contract law Cases

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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 (1877)2 App Case 439. Here the landlord gave his tenant 6 months to repair the property else risk forfeiture. 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 forfeiture. 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”