a benefit to the promisee by the promisor or an obligation on part of the promisor to compensate the promisee. Any breach of a promise made by the promisor must result in a liability for the promisor and this makes the promise binding. The duty of the courts is to decide upon the nature of damages and their extent in cases involving a breach of promise. The consideration for a contract has to be sufficient and need not be adequate (Consideration, 2006).

The circumvention of a disbenefit would be sufficient and such avoidance of a disbenefit ensures that no duress or fraud had transpired. Past consideration cannot be treated as being sufficient, provided the promisee can prove that he performed the act at the request of the promisor. Further, the repayment of a debt can be permitted under English law if it has the complete and satisfactory acceptance of the creditor (Consideration, 2006).

Moreover, contracts, which lack consideration cannot be binding and the common law allows satisfaction under circumstances wherein the creditor requested lesser amount prior to due date, or requested payment at a specific or different place, or requested payment by specified modes. The notion of promissory estoppel in equity is an accepted means of strategy that provides a basis for binding the parties to a contract that does not involve consideration. However, it cannot enforce such contracts and acts only as a shield for infringements (Consideration, 2006).

The parties to a contract must establish that their contractual agreement is supported by adequate consideration and that they have a mutual obligation to each other. This is the primary requirement to prove the existence of a contract between the parties. Consideration can either be a benefit to the promisor or be an obligation to be met by the promise (Calabro v. Calabro).

There is a significant underlying connection between estoppels and the doctrines of waiver, variation and election. Thus the principle of estoppels can be applied to various aspects of the law such as insurance, banking, employment, international trade etc. moreover, the doctrine of Legitimate expectation, which falls under the ambit of administrative law and judicial review is a replication of the doctrine of estoppels under English law.

The principle of promissory estoppel emerged in the case of Hughes v Metropolitan Railway Co in the year 1877 (Hughes v. Metropolitan Railway Co, 1877). It did not gain much importance in the eyes of courts until Lord Denning revived it in the contentious case of Central London Property Trust Ltd v High Trees House Ltd (1947) K.B. 130. The brief history of the case was that the plaintiffs had given a block of flats on lease to the defendants at an annual rent of £2500. The World War II was in progress at that time and the city of London was heavily bombarded. Thus the defendants had been unable to obtain a sufficient number of tenants.

Accordingly, the plaintiffs reduced the rent to £1250. This promise to accept a reduced rent was not support by consideration. Subsequent to the end of the war, all the flats were occupied. The plaintiffs claimed full rent on flats for the remainder of the contract period. The remainder of contract began during the second half of the year 1945. Denning J held that the plaintiffs were entitled to the full rent from the end of the war. They were estopped from rescinding their promise if they claimed full rent from the time of the war (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

The decision in this case clearly established that there were certain requirements to be fulfilled in order to initiate promissory estoppels. First, there must be an unambiguous promise either in words or behavior. Second, the change in behavior by the promisee, as a result of the promise, was to be proved. Third, rescinding the promise by the promisor or going back on the promise would be considered to be unjust and unfair (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

Estoppel could emerge in cases of debt where the creditor informs the debtor that the debt has been absolved without the formal termination of the contract. Subsequently, if the creditor attempts to invoke the contract terms and if the debtor had on the basis of the representation, spent the money for some other purpose and as a result was unable to repay the debt amount to the creditor, then at that juncture, the creditor may be estopped from depending on the terms of the agreement and from relying on the contractual right to repayment.

