Doctrine of Promissory Estoppel - Essay Example

Promissory Estoppel and Consideration Consideration and promissory estoppel are key parts of contracts: Consideration is one of the three pillars of contract law in the United Kingdom and most Commonwealth, and promissory estoppel is one of the ways contracts can be meaningfully enforced, by eliminating the ability of contractors to withdraw from the contract. This paper will analyze the doctrines in the specific instance of the following case study. Facts Amelia offered her nephew, Dan, two thousand pounds if he worked hard and got a second class degree, and her sister, Betti, five hundred pounds for errands. She also offered a two hundred fifty pound reduction of a loan she had given to Betti's husband, Giles. Giles pays the seven hundred and fifty pounds. Dan does very little work but does get a first-class degree. Amelia now wishes to know her obligations to Betti underneath this contract. The legal questions are: 1. Does Dan's meeting of the second-class degree standard mean that that part of the contract is fulfilled? 2. Did the term “second-class degree” mean “at least a second-class degree” or “a second-class degree exclusively?” 3. Are the contract elements severable; that is, is Dan's possible fulfillment of the contract separate from Giles' clear fulfillment of his duties? 4. Does it make any difference that Giles, rather than Betti, paid the seven hundred and fifty pounds? 5. Can “work hard” be meaningfully quantified? Contract Interpretation The issues of the contract should be considered separately. They are 1. The offering of money to Dan for working hard and achieving a second-class degree. 2. The offering of money to Amelia for errands in the past. (However, it seems that the errands are moot: Whether Betti actually had done errands for Amelia or not, they are accepted by the contract as a matter of fact). 3. The offering of a two-hundred fifty pound discount on a prior one thousand loan by Amelia to Giles. There are many elements to contracts even before considering the issues of estoppel and promissory consideration: Acceptance, offer, consideration, the contract being oral or written, the severability of various elements, etc. Consideration is a part of this contract, however: Both parties are offering something of value1. The family unit as a whole (Giles, Dan and Betti) are clearly part of this contract, with Amelia being the other party. For this reason, it is moot if Giles or Betti pays the seven hundred fifty pounds, unless the contract specifically states otherwise. (This will in turn be dependent on whether the contract is verbal or written). Acceptance of the contract is an issue. Giles owed a thousand pounds. The only concrete sign on the part of Betti's family unit is the seven hundred fifty pounds Giles paid. Amelia can make a reasonable argument that she was accepting partial payment, and that this was not a sign of acceptance. Similarly, Amelia paying Betti five hundred pounds could be considered as payment for a prior act, not a fulfillment of the contract. The only sign of acceptance of the contract that would not be prompted by other prior considerations between the two families would be Dan working hard and getting a second-class degree, only half of which was ever wholly completed. While Amelia did extend an offer, it is arguable that there was ever an acceptance. The acceptance issue and the consideration issue are inextricable. Consideration “Consideration entails the parties' doing something that they were not previously bound to do outside of the agreement. In other words, promisees must pay the price (consideration) that they agreed to pay the promisor in order to gain the right to enforce the promisor's obligation”2 . Giles was obliged to pay one thousand pounds; paying the seven hundred fifty pounds is not a consideration. Even if Betti had paid it, she is obligated to pay the debts of her husband, as a unified family unit. But Giles did in fact pay, meaning that there had been no consideration prior. Thus, the only issue is that Dan did live up to his side of the contract partially. If the contract were oral, it may not be enforceable at all. Some contracts fall under “statues of frauds”: “Examples of contracts that typically fall under the statues of frauds include agreements related to the sale of real estate, contracts for the sale of goods above $500, and contracts in which one person agrees to perform the obligation of another person”2. If there is a ruling that this contract covers the sale of goods and that is of a sufficient magnitude, or that there has been an obligation provided by another person, or another statute of fraud requirement, then the oral contract could be ruled unenforceable. The severability issue depends on the exact wording of the contract, whether written or oral. In essence, the only events that have happened thus far to obligate Amelia is the achievement by Dan of a second-class degree and the partial payment of an outstanding debt. Amelia at present could be liable for twenty five hundred pounds. But if the contract is severable, the only thing she might be liable for is the two thousand pounds to Dan: Giles paying the seven hundred fifty would only potentially resolve the one thousand pound loan. It is also important to note that Betti's original errands run for Amelia were done without expectation of payment: She hoped for payment, but did not expect it, and it was not offered by Amelia. Thus, the payment of five hundred to Betti would be a consideration, but Amelia has yet to pay it. Thus, the central issue is whether Dan's “hard work” and his success at getting a second-class degree is sufficient to cause Amelia to be obligated to pay at least the two thousand pounds of that part of the contract, as well as the five hundred pounds to Betti. Amelia has two primary arguments. 1. Dan did not achieve a second-class degree, he achieved a first-class degree. This argument is not particularly compelling. First, it seems likely that achieving a first-class degree would be considered achieving a second-class degree plus more. Contracts are not typically obviated by one party going above the call of duty. 2. Dan did not work hard. Since the initial requirement was for Dan to work hard and achieve a second-class degree, this is a possible argument on the part of Amelia. However, it is a difficult one. There are many possibilities for Dan, Betti and Giles to claim that this argument is unreasonable. a) Achieving a first-class degree seems to require some definition of “hard work”. b) “Hard work” cannot be enumerated meaningfully and thus is not enforceable. Dan would then have fulfilled his obligations. c) There is no proof Dan did not work hard. (Amelia might need to find witnesses who indicated that Dan was lackadaisical). d) Since “hard work” is not a financial or tradable asset, the rule of consideration means that the only consideration that can possibly be provided is gaining a second-class-or-higher degree. (However, since even a first-class degree is only arguably a “consideration”, Amelia can in turn argue that that contract is unenforceable: If the remainder of the contract is severable, she is off the hook for two thousand pounds; if it is not, then she is off the hook for the whole two thousand seven hundred fifty). It is possible that the entire contract is null and void, but this does not seem likely. Amelia should expect, under this interpretation thus far enumerated, to pay the two thousand to Dan, as the fulfilled the only enumeratable part of the contract. But Amelia has a reasonable argument that the five hundred pounds are not owed to Betti and that she is still owed two hundred and fifty pounds, which would bring her total obligation to one thousand two hundred fifty pounds. Estoppel The definition of estoppel has many elements. Promissory estoppel is defined by Gilhams Solicitors as “an equitable doctrine that arises in the context of an existing contract: a promise, assurance or representation of some future conduct by a person is relied upon by another, such that a person relies on the promise of conduct to their detriment, and the promisor will not strictly rely on their strict legal rights, or a defence that would otherwise be available. The promise, assurance or representation must be clear and unequivocal. In essence, estoppel is a rule of evidence that prevents a party to legal proceedings denying the truth of a statement made by them. An objective test is applied to determine whether it would have been reasonable to rely on the representation. Mere threats are inadequate. The promise itself does not need to be the sole inducement but it must form some part of the inducement upon which the claimant relied. The requisite reliance will often be made out by expenditure of some form by the claimant. If there is no reliance by the claimant, then there is a good argument that it is not inequitable for the defendant to go back on their word”3. From that has been considered thus far, is estoppel appropriate in this situation? Does it apply? Four standards of estoppel apply here. They are: