Promissory estoppel Flashcards
What is Promissory Estoppel?
a legal principle designed to stop a party from going back on a promise that they have made to another party that has relied on it to their detriment.
From words promise and stop
The case from which the modern doctrine of promissory estoppel derives is…
Hughes v Metropolitan Railway Co. (1877) 2 App Cas 439. In this case, the tenant, by his lease, was under an obligation to keep the premises in good repair. In October, the landlord gave the tenant six months in order to undertake some repairs, with which the tenant agreed. In November, negotiations began between the landlord and tenant regarding the tenant’s purchase of the lease. The tenant stated that, while negotiations were ongoing, he would not undertake the repairs. In December, the negotiations broke down. At the end of the six-month notice period the landlord, relying on the failure of the tenant to undertake the repairs, sought forfeiture of the lease. It was held, in a unanimous judgment of the House of Lords, that the landlord’s conduct was an implied promise to the tenant that he would not enforce the forfeiture at the end of the notice period and, in not doing the repairs, the tenant had been relying on this promise.
Drawing on the developed principles of Hughes v Metropolitan Railway Co., and extending them where it suited, Denning J (as he then was), in the case of Central London Property Trust v High Trees House [1947] KB 130, formulated the doctrine of promissory estoppel. Whilst the consensus of legal opinion is that Denning J developed the original doctrine beyond its established parameters, the doctrine is now very much part of the English law of contract.
Which case allowed significant development in the doctrine of promissory estoppel?
In 1937, the plaintiff landlord let a block of flats to the defendant tenant on a 99 year lease at a ground rent of £2,500 a year. When war commenced in 1939, only about one third of the flats had been let and the tenant was having difficulty paying the rent. Consequently, in 1940, the landlord agreed in writing to reduce the ground rent to £1,250.
The parties did not specify how long the reduced rent would operate for and there was no consideration for the reduction. By 1945, the flats were fully let. In September 1945, the landlord requested that the full ground rent be paid and he requested payment of the arrears for the last two quarters of 1945 ie the quarter ending 29 September 1945, and the quarter ending 25 December 1945. The tenant argued that the reduced rent was payable for the whole 99 year term or alternatively up until September 1945 on the grounds that the landlord was estopped from claiming the additional rent. Although, the landlord was not seeking to obtain the full rent from 1940, Denning J commented obiter, on his ability to do so.
The court held that where a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on, then the promise would be binding.
Accordingly, the landlord could recover the rent for the last two quarters of 1945 and going forward. Denning J stated (obiter) that if the landlord had sought to recover the full rent from 1940 to 1945 period he would have been estopped from doing so.
What are the requirements for Promissory Estoppel?
In order to seek damages based on promissory estoppel, a plaintiff must show that:
4 principles?
- The promisor
- The promisee
- The promise that was not kept.
The promisor made a promise, with the intention that a reasonable person would act on it;
The promisee believed the promisor, and acted on that promise in good faith;
The promisor later reneged on that promise causing financial harm to the promisee;
The nature of the promise is such that the only way to avoid injustice is by enforcing the promise.
· It acts as a shield and not a sword
· A clear and unequivocal promise that strict legal rights will not be fully enforced
· A change of position in reliance on the promise
· Inequitable to allow the promisor to go back on their promise
SSPI
Promissory estoppel can only act as a defence to an action; it cannot be used as a cause of action.
This was made clear by…
the judgments of the Court of Appeal in Combe v Combe [1951] 2 KB 215.
Following a divorce Mrs. Combe’s husband indicated that he was prepared to make an allowance of £100 a year to Mrs Combe. However, he did not make any of the agreed payments. In 1950, the wife brought an action, claiming arrears of payment under the husband’s promise. The husband had made a promise which the wife had acted on.
However, the Court of Appeal held that since the wife had given no consideration for the husband’s promise, she could not succeed in an action on it.
She could not use promissory to enforce her husband’s promise to pay. It is only possible to use promissory estoppel to stop the promisor going back on their promise that they would not enforce their strict legal rights. In the language of counsel for the husband in Combe v Combe, the doctrine of promissory estoppel is a shield and not a sword.
What if the husband had made the payments but then went back on his promise and demanded the wife repay him? Would the wife be able to use promissory estoppel in these circumstances? (Combe vs Combe)
A clear and unequivocal promise that strict legal rights will not be fully enforced
There must be a clear and unequivocal promise or representation that existing legal rights will not be fully enforced: Woodhouse A.C. Israel Cocoa Ltd. S.A. and Another v Nigerian Produce Marketing Co. Ltd [1972] AC 741. The promise must be intended to affect legal relations and not simply amount to a gratuitous privilege given to the promisee. A promise can be express or implied (for example by conduct).
It is an essential element of the doctrine of promissory estoppel that the promisee (usually a debtor) should have relied upon the promise or representation, ie it must have influenced the conduct of the party to whom it was made (High Trees). The cases suggest:
The following:
(a) An act which takes place before the promise cannot be in reliance on the promise;
(b) Although the promise need not be the only reason for the promisee’s change in position, it must have influenced the promisee’s conduct in some way; and
(c) Where the promisee has, after the promise, conducted themselves in the way intended by the promisor, it will be up to the promisor to establish that the conduct was not induced by the promise.
Considering the common case of a part-payment of a debt, there is some debate about whether the part-payment itself can be the act of reliance, or whether there must be some other act of reliance. It may be that it can, provided that the promise influenced the part-payment.
Whilst it is necessary that the promise has influenced the promisee’s conduct, it appears that it is not essential that the promisee has acted to their detriment, but where they have acted to their detriment, that will make it easier to establish that it is inequitable for the promisor to go back on their word.
It is Inequitable for the promisor to go back on their promise. Why?
The doctrine only applies where it would be inequitable for the creditor to go back on their promise. As Lord Goff stated in The Post Chaser [1981] 2 Lloyd’s Rep 693:
“it does not follow in every case in which the representee has acted, or failed to act in reliance on the representation, it will be inequitable for the representor to enforce his rights”
The use of promissory estoppel, as an equitable doctrine, is at the discretion of the courts. Even if the other elements of the doctrine are made out, it may still not be applied because it would be inequitable in the circumstances to do so.
This point is well illustrated by D & C Builders v Rees [1966] 2 QB 617, where the builders agreed to accept a cheque for the sum of £300 in full and final settlement of a debt of £482.
Lord Denning MR said that because this promise had been extracted from the plaintiff creditors by intimidation on the part of the debtor, the debtor could not rely on the doctrine of promissory estoppel, since those who seeks equity must do equity.
Does promissory estoppel suspend or extinguish legal rights?
It seems that the promisor’s right to resume their strict legal rights may arise in one of two ways.
Firstly, the right to periodic payments may resume once the period over which the promissory estoppel operates ceases, as Denning envisaged in High Trees. Alternatively, the promisor may resume their full legal rights after giving reasonable notice of their intention to do so - Tool Metal v Tungsten [1955] 1 WLR 761.
This reflects that the effect of promissory estoppel is generally to suspend the rights concerned, but not to extinguish them.
The key principle is that the court will order an outcome which is just and equitable, and in some cases, this might mean a past right is extinguished.
For example, in High Trees itself, the landlord could recover the rent for the last two quarters of 1945 and going forward, but Denning J stated (obiter) that if the landlord had sought to recover the full rent from 1940 to 1945 he would have been estopped from doing so – the right to the rent for that period would have been extinguished.
Exceptionally, rights might also be extinguished where it has become impossible for the other to party to meet the obligation concerned or it would be clearly inequitable to require them to do so.
Most commonly, promissory estoppel is relied on to…
… create an exception to the rule that part payment of a debt without fresh consideration does not discharge the debt obligation.
Promissory estoppel can only act as a…
… defence to an action: it cannot be used as a cause of action.
In order for it to operate, there must be a…
… clear and unequivocal promise or representation that existing legal rights will not be fully enforced.
In addition, the promisee must have…
… relied upon that promise / representation
