Promissory Estoppel is the doctrine that prevents a party from acting in a certian way because the first party promised not to

Promissory Estoppel

Introduction

Wherever a law is broken, a right of action is created in any person who has suffered a loss. This right to a remedy is enforced through the courts. In almost all cases, the state of the plaintiff's conscience will be irrelevant to obtaining relief. But, if the plaintiff has said or done something that induced the defendant to change his or her behaviour and that reliance was reasonable, the courts have a discretion to deny the remedy to the plaintiff. Hence, an estoppel is not a remedy at law in common law jurisdiction, but based on principles of equity. In the majority of cases, it is only a defence and it works by preventing a plaintiff from enforcing established legal rights, or from relying on a set of facts that would give rise to enforceable rights (e.g. words said or actions performed) if that enforcement or reliance would be unfair to the defendant. Because its effect is to defeat generally enforceable legal rights, the scope of the remedy is often very limited.

Origins

Promissory estoppel was developed by Lord Denning in Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B. 130. Since then this case became an exemplary one for cases relevant to promissory estoppel.

In this case High Trees House Ltd obtained the tenancy of a block of flats in 1937 for a ground rent of Ј2500 per year. Unfortunately the luftwaffe played havoc with occupancy rates in central London after the outbreak of WW2. In January 1940 the plaintiff wrote to the High Trees confirming a reduction in rent to Ј1250. In September 1945 the receiver of the plaintiff company wrote saying that the rent must be paid at the full amount and demanding arrears. The conclusion of Lord Denning was: the full rent was payable from the time that the flats became fully occupied in early 1945, but that Central London could not go back on their promise of reduced rent for the period of the war because of High Trees reliance on the lower rate.

Consideration

One of the other important elements of contract law is the requirement of consideration. One 1875 English case, Currie v. Misa, offered a definition of "consideration" which is still used:

".. some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."

As such, a contract differs from a gift. This also explains why you sometimes hear of very expensive objects sold for $1; which is done to ensure that what is essentially a gift, comes with the legal protection of contract law.

Under contract law, there is no contract if there is no consideration.

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Under contract law, there is no contract if there is no consideration.

But consideration does not necessarily have to be quantified or quantifiable in monetary terms. Any discernible detriment to one of the parties could be that party's consideration. In one case, Hubbs v. Black, 1918, agreeing not to take a certain plot in a cemetery was considered to be sufficient consideration. Giving a right to sue on a bona fide claim has been deemed to be adequate consideration. Also, the courts don't really care about the adequacy of the consideration. This is the business of the parties and not a matter for judicial interference.

It should be noticed that the consideration must be reciprocal, each party offering consideration. Also, motive is different from consideration. Your motive for contracting is your personal reason for contracting. It may not coincide with the consideration you are giving, or receiving, as part of the contract.

If a consideration is already spent in a prior contract, a new contract using that same consideration would be valid. Where a contractual duty already exists, it may be possible to vary the original agreement without necessarily establishing a whole new contract with fresh consideration on both sides. In fact, refreshing a commitment to do something for a third party is consideration under common law.

The consideration cannot be something illegal, immoral or contrary to public policy, for example, a work contract to an unlicensed electrician.

Exception

There is one exception to the requirement of "consideration" and that is a "deed", which is a contract "under seal" or a "specialty contract". In centuries past, persons contracting would drip a drop of hot wax on the bottom of the contract and press a family ring into the wax, thereby signifying consent to the terms of the document. Nowadays, deeds are used mostly in contracts that involve real estate. If a contract is a "deed", then no consideration is required. If charitable donations are made under seal, they are valid contracts even though there is no valid consideration.

Considering the confused state of contract law, and the extent of contemporary commercial transactions, the special status of contracts under seal is now quite outdated. Judges have squirmed when faced with arguments based on "deeds" or "under seal" and have since added that the absence of a seal is not fatal as long as the intention to seal was clear. There is building pressure in legal circles to eliminate the requirement for consideration entirely from the list of contract requisites (as is the case with civil law).

Elements for establishment

Promissory estoppel requires an unequivocal promise by words or conduct, a change in position of the promisee as a result of the promise (not necessarily to anyone's detriment), inequity if the promisor was to go back on the promise.

To establish promissory estoppel, a party must prove that there was a promise which the promisor should have kept. If a promissory doesn’t fulfill his obligations he may be sued and owe some remedy to the promise because of having failed to keep the promise. The justice requires that the remedy granted may be limited.

Promissory estoppel requires an actual, clear and definite promise. Reliance is reasonable only if it is induced by an actual promise. A promise is a manifestation of an intent to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. At the same time a promise is not a statement of opinion, a prediction of future events, or a party's will, wish or desire.

