#2190 - Promissory Estoppel - Contract Law

Promissory Estoppel

Reasons for Estoppel

• In contractual setting, parties can do/say things which induce the other to act to their detriment

  • E.g. If Bank pays money into your account by mistake, it can be estopped from demanding repayment later if it previously had assured you the money was yours and you went on to spend it relying on this representation.

• Should the party inducing reliance be held accountable for his words or conduct?

Origins of Promissory Estoppel

• Hughes v Metropolitan Railway Co (1877): H gave notice to M to carry out certain repairs within 6 months. M asked H whether he wanted to purchase M’s interests and defer negotiations on the repairs until then. When the interest negotiations broke down, H tried to forfeit M’s lease under the original time frame.

  • Lord Cairns LC:

    • Parties who have entered into definite terms

      • And then afterwards by their own act or with their consent enter upon a course of negotiation

        • which has the effect of leading the other party to suppose that strict rights will not be enforced/suspended

          • should not be able to renege from this if it is inequitable for them to do so.

• Central London Property Ltd v High Trees House Ltd [1947]:

  • Denning J:

    • Where there is a promise intended to create legal relations

      • And the promisor knew it would be acted on

      • And it was in fact acted on by the promisee

        • Then these are binding

    • Can’t make a cause in action yet, but can be used as a defence.

      • Where conditions which gave rise to the promise are no longer relevant

        • Then if notice is given, the terms can revert back to that of the original strict contract.

Requirements of Promissory Estoppel

• Clear Promise

  • Clear and unequivocal promise as to future conduct

    • which indicates promisor’s intention not to insist upon his strict legal rights against the promisee

  • Can’t generally be silence or “I think it will be alright but I’ll have to seek instructions”

    • Unless amount of silence (e.g. 6 years) indicates wish to abandon contract

  • Woodhouse v Nigerian Produce [1972]:Sellers (N) and claimant buyers (W) agreed cocoa contract. W asked whether N would use (devalued) sterling instead of Nigerian pounds. N sent letter back saying “payment can be made in sterling”. W argued were entitled to 1 sterling for 1 Nigerian pound, meaning N would shoulder the loss through value of currency. N disagreed.

    • Lord Hailsham LC:

      • Ambiguous statement does not amount to promissory estoppel

        • If a letter which isn’t good enough to vary the agreement in contract is allowed in estoppel,

          • then would have same effect as variation – which would be extraordinary.

        • Isn’t clear that “sterling” means the measurement of amount rather than the currency in which payment should be made

  • Chen Wishart: Reliance here only shows evidence of acceptance of a contract in which each gave consideration,

    • does not create a course of action in absence thereof

• B acts in reliance

  • Promisee must act in reliance on promise or representation.

    • Generally is detrimental reliance, so if promise revoked, promisee will be worse off than if it had never been made

    • Central London Property LTd v High Trees House Ltd [1947]:

      • Denning J: Where there is a promise intended to create legal relations

        • And the promisor knew it would be acted on

        • And it was in fact acted on by the promisee

          • Then these are binding

      • Goff J in different judgement: BUT no need to show detriment

        • Merely that X has committed himself to a course of action it can be presumed he wouldn’t otherwise have taken

          • And that it would be inequitable without reasonable notice for representor to enforce his legal rights

      • Chen Wishart: Q = whether promisee can resume his original position despite agreement that need not resume original position

        • If can resume position with reasonable notice, then not inequitable to disappoint, so must resume original position.

• Inequitable to go back on the promise

  • Not inequitable to go back when

    • Time lag means easy for promisee to resume position

      • Such as when promise is rescinded two days after being offered, whereby promisee can likely be restored.

    • Circumstances surrounding giving of promise mean equitable to rescind

      • D and C Builders v Reese [1965]: B did a job for R worth 480, but R failed to pay. B got into financial difficulties, and asked for the outstanding sum. R, knowing of the financial difficulties, offered 300 or nothing. B was forced to accept. B sued for the balance.

        • Lord Denning MR:

          • Principles of estoppel only applicable when inequitable to rescind promise.

            • When Z has forced X to promise something owing to intimidation

              • Then it would not be inequitable to set aside that agreement and force Z to pay.

          • No person can insist on a settlement procured by intimidation.

        • Danckwerts LJ: Mr and Mrs R really did behave rather badly.

    • Events subsequent to promise change the situation promisee is in

      • High Trees

        • Denning J:

          • Arrangement was only owing to war-time conditions

          • Once war was over, clear that conditions leading to suspension of full rent over

            • Therefore, original rent can resume with notice and sufficient time to readjust.

Effects of Promissory Estoppel

• Chen Wishart: Generally only suspends strict rights

  • Relief promised may be temporary or terminated by notice if promisee can resume original position

  • TMMC v TEC [1955]TMMC owned patents to alloys. Allowed TEC to use on contractual licence but if exceeded amount per month produced, have to pay TMMC compensation. During War, TMMC agreed to waive compensation. After war, TMMC sent new agreement proposing start of compensation again. TEC refused. TMMC sued for breach of contract and Fraud.

    • Lord Cohen:

      • To make promissory estoppel principle applicable

        • Party must set up doctrine showing that he has acted on reasonable belief induced by the other party – has done so here.

      • But in this case, TMMC has allowed the suspension

        • And has now given notice of a change of intention

          • Which should be upheld

            • because would not be inequitable to do so as long as time to readjust to original (previously suspended) arrangement.

  • But can be practically extinctive

    • Depends on what was promised

    • And whether X can resume his original position

• Only operates defensively

  • Cannot be used to create a cause in action – although some doubt on subject

  • Crab v Arun [1976]:

    • C owned land alongside land which was next to the road owned by D. C wished to portion off land, and required a new right of way to the road at Point B. C’s architect met with D, who said this would be fine. D then fenced off point B and demanded C pay for new right.

    • Lord Denning MR:

      • Promissory estoppel gives no cause in action

        • BUT there are different sort of estoppels

          • E.g. This is propriety estoppel

            • And propriety estoppel does give a cause in action

  • Amalgamated Investment v Texas Bank Ltd [1982]:

    • Lord Denning MR:

      • Estoppel is really only a general principle

        • They all work the same really

    • Brandon LJ:

      • This is estoppel by convention

• Argument that estoppel can’t be used as a sword, only a shield

  • Is all really a matter of semantics

  • Party can’t in terms found a claim upon estoppel

    • BUT He may, as a result of relying on estoppel

      • Succeed using a different cause of action that would fail were it not for the reliance on the estoppel.

• Enforces promises without consideration of “same for less” as long as fulfil requirements

  • High Trees

    • Denning J: Promisor gained no legal nor practical benefit from promise to promisee, so no consideration for modification

      • BUT promisee could use estoppel as defence as promisee acted in reliance of modification of same for less.

        • Only works up until point promisee can resume original position after reasonable notice of re-enforcement from promisor, however,

    • Thus, logical consequence of promissory estoppel is that promise to accept smaller sum is binding if promisee acts upon it

      • Chen Wishart: BUT note that promissory estoppel is technically only suspensive (although practically may be indefinitely so) of promisor’s original rights,

        • consideration actually extinguishes promisor’s original rights.

  • Collier v Wright

    • Arden LJ:

      • Mere elapse of time not enough to assume estoppel

        • Means that where actually true...