Contract Law – Tutorial 5 – Promissory Estoppel PDF

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Promissory Estoppel...

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Contract Law – Tutorial 5 – Promissory Estoppel 1. When will a promise to accept less than your legal rights be binding? -

General rule: Part payment of a debt is not good consideration – merely fulfilling an existing obligation to pay money. Even where the other party promises to waive that obligation, they can still claim the debt back at any later point (Foakes v Beer - Beer able to enforce the full amount of debt – paid debt in £500 instalments w/o interest and interest because her promise to accept part-payment was not supported by consideration)

There are three exceptions to this rule: a) Pinnel’s case – debt can be paid with (and all count as good consideration: a. A different thing (‘hawk, a horse, or a robe’) b. In a different place c. Earlier b) Payment of a lesser sum by a third party - Welby v Drake - Where a lesser amount is paid in satisfaction of a debt by a third party to that debt, and the creditor accepts that sum, the creditor cannot sue for the balance c) Promissory Estoppel – claimant may be obliged to stand by what he has said even where not contractually bound to. Claimant cannot go back on his word when it would be unjust or inequitable to do so (Denning – Central London Property Trust v High Trees House) LEGAL - A promise to forgo legal rights is not good consideration - Foakes v Beer. Can get round if there is: - Fresh consideration (Pinnel’s Case) - change of time, place & type of payment - Involving a third party (Welby v Drake) Do exceptions apply? If not, use promissory estoppel EQUITABLE - promissory estoppel (High Trees/c.f. Hughes) 2. What are the elements you need to consider in the defence of promissory estoppel? 1. Clear and unequivocal promise to suspend existing contractual rights – must be a contract in place and a promise to forgo what is owed under that contract  Hughes v Metropolitan Railway – express statement or conduct  Must be sufficiently clear – Woodhouse Cocoa v Nigerian Produce (not clear how payment would be affected by currency market changes) 2. Change of position by promise in reliance on the promise – promisee needs to do something to show that they acted in awareness of the promise

 Ajayi v Briscoe – no change in position because defendant had just carried on business regardless when the lorries were faulty  ‘Reliance’ given wide interpretation – Brikom Investments v Carr  Collier v P & MJ Wright (Holdings) Ltd – Arden LJ took approach further – dispensing the need for any meaningful idea of reliance 3. Reliance need not be detrimental  Emmanuel Ayodeji Ajayi v R.T. Briscoe (Nigeria) Ltd - requirement that the promisee, alter his position was interpreted to mean alter in a detrimental way  Alan & Co v El Nasr– Denning said it was essential debtor acted on the promise, but that reliance need not be detrimental  Post Chaser [1982] – if defendant altered position to their detriment, then it’ll make it even more inequitable for the claimant to go back on their promise o Not inequitable for buyers to go back on representation since so little time had elapsed and sellers were not prejudiced 4. Inequitable for promisor to go back on the promise  Need to show there is inequity- at discretion of the courts  D&C Builders v Rees – R could not use equitable remedy of promissory estoppel because she had not come to equity with clean hands – knew builders were in financial trouble and so would have no choice but to accept her offer to pay them less for their work o He who seeks equity must do equity 5. Shield not a sword  Can only be used as a defence, not a cause of action – Combe v Combe – Denning wanted limits to protect the doctrine -

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a defence (a shield, not a sword) - establish this first - Combe v Combe a clear and unequivocal promise - Woodhouse Cocoa v Nigerian Produce as a result, there needs to be a change of position by the promisee in reliance of the promise - Ajayi v Briscoe reliance need not be detrimental ( Alan v El Nasr) but easier to show if you relied to your detriment - case is stronger if you relied detrimentally as it is a discretionary remedy (Post Chaser) Inequitable to go back (The Postchaser) - D&C Builders - Rees put undue pressure on the builders to accept a lesser sum (clean hands/he who comes to equity must do equity)