This is because the action of the creditor would be treated as unfair. However, in cases where a landlord assures his tenant that the rent had been reduced or remitted for a specific period of time and consequently, the tenant had modified his actions to suit these changes, the courts could prevent the landlord from claiming full rent with retrospective effect (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

Estoppel cannot be initiated on its own as a cause for an action and it does not rescind the rights of the parties. In the case of High Trees, the plaintiffs could have restored the full rent from the beginning of the year 1945. They could have enhanced the rent to it original amount at any stage after their promise of reducing it. However, this could have been done only if the plaintiffs had given a notice to the defendants within a reasonable amount of time. Thus it is a noteworthy point that the estoppel was initiated on a negative promise, which discourages one party from availing legitimate rights on the basis of a promise (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

Furthermore, estoppel is fair and just and its imposition is discretionary. The court had refused to consider a promise to allow a part payment of £300 on a debt of £482 since the promise was made under duress in the case of D & C Builders v Rees (D & C Builders v. Rees).

In Combe v Combe, Lord Denning explained in great detail the equitable character of estoppel. Moreover, in that case Denning J refused to allow estoppel to be used as a device by an ex – wife in order to get funds from her ex – husband (Coombe v. Coombe).

The decision in Pinnel’s case established that promissory estoppel cannot be invoked if one of the parties promises to accept a lesser amount towards the full payment of a debt, provided the debtor offers the payment at an earlier date than was previously set (Pinnel’s Case, 1602). This rule was further affirmed in the case of Foakes v Beer. In this case initiating an action for getting arrears pertaining to previous years was not permitted because the plaintiff would be subject to promissory estoppel.

The plaintiff had made a promise and the defendant had relied upon that promise even though there was no consideration and it was held that permitting such claims would be unjust and inequitable. This case established a rule of evidence on estoppels that prevented the inequitable distortion of facts by a party and their forced acceptance by the other party for the purpose of their legal relations (Foakes v. Beer, 1884).

Denning J elaborated that the arrangement which were entered into by parties would create legal relations between them. According to theses arrangements one party made a promise to the other with the conscience that the promise would be acted upon. If the promisee acted mainly on the basis of such an arrangement then the court would treat the promise as binding on the promisor. This prevents the promisor from acting in an inconsistent manner with the promise although there may not be any consideration (Foakes v. Beer, 1884).

The famous case of Central London Property Trust Ltd v High Trees House Ltd has become a milestone in English contract law. That case had established the equitable nature of promissory estoppel. Legal scholars criticized Denning’s doctrine claiming that Denning did not consider the legal principles involved and that he had attempted to indulge in judicial activism by incorporating his own findings in the principles of justice.

Denning J innovated an equitable doctrine of promissory estoppels, which restricted the plaintiffs from rescinding their promise. In situations where a party to a contract made a promise to the other party, with the knowledge that it would be acted upon, then that promise would bind him as per the doctrine of promissory estoppel. Moreover, such a promisor could rescind the promise only by issuing a reasonable notice of his intention to withdraw from his promise to the promisee (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

Denning J held that Central London had filed a suit for arrears pertaining to the years 1940 to 1945 and that the plaintiff would have been estopped from reversing its promise to accept a reduced rent despite the fact that the promise was not supported by consideration (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

Estoppel makes promises binding on the promisor despite the lack of consideration and the fundamental requirement for estoppel is reliance. Moreover, consideration cannot be constituted by mere reliance. Estoppel is not a part of a contract and it constitutes a separate entity supported by law. It has a significant impact on contract law and gives rise to a number of arguments with regard to legal obligations. As such estoppel plays an important role in law and it is a general principle that can be applied to all types of contracts.

Promissory estoppel is related to contracts and it is an estoppel that relates to future conduct. Representations made about future conduct are generally in the form of promises or in forms that represent a promise. The courts of equity have opined that parties to a contract should not withdraw from representations made by them at a later date. Thus representations have a binding nature even though there is no consideration involved.

The doctrine of promissory estoppel had been in hibernation until Lord Denning revived it in the High Trees case. Thereafter this doctrine has been applied in many cases by English courts. Prior to the High Trees case there were two other cases in the nineteenth century which adopted the doctrine of promissory estoppel. These cases were Hughes v Metropolitan Railway Co (Hughes v. Metropolitan Railway Co, 1877) and Birmingham & District Land Co v London and Northwestern Railway Co (Birmingham and District Land Co v. London and North Western Rly Co, 1888 ). In these cases the expiry of a contract was either extended or suspended. This had resulted in a failure to enforce legal obligations.

