Considering the doctrine of promissory estoppel

In D & C Builders Ltd v Rees [1966] 2 QB 617, Lord Denning explained and applied the doctrine of promissory estoppel. This essay will look into the concept of consideration as one of the key elements of legally binding contract as well as consider the doctrine of promissory estoppel. It will further consider the case law on the doctrine of promissory estoppel and whether Lord Denning’s view of the doctrine is an accurate representation of the law.

In order for a contractually binding agreement to exist, all essential elements need to be present. Consideration is one of the key elements, together with the offer, acceptance and intention to create legal relations. Consideration could be defined as a promise made by the each party to the contract. In Currie v Misa [1875] LR 10 Ex 153, Lush J defined consideration as “may consist either in some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility, given, suffered or undertaken by the other". From this definition it could be drawn that consideration could be interpreted as an act that is a detriment to the promisee and a benefit to the promisor. In Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd [1915] AC 847, Lord Dunedin expanded the definition by stating that it is “an act of foreberance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable". This definition establishes that some economic or commercial value needs to be present in order for there to be a valid consideration. Consideration cannot be past consideration, which means it cannot be a promise made after the act had been completed. It has been established that consideration needs to be sufficient, however it does not need to be adequate. It does not need to be adequate in a sense that it does not need to reflect the real and exact value of the promise for which it is given. The requirement for sufficiency establishes that consideration needs to be something that the law would regard as capable of amounting to consideration. Sufficient consideration could be expressed through a promise of payment or performance of an act. This was considered by the House of Lords in Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 where it was established that where some value had been given as consideration for the promise, the courts will not dismiss as an inadequate consideration if the parties themselves have agreed on such price. Consideration needs be sufficient in that the full price, if one party’s consideration is payment, needs to be paid.

The common view is that the part payment of debt is not a valid consideration. This was established in Pinnel’s Case [1602] 5 CoRep 117a where it was held that although part payment was not consideration, it could be thought of as adequate if the creditor and the debtor agreed that the creditor will accept part payment if the debtor provided some new consideration. It further established that the payment of a debt on a due date is not a good consideration and the creditor can still be entitled to recover any outstanding costs. This was considered in Foakes v Beer [1884] 9 App Cas 605 where the House of Lords held that Mrs Beer was allowed to claim the accrued interest owed to her because Foakes had not provided any new consideration. The rule in Pinnel’s case is subject to exceptions, among others the doctrine of promissory estoppel.

Promissory estoppel is an equitable doctrine. It considers the circumstances in which one party to the contract shows the other party that they had suspended their legal rights under the contract, and the doctrine ensures that they will be stopped from denying this in the future. The case of Coombe v Coombe [1951] 2 KB 215 established that promissory estoppel is an equitable doctrine and as such can only be used as a defence to a claim.

The doctrine was considered and applied in the case of Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130 where the landlord promised to reduce the rent during the World War II, and subsequently after the war had ended and the rental had gone up to original price, claimed he should be paid the outstanding amounts accrued during the wartime period. The court applied the doctrine of promissory estoppel and held that the landlord was entitled to receive any outstanding amounts during the period after the war had ended, however he was stopped from claiming any amounts accrued during the war.

The doctrine was further examined in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761. This case deals with the suspension of payments during the outbreak of war. House of Lords held that the suspension applied and was binding during the period of war, however that the owners could, if they could show that it is reasonable to do so, go back to their legal entitlement and receive the payments. Lord Denning further discussed the doctrine of promissory estoppel in D & C Builders Ltd v Rees [1966] 2 QB 617 where the plaintiff completed their consideration by doing building work for Mr Rees and Mr Rees’s consideration was payment of £482. The company was in severe financial difficulties and kept pressing for payment to be settled. Mrs Rees eventually contacted the company and offered a payment of £300. She was aware of their financial situation and stated that this was the only offer they were willing to provide. The company felt it did not have the choice but to accept the payment. Lord Denning stated that it could be considered equitable for the creditors to revert back to their promise and claim the amounts owed if it can be shown that the debtor had acted unfairly by putting inappropriate pressure on the creditors. Lord Denning further stated that in the situations where agreement had been made by both parties the court would not allow the promisor to go back to relying on his legal rights and that the estoppel could be considered as permanent if the promise that was made was intended to have a permanent effect. Therefore, the nature of the promise and whether it was intended as temporary measure will need to be considered.

Taking into the consideration current case law, it could be argued that in order for a promissory estoppel to succeed, the promisee needs to show that there has been a significant change in his circumstances. The promisor must give clear statement he does not intend to enforce his legal right. Furthermore, the promisee must have acted on that promise made by the promisor.

Lord Denning in D & C Builders Ltd v Rees emphasised the importance of parties being able to rely on the doctrine of promissory estoppel. He stated that it would be inequitable for a debtor to rely on a promise made by the creditor, if the creditor then decides to go back on his promise. There needs to be protection of interests of both parties in place within the law, and the doctrine of promissory estoppel ensures that the debtor is protected. The case law has shown that the doctrine of promissory estoppel will act as a shield in circumstances where both parties agree to different terms, usually regarding the payment, and will consider implications arising out of such agreements. However, as D & C Builders Ltd v Rees has shown, each party’s conduct could be crucial in determining whether the doctrine of promissory estoppel had in fact been applied as a reasonable step in business arrangements. Undue pressure on one party could be considered to be inequitable, and they may be entitled to recover any costs owed to them.

The law on the doctrine of promissory estoppel is arguably still an accurate representation of law. Lord Denning’s views expressed in D & C Builders Ltd v Rees is one of fairness and justice. He recognised the importance for all parties to be able to rely on the law of contract and the doctrine of promissory estoppel when conducting a business. The protection offered by the doctrine and the law in general, ensures that each party’s considerations, or promises, are respected and fully binding. It would be deemed as unfair if parties to the contract were allowed to escape liability or fail to honour their promises. There would be no certainty and no guarantee that each party will provide consideration for the other party’s act.