Estoppel is 'a shield not a sword' - it cannot be used as the basis of an action on it's own. It also does not extinguish rights. In High Trees the plaintiff company was able to restore payment of full rent (although estopped back rent was lost) from early 1945, but probably could have could have restored full rent at any time after the initial promise provided a suitable period of notice had been given.

Estoppel is an equitable (as opposed to common law) construct and is therefore discretionary. In the case of D & C Builders v Rees the courts refused to recognise a promise to accept a part payment of Ј300 on a debt of Ј482 on the basis that it was extracted by duress.

Conclusion

Estoppel is an equitable doctrine proposing that any person who asks the courts to enforce a legal remedy should have a clear conscience. Wherever a law is broken, a right of action is created in any person who has suffered a loss (the plantiff). This right to a remedy is enforced through the courts. In almost all cases, the state of the plaintiff's conscience will be irrelevant to obtaining relief. But, if the plaintiff has said or done something that induced the defendant to change his or her behaviour and that reliance was reasonable, the courts have discretion to deny the remedy to the plaintiff.

Hence, an estoppel is not a remedy at law in common law jurisdictions, but based on principles of equity. In the majority of cases, it is only a defence and it works by preventing a plaintiff from enforcing established legal rights, or from relying on a set of facts that would give rise to enforceable rights (e.g. words said or actions performed) if that enforcement or reliance would be unfair to the defendant. Because its effect is to defeat generally enforceable legal rights, the scope of the remedy is often very limited.

Having considered the elements which are needed to establish the promissory estoppel it may be stated, that for promissory estoppel a promise is a manifestation of intention to act or refrain from acting in a specified manner, made in a way which would justify a promisee in understanding that a commitment had been made. In determining whether a promise existed, a court must objectively examine the words and actions surrounding the transaction in question as well as the nature of the relationship between the parties and the circumstances surrounding their actions.

Promissory estoppel must be cautiously applied only when the facts are unquestionable and the wrong to be prevented undoubted.

Bibliography

Barton J., The Early History of Consideration, 85 L.Q. REV. 372 (1968)
Richard Craswell, Two Economic Theories of Enforcing Promises, READINGS IN THE THEORY OF CONTRACT LAW (Peter Benson, ed., Cambridge University Press, 2001)
Jay M. Feinman, The Last Promissory Estoppel Article, 61 FORDHAM. L.REV. 303 (1992) Daniel A. Farber and John H. Matheson, Beyond Promissory Estoppel: Contract Law and the 'Invisible Handshake,' 52 U.CHI. L.REV. 903 (1985)
Jay M. Feinman, Promissory Estoppel and Judicial Method, 97 HARV. L.REV. 678 (1984)
Stanley Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 YALE L.J. 343, 1969
J. Barton, The Early History of Consideration, 85 L.Q. REV. 372, 1968
Chloros A., The Doctrine of Consideration and the Reform of the Law of Contract: A Comparative Analysis, 7 INT. and COMP. L.Q. 137-57, 1968

Relevant Cases:

Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B. 130 - 08-12-05
Currie v. Misa [1875] LR 10 EX 153 Barton J., The Early History of Consideration, 85 L.Q. REV. 372 (1968)
Hubbs v Black, [1918], O.J. No. 48 Richard Craswell, Two Economic Theories of Enforcing Promises, Readings In The Theory Of Contract Law (Peter Benson, ed., Cambridge University Press, 2001)
D & C Builders Ltd v Rees [1966] 2. QB 617 http://www.spr-consilio.com/lawboxcontrcb.pdf - 08-12-05

Relevant Internet Sources:

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the senior civil judge in the Court of Appeal of England and Wales

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Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B. 130 - 08-12-05

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Currie v. Misa [1875] LR 10 EX 153, referred to consideration as consisting of a detriment to the promisee or a benefit to the promisor, Barton J., The Early History of Consideration, 85 L.Q. REV. 372 (1968)

Hubbs v Black, [1918], O.J. No. 48 Richard Craswell, Two Economic Theories of Enforcing Promises, Readings In The Theory Of Contract Law (Peter Benson, ed., Cambridge University Press, 2001)

Jay M. Feinman, Promissory Estoppel and Judicial Method, 97 HARV. L.REV. 678 (1984)

Stanley Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 YALE L.J. 343, 1969

Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

http://ceds.vu.edu.au/buslaw/centrallon.htm - 08-12-05

D & C Builders Ltd v Rees [1966] 2. QB 617

http://www.spr-consilio.com/lawboxcontrcb.pdf - 08-12-05