In the High Trees case the landlord company promised the tenant that it would reduce the rent during the wartime. Subsequently, the landlord company went into receivership. The receiver discovered that the tenant had paid a reduced rent amount for five years. Accordingly, the receiver demanded five years arrears of rent from the tenant. At that point of time, the doctrine of estoppel required any representation to be made only on the basis of an existing fact. Further, any representation pertaining to a future date had to be a contract, otherwise it would be invalid.

It was in this situation that Lord Denning intervened and stated that on several occasions, promises had been made that had been intended to be binding and that in this particular case, the promise was to be treated as binding despite the ostensible lack of consideration. There was no consideration in this case since nothing was transferred from the tenant for the benefit of the promise made by the landlord company. In this case Denning J ruled on the basis of the Hughes and Birmingham cases and held that the landlord could be estopped from suing for rent arrears (Central London Property Trust Ltd v. High Trees House Ltd, 1947).

A promisor should stand by his promise made to the promisee and moreover, the promisor should not go back on his promise and resort to claiming his strict legal rights. This would be inequitable under law. In circumstances when a promise was extracted from the promisor under duress, the promisor can rescind the promise made by him and this would not be inequitable.

This principle was well established in the case of D & C Builders v. Rees. In this case the plaintiff had carried out some work for the defendant and as a result the defendant had to pay £482 to the plaintiff company for carrying out her work. The plaintiff demanded the payment from the defendant and at that point of time the plaintiff company was facing financial difficulties. This fact was known to the defendant who took advantage of the situation and offered the plaintiff company an amount of £300 as a full and final one time settlement.

The defendant further threatened the plaintiff that if they fail to accept this offer then they would get nothing from her. The company accepted her payment duly settling her dues. Subsequent to receiving this lesser amount the plaintiff company sued for the remaining amount. In this case Lord Denning stated that the creditor was not to be considered to be bound until and unless a proper agreement had taken place between them.

The defendant had threatened to breach the contract if the plaintiff refused to comply with her terms and that therefore there was a lack of equity and that therefore she was precluded from benefitting from the equitable rule. Therefore, she was directed to pay the full amount owed by her to the plaintiff company. Lord Denning opined that there was no inequity involved in rescinding the promise made by the company because the promise had been extracted under duress (D & C Builders v. Rees).

In Combe v. Combe a wife demanded maintenance payment of £ 100 per annum from her husband. This demand of hers was in the absence of a formal order from the Divorce Court. The trial court judge decided that this demand was justified as it was based on an unequivocal acceptance of liability that was to be binding in nature. The judge had based his decision on the decision on the judgment in the High Trees case. However, Lord Denning was of the opinion that there had been a misapplication of the principle established by him in that case. He made this statement because the principle formulated by him did not have the objective of generating new causes of action where previously there had been none (Coombe v. Coombe).

The High Trees principle’s aim was to preclude a party from exercising its strict legal rights if their enforcement would cause an injustice to the other party. Lord Denning observed that the wife had refrained from seeking maintenance from the court on the basis of the promise made by her husband to her. Although, this promise could be construed to be the consideration in this instance, the fact remained that it would have been difficult to demonstrate whether that promise was intended to be acted upon, because of the fact that the wife had a much larger income than the husband.

This case buttressed the suggestion that estoppel was to be used as a shield and not as a sword. The manner in which promissory estoppel is to be utilized is that on being sued by the promisor the promisee will take shelter behind the promise and this promise will form the basis for the estoppel. However, this very same promise cannot be brought forth for the purpose of claiming legal rights (Coombe v. Coombe).

