Promissory_Estopel

Promissory estopel helps to enforce a contract between two parties when a contract is otherwise unenforceable. A mere agreement between two parties does not create a binding, enforceable contract. In addition to offer and acceptance there must be sufficient consideration to make the contract enforceable. Consideration is an essential element when forming a contract. A classic definition of consideration has been given in Currie v Misa: “a valuable consideration, in the sense of the law, may consist either of some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other” i.e. the promise has to give something in return for the promise of the promisor to turn a promise into a contract. Once the contract is made it cannot be varied without further exchange of promises or promise supported by consideration. The doctrine of consideration therefore applies to formation as well as variation of contracts. So, if person A owes money to person B under a debt contract and person B accepts a lesser amount in full settlement, person B has all the rights to enforce payment of the balance (Pinnel’s case, Foakes v Beer) as a part payment of the debt is not a good consideration for promise to forgo the balance – A is already obliged to pay the full balance under the debt contract (Stilk v Myrick). It was held in Pinnel’s case that an agreement to accept a part payment would be binding if there was a fresh consideration provided by the debtor e.g. if there is an additional benefit for the creditor. The exception includes creditor’s acceptance to a part payment on an earlier date than the due date or if the creditor accepts a “gift of horse, hawk or robe” it would amount to good consideration to forgo the balance. The court is not concerned about whether the parties made good or bad bargain – the consideration needs to be sufficient but need not to be adequate (Chappel v Nestle). A payment at different place is also a valid consideration as long as the change of venue is at the creditor’s request otherwise there would be no benefit to the creditor neither detriment to the debtor (Vanbergen v St Edmunds Properies Ltd). Further to the exceptions established in he Pinnel’s case is a part payment made by a third party (Hirachand Puramchand v Temple) – where the person making a part payment in return for discharging of the debt owed by another will amount to sufficient consideration as the existing duty to make a payment was not owed by them but a third party. The doctrine of consideration also does not apply to a composition agreement. This is an agreement between a debtor and a group of creditors, under which the creditors agree to accept a percentage of their debts (eg, 50p in the pound) in full settlement. Despite the absence of consideration, the courts will not allow an individual creditor to sue the debtor for the balance: Wood v Robarts. The reason usually advanced for this rule is that to allow an individual creditor to claim the balance would amount to a fraud on the other creditors who had all agreed to the percentage. Court will uphold a legally enforceable contract when the elements of the contract have been established, but court could uphold an unenforceable contract, when not supported by consideration, where one party shows reasonable reliance on the other party’s promise. In another words if person A promises to alter his legal rights – not to enforce them and B, relying on this promise, acts without giving any consideration, equity (fairness) would not allow A to go back on his promise – doctrine of promissory estoppel. Promissory estoppel was developed in shadow and as the equity’s answer to strict law of the doctrine of consideration. Promissory estoppel can be traceable to Hughes v Metropolitan Railway where the court held that by negotiation of sale the landlord led the tenant to believe that he would not enforce forfeiture for tenant failing to carry out the required repairs on the property in question. Lord Denning upheld this decision in his obiter dicta in Central London Property Trust Ltd v. High Trees House Ltd “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 upon by the person whom it was made and which was in fact so acted on.” In relation to docrine of consideration promissory estoppel acts as an exception to it (in addition to exceptions established in the Pinnel’s case and Hirachand Puramchand v Temple) and whenever there is a conflict between the strict contract law and equity, the latter should prevail (Earl of Oxford’s case (1615). However, before the doctrine of promissory estoppel can be called on there are various factual requirements that need to be satisfied. The first requirement is that there must be “a pre-existing legal relationship which could, in certain circumstances, give rise to liabilities and penalties” (Durham Fancy Goods v Michael Jackson Fancy Goods) i.e. in promissory estoppel does not always has to occur when there is a contractual relationship between the two parties. Secondly, the promisor must give clear, unambiguous and unequivocal statement that he does not intend to enforce his legal rights, which must be expressed (Baird Textiles Holdings Ltd v Marks & Spencer Plc), or implied by conduct - Woodhouse A. C. Israel Cocoa Ltd v Nigerian Product Marketing Co. Ltd - it was held that the buyers conduct in accepting the invoice in Kenyan shillings instead of pound sterling unquestionably amounted to an implied clear and unambiguous promise to accept on those terms. The third requirement is that there must have been reliance on the part of the promisee upon the promise made by the promisor. This can arise when the promisee acting in reliance on the promise suffers detriment (E.A. Ajayi v R.T. Briscoe (Nigeria)) or where the promisee was led to act differently than he otherwise would have done (Alan Co Ltd v El Nasr Export & Import Co) even though the promisee did not suffer any detriment. Lord Denning disclaimed detriment as an element of promissory estoppel, saying that it is sufficient enough if the debtor has acted on promise by paying lower sum. Also, promissory estoppel is restricted to the law of waiver (Treitel) – the law giving up one’s right rather than being the basis for enforcement of promises like the doctrine of consideration. Promissory estoppel can be used, in effect, to reduce the obligations already owed by the promisee to the promisor, but not to increase the obligations owed by the promisor to the promisee or to create new ones. This was decided in Combe v Combe where it was held that the promissory estoppel can only work as “a shield not sword” i.e. it cannot be used to create a cause of action but gives a mean of objection, hence why the tenants in High Trees case could not sue the landlord for the promise of lower rent. However, in (Evenden v Guildford Cify AFC) Lord Denning allowed an estoppel to become a course of action and create rights. And if the court takes example from the New Zealand’s case Walton Stores Ltd V Maher the doctrine of promissory estoppel would become more flexible and would not be seen as a series of independent rules. The final requirement insisted by Lord Denning in D & C Builders v Rees is that the promisee must have acted equitably in order to rely on the doctrine – in other words it must be inequitable for the promisor to renege on his promise. Therefore, Mrs Rees could not rely on the promissory estoppel as there was no true agreement for the lesser sum and Mrs Rees had taken advantage of the builders financial situation – she had acted in bad faith. 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. The case of Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd indicates that the general effect of promissory estoppel is only suspendory. This means that the creditor may revert to their strict legal rights either upon giving reasonable notice or where the circumstances, which gave rise to the promise, have changed (High trees case). However, if the debtor could not manage to resume to his original position the promise would become final and irrevocable (Ajayi v Briscoe). This would mean that the balance can always be recovered at a later point in time giving the other party a reasonable notice taking in consideration their situation as a result of action atken derived from the promise. In D & C Builders v Rees, which concerned a single lump sum instead of instalments, Lord Denning’s obiter dicta states that “the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays lesser sum and the creditor accepts in satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so.” This view was also supported in Collier v P. & M. J. Wright. In conclusion, although the doctrine of promissory estopel does have its effect in enforcing promises, the various requirements that need to be met before it can be relied upon and therefore somewhat limited then when the promise is supported by consideration. Table of cases: * Ajayi (EA t/a Colony Carrier Co) v R T Briscoe (Nigeria) Ltd [1964] 1 WLR 1326, PC (Nig) * Baird Textiles Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737, CA * Central London Property Trust Ltd v. High Trees House Ltd (1946) [1947] KB 130, [1956] 1 All ER, 256 * Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87, HL * Collier v P. & M. J. Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643 * Combe v Combe [1951] 1 All ER 767, CA * Currie v Misa (1875) LR 10 Ex Chamber * D & C Builders v Rees [1966] 2 QB 671, CA * Durham Fancy Goods v Michael Jackson Fancy Goods Ltd (1969) 2 QB 839 * Earl of Oxford’s case (1615) 1 Ch Rep 1 * Evenden v Guildford City. AFC [1975] QB 917 * Foakes v Beer (1884) LR 9 App Cas 605 HL * Hirachand Punamchand v Temple [1911] 2 KB 330, CA * Hughes v Metropolitan Railway Co (1877) LR 2 App Cas 439, [1874 – 80] All ER Rep 187, HL * Pinnel’s case (1602) 5 Co Rep 117a, Ct of Common Pleas * Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 * Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd * Vanbergen v St Edmunds Properies Ltd [1933] 2 KB 223, CA * W J Alan Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189, CA * Walton Stores (Interstates) Ltd V Maher (1988) 164 CLR 387, HC (Aus) * Wood v Robarts (1818) 1 Stark 417 * Woodhouse A. C. Israel Cocoa Ltd v Nigerian Product Marketing Co. Ltd [1972] AC 741