3. It is said that ‘promissory estoppel suspends rather than extinguishes rights’. Is this a correct statement of law? Effect of the estoppel is to suspend rights (CLP Trust v High Trees) – but they can be resumed later. Therefore, the statement is correct. Rights can be resumed later on: a) Following reasonable notice (Tool Metal v Tungsten Electric – first lawsuit was reasonable notice) b) When the circumstances giving rise to the estoppel end (CLP v High Trees - war had not ended but the properties were fully let, unlike in 1940) If the money was due in instalments (rent), the claimant cannot recover the money that was waived – can only resume future payments. Any past periodic payments are extinguished. – So the statement is correct regarding the suspension of rights, but past periodic payments are extinguished. If the money is due as a lump sum, then the payment is merely suspended for the period that the estoppel lasts – afterwards the claimant can resume his rights for the whole sum. Suspends because it can be brought to an end - full payment is only ever suspended. - when circumstances that brought it about cease to exist - war produced a shortage of tenants which meant they couldn’t make rental demands from main landlord - reasonable notice (no defined limit) - what about period when flats were un-let? Wouldn’t be able to get them for that period… if payment was annually, there might be a way of taking the rent from the period of estoppel - right to claim the shortfall in past periodic payment is extinguished - can only claim full rights from when estoppel ends and then going forward 4. How does the doctrine relate to the role of consideration in contract? It allows a part payment of a debt to be enforced even though there is no consideration. Limits of the doctrine: - Can’t be used instead of consideration (not a cause of action) - only a defence (original contract would not be tampered with) Consideration – an act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought – Dunlop v Selfridge There are five conditions for consideration: o Consideration must not be past o Consideration must move from the promisee to promisor o Consideration must be sufficient, but need not be adequate o Performance of an existing obligation is not consideration

o Part payment of a debt is not good consideration – Re Selectmove – then we go on to look at variations. Variations – promise to pay more or to accept less. Promissory estoppel is one of the three exceptions to the rule that ‘part payment of a debt is not good consideration’ regarding promises to accept less. - Pinnel’s case - 3rd party payment – Welby v Drake - promissory estoppel Therefore, via promissory estoppel, if the claimant has promised to accept less, the defendant will be able to rely on this variation if he pays with a different thing, if a third party pays, or if promissory estoppel applies. 5. In January, Dell was running a busy market stall selling imported rugs and, as it was in a prime position, he was happy to pay the large rental of £1,500 per week. However, there was a serious shortage of rugs due to the outbreak of war in April and his sales plummet by 50%. Erica, the market manager, promised that as long as the war lasts Dell can reduce his rent by 50%. Dell was happy with this as he was contemplating reducing the days he worked and pursuing his hobby of bell ringing on a professional level. He reduces his days and buys a complete set of antique bells, paying more than he normally would but with the reduction in rent he has some money to spare. Whilst the war rages on in August, Dell obtains another supplier and soon his business begins to pick up. He begins to work a great deal on the internet and Erica is unaware of the improvement in Dell's situation. In November, Erica sees Dell's web page and some of the reviews he has from contented customers. After making some inquiries, Erica discovers the truth and sends a notice to Dell informing him that his rent will be increased from that week and claiming the rent due from April. Advise Dell if he will have to repay all or any part of the amount due -

Erica v Dell (all the money from April - Foakes v Beer). No consideration in return of the promise Dell will say that they had an agreement - raising the defence of promissory estoppel How is promise interpreted? When does it cease to be unfair for Erica to go back on her promise

Claimants - not good consideration (Foakes v Beer) - nov - reasonable notice: market is weekly rental (reasonable for when he takes his next rent) - aug - no claim from this point onwards valid as conditions changed - war or financial ability?

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conditions reliant on the sales of the rugs? Compromise position - not his solvency, but his supply to the market stall… don’t know if that has improved sufficiently

Defendants - Shield not a sword - fine - Clear and unequivocal promise - ‘until end of war’ - when the war ends, the promise ends although High Trees - war not the underlying set of conditions - actual conditions are that he is unable to pay due to lack of supply (when he is solvent). - reliance - pursuing his hobby of bell ringing, and buying antique bells changed position, reduced days of working - not detrimental but doesn’t have to be (Adayi) he always wanted to buy the bells, they were contemplating changing working days anyway and he paid more than he would (money to spare) so he should be paying rent… quality of reliance is problematic - he doesn’t actually change the days, though - does it matter? (Brikom Investments v Carr) - if estoppel is established, when does it cease to be inequitable? How long does it operate? Until the war is over… - Tungsten - doesn’t have to be conditions changing… Prevailing conditions: - his supply of rugs, not his solvency - can he go back on promise if he is selling money elsewhere? He is spending more money than he normally would - does promisee have right to regulate where the money goes elsewhere? - only when conditions cease to exist can we hope to go back on the promise D&C Builders - not telling her… does he need to until market supply picks up? 1. Is there a contract? But for any issue with consideration, there is a contract. Variation contract is a new contract so any variation must also meet the requirements of a contract o Agreement – both parties agreed to same offer: reduced rent during war. o ICLR – yes, they have a contract, rent, agreed reduction. o Consideration 2. Consideration Act of forbearance of one party – the price for which the promise of the other is bought (Dunlop v Selfridge). Here, Erica is the promisor and Dell is the promisee (receives the promise). Erica, the promisor, wants to claim the reduced rent she promised to Dell, the promisee. The issue is whether Dell gave consideration for this promise. 3. Issues with consideration?