In Coombe v Coombe, the court had held that the doctrine of estoppel could only be used as a defense. It held that the doctrine was not to be utilized in order to initiate a cause of action. This proved that estoppel operated as a shield but not as a sword and that it could not become the basis for a case (Coombe v. Coombe). Templeman J had opined in a particular case that this doctrine could not create legal rights (Re Wyven Developments). In the Evenden case, Lord Denning affirmed that the doctrine of estoppel cannot induce legal rights (Evenden v. Guildford City AFC).

This doctrine raised the question as to whether it repeals rights or only suspends the rights. The usual practice is that the doctrine suspends the rights temporarily and does not extinguish them. These rights can be resurrected upon giving a reasonable notice to the party to the contract, wherein a description of the changed conditions has been appended. In situations where a debtor is required to make payments periodically, the right of a creditor to receive such payments during the period of suspension may be repealed. However, the creditor can acquire his rights by giving a reasonable notice to the debtor.

In Tool Metal Case, the patent owners promised manufacturers that periodic payments would be suspended during the wartime. The House of Lords held that the promise made by the owners was binding during the period of suspension. The owners however could acquire their contractual rights to receive the compensation payments by giving a reasonable notice to the parties to the contract (Tool Metal Manufacturing Co., Ltd. v. Tungsten Electric Co., Ltd).

There is no provision in law for recommencing payments with regard to a promise that involved the foregoing of a sum of money. Lord Denning had held that the promisor could not go back on his promise and resume his right since estoppel would be final and permanent (D & C Builders v. Rees). Thus it is always preferable to examine the character of the promise. As seen in the High Trees and Tool Metal cases, it must be temporary in its application and for the purposes of the reinstatement of legal rights the effect of estoppel would be suspensive.

Lord Denning brought the principle of promissory estoppel to the forefront as he was vehemently opposed to the technicalities and artifices that were inherent in the principle of consideration. This was clearly demonstrated in the cases of High Trees (Central London Property Trust Ltd v. High Trees House Ltd, 1947) and Ward v. Byham (Ward v. Byham, 1956).  His main objective was to promote reliance and fairness in contracts. This attitude was adopted by the Australian High Court in the Walton’s Stores case (Walton Stores (Interstate) Ltd v. Maher, 1988).

Promissory estoppel is an important devise for recompensing a plaintiff who reasonably sustained an injury due to a gratuitous promise or representation of another party. It is also an effective remedy for breach of contract. As such Lord Denning changed the law in respect of the nebulous state of consideration into the well defined modern principle of promissory estoppel.

References

Birmingham and District Land Co v. London and North Western Rly Co, 40 Ch D 268 (1888 ).

Calabro v. Calabro, 15 S.W.3d 873, 876 (Tenn. Ct. App. 1999); .

Central London Property Trust Ltd v. High Trees House Ltd, K.B. 130 (1947).

Consideration. (2006). Retrieved June 6, 2007, from In Collins Dictionary of Law: http://www.xreferplus.com/entry/5979319

Coombe v. Coombe, (1951) 2 KB 215.

D & C Builders v. Rees, (1965) 2 QB 617.

Evenden v. Guildford City AFC, (1975) QB 917.

Feldman, S. W. (2004, December). Promissory Estoppel: The enforcement of gratuitous promises to prevent injustice. Tennessee Bar Journal , 25.

Foakes v. Beer, 9 App Cas 605 (1884).

Hughes v. Metropolitan Railway Co, 2 AC 439 (1877).

Pinnel’s Case, 5 Co Rep 117 (Court of Appeal 1602).

Re Wyven Developments, (1974) 1 WLR 1097 .

Smith v. Harriman Utility Board, 26 S.W.3d 879, 886 (Tenn. Ct. App. 2000).

Tool Metal Manufacturing Co., Ltd. v. Tungsten Electric Co., Ltd, (1955) 2 All E.R..

Walton Stores (Interstate) Ltd v. Maher, 164 CLR 387 (1988).

Ward v. Byham, 1 WLR 496 (1956).