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Promissory estoppel Promissory estoppel like proprietary estoppel is popular types of equitable estoppel. The importance of equitable estoppel was stated in Crabb V. Arun DC (1976) 1 Ch 179 that “equity comes in........ to mitigate the rigours of strict law.......... it prevents a person from insisting on his strict legal rights.... when it would be inequitable for him to do so having regards to the dealings which has taken place between the parties”. An example of promissory estoppel is where A promises B that he would not enforce his legal rights and B acted and relied on it without giving any consideration, equity would not allow A to renege on his promise to B. The modern concept of promissory estoppel was developed in the cases of Central London Property trust Ltd V. High Tree House Ltd. (1974)1 KB 130 and Total Metal Manufacturing Ltd V. Tungsten Electric Co Ltd. (1955) 1 WLR 761. Promissory estoppel differs from common law estoppel because it has less strict requirements and it may arise from promise of future conduct or intention. Promissory estoppel is traceable to Hughes V. Metropolitan Railway. Here the landlord gave his tenant 6 months to repair the property else risk penalization. Within the 6 months, negotiation for the sale of the lease was opened between landlord and tenant. The negotiation failed after 6 months and the tenant failed to repair. The landlord sought to enforce penalty. It was held that the landlord had led the tenant by his conduct to believe that the landlord would not enforce forfeiture. In High Tree House Ltd case, the landlord promised to receive from the tenant half of the ground rent because of the difficulty of finding tenants during wartime period. After the war, the flats became occupied and the landlord sued for outstanding arrears during the wartime. The court evolving the principle of promissory estoppel held that the landlord was not entitled to the arrears rent of the wartime period. Promissory estoppel occurs when there is a contractual relationship between parties. Like when there is a legal relationship between the promisee and the promisor. It remains unsettled whether promissory estoppel may arise in pre-contractual relationships. However, Lord Denning in Brinkom Investments Ltd V. Carr (1979)CA was of the view that promissory estoppel may arise from promise made by parties negotiating contracts. Similar views was expressed in Durham Fancy Goods V. Michael Jackson (1969) 2 QB 839 where Donaldson J. held that contractual relationship is irrelevant provided that there is “a pre-existing legal relationship which could, in certain circumstances, give rise to liabilities and penalties”. The first requirement of promissory estoppel is that the promisor must give clear and unambiguous statement that he does not intend to enforce his legal rights. The promise may be express or implied. The second requirement is that promisee must have acted on that promise made by the promisor. Promissory estoppel often arise where promisee in reliance on that promise suffered detriment as in Ajayi V. Briscoe (1964) 1 WLR 1326; or where he alters his

position as a result of relying on that promise when though he suffers no detriment. In Alan Co. Ltd V El Nasr & Import Co. (1972) 2 QB 18, Lord Denning held that detriment is not an essential element of promissory estoppel. Thus, for a plea of promissory estoppel to succeed, there must be a change in circumstances of the promisee. The third requirement of promissory estoppel is that it would be inequitable for the promisor to renege on his promise and claim his strict legal rights after the promisee had relied on it. The fourth requirement of promissory estoppel is that it cannot not be enforce against the promissor. Thus it can be used only as a defence and thus cannot be used as a sword. In Combe V. Combe (1951) CA, the court held that promissory estoppel does not create a cause of action and as such the requirement of consideration in formation of contract is still relevant. Promissory estoppel is a rule of evidence that prevents the promissor from denying the truth of statement which the promisee had relied. However, this requirement seemed changed in light of the decisions in Re Wyven Developments (1974) 1 WLR 1097 and Evenden V. Guildford City AFC (1975) QB 917, here the courts held “that promissory estoppel can be a cause of action”. The courts use an objective test to determine whether it was reasonable to rely on a promise. Thus certain promises like threats would not amount to promissory estoppel where court decides that reliance on it was inadequate. Furthermore, if the promisee did not rely on the promise, there would be valid argument that it was not inequitable for the promisor to go back on his promise. Promissory estoppel may permanently extinguish the rights of the promissor to claim lump sum after part-payment. In D & C Builders v Rees (1965) 2 QB 617, Lord Denning expressed that the “promissor would not be allowed to revert to his strict legal rights and that the promissory estoppel will be final if promisee understood the promise to mean final extinguishing of promissors' rights strict legal rights”. However, for periodic payment promissory estoppel merely suspends the right of the promissor to the debt until such time when it becomes equitable to claim the remainder. Thus, in periodic payments, promissory estoppel may extinguish the right of the promissor to claim payment for the suspended period but can make claim for subsequent periods after giving reasonable notice or when the circumstances that gave raise to the circumstances changes. In Total Metal case, the court held that “on giving reasonable notice to the other party, revert to their legal entitlement to receive the compensation payments”

5 Elements of Promissory Estoppel in Contract Law and Legal Agreements Date: July 3, 2014 By: Steven Brown

Don’t Make Promises in Business You Can’t Keep The court may decide you must uphold your promises even though you don’t believe you have entered into a contract or legal agreement. Promissory Estoppel is one of the elements of contract law that must be considered when drafting or entering into a contract or agreement. A promise must normally be in a deed (legal agreement or contract) or supported by consideration to be enforced. The principle of estoppel however may allow a promise to be enforced even though these requirements are not satisfied. The development of the concept of “promissory estoppel” in contract law has led to the proposition that a court may decide that a “contract” has come into being even though the traditional rules for contract formation have not been satisfied.

The 5 elements of Promissory Estoppel are: 1.

Some form of legal relationship either exists or is anticipated between the parties.

A contractual relationship is the most common type of “legal” relationship. Parties to pre-contractual negotiations also fall within this principle. 2.

A representation or promise by one party.

Traditionally, estoppel could only be used with respect to a representation about an existing fact. The High Court decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, however, extended the doctrine to representations about future conduct. This type of “promissory estoppel” arises where the promise is given in circumstances that lead the other party to assume the promise will be performed.

3.

Reliance by the other party on the promise or representation.

The party relying on the promise must suffer a detriment/ disadvantage 4.

Detriment

The party relying on the promise must have suffered some sort of detriment. In other words, the party must be in a worse position for having relied on the promise. 5.

Unconscionability

There is no general restriction, which prohibits a person from breaking his or her promise. Accordingly, before an action for estoppel will succeed, it must be shown that, in the circumstances, it would be unfair or inequitable to allow them to do so.

Remedies

The remedies available to someone who has relied on a promise to their detriment are equitable. This means that the court has a discretion in deciding what to do and it will do what it can to relieve the detriment suffered. The courts will not necessarily force the party to honor its promise, unless this is the only way to do justice.

When and How to Use Estoppel A party seeking to raise estoppel must make out a clear case and show that it would be unconscionable for the promisor to go back on their promise. Unconscionability is really the backbone of estoppel. It is important to realise that failing to fulfil a promise does not of itself amount to unconscionable conduct, nor does mere reliance on a promise to a person’s detriment. Something more is really needed such as encouragement by the party that the promise will actually be performed.

The principles outlined above should always be the starting point if estoppel is to be used. The nature of estoppel, however, is such that it cannot be defined into simple elements. At best, the principles are a guide as to what the court will look for....