Criteria: a) Consideration must not be past b) Consideration must move from the promisee to promisor c) Consideration must be sufficient, but need not be adequate d) Performance of an existing obligation is not consideration e) Part payment of a debt is not good consideration – Re Selectmove – then we go on to look at promise to accept less. Variations – D&E: o Promise to pay more o Promise to accept less 4. Variation – promise to accept less General rule – part payment of a debt is not good consideration – merely fulfilling an obligation to pay money. Even where the other party promises to waive that obligation, they can still claim the debt back at any later point. Foakes v Beer. Therefore, in line with this rule it could be concluded that Dell paying less is not good consideration. Erica may have promised to waive contractual obligation to pay but via Foakes v Beer she can claim that money back. But we need to see if any of the exceptions apply Exceptions: o Pinnel’s case – with another thing o 3rd party payment o promissory estoppel 5. Promissory Estoppel Here, we have promissory estoppel which stands as an exception to the rule ‘part payment of a debt is not good consideration’. Principle established by Denning in Central London Property Trust v High Trees House – agreed to reduce rent ‘for the duration of the war’. Property became fully let and the claimant sued for full rent. Held that the rent could be claimed for the period that the property was fully let for, but the landlord could not claim for the wartime period in which it was not. Doctrine as a ‘temporary expedient’ only - ceased to apply when the conditions that gave rise to the estoppel no longer existed. Could establish principle to this scenario – Erica agreed to reduce rent by 50% for ‘as long as the war lasts’. Erica claimed for rent since last full payment (April). However, via CLP v High Trees this would not happen as the prevailing conditions for the promise were that the flats were not let and High Trees had no money. These conditions lasted until the second-half of 1945 and it was from that point that the

claimant could claim rent. Therefore, it would probably be from August that the conditions returned to normal and full rent could be paid and claimed. Elements of promissory estoppel:  Clear and unequivocal promise – clear, by words or conduct – we are told a promise is made to reduce rent by 50%. Not clear how but would need to clarify to ensure it is sufficiently clear (Woodhouse Cocoa v Nigerian Produce) - YES  Change of position by promisee in reliance on the promise – Ajayi v Briscoe – here the reliance takes the form of paying only half the agreed rent to the landlord. YES  Reliance need not be detrimental – Post Chaser. Denning said in Alan & Co v El Nasr that it was essential the debtor acted on the promise, but that reliance need not be detrimental. Here, Dell acted on the promise by not paying rent. YES  Must be inequitable to go back on the promise – D&C Builders – he who seeks equity must do equity. Here, there is an issue because she’s not working and has spare income to buy antiques. Had the ability to pay and lied so she arguable does not deserve an equitable defence. Her hands were not clean – economic duress. Like Rees, there is unconscionary behaviour. NO  Shield not sword – Combe v Combe – Dell could make the argument of promissory estoppel in court. YES Equity – D&C Builders v Rees – is a discretionary remedy so courts would have to decide whether Dell’s hands are clean or not. Providing they are, the court rules that Erica’s right to resume her strict legal rights arises in one of two ways: 1. Reasonable notice – Tool v Tungsten Electric 2. Circumstances giving rise to the estoppel cease Here, the latter applies – in CLP v High Trees the war had not ended but the properties were fully let, unlike in 1940. Here, the war has not ended but business picks up and we are told there is an improvement. Therefore, legal rights may not arise. Erica may have to give reasonable notice instead – Ajaui v Briscoe – consistent with view it is only suspensionary in its operation.

6. Conclusion Erica promised to accept less, and Dell will be able to rely on this promise if promissory estoppel applies. However, Dell does not have clean hands so it would not be inequitable for Erica to go back on her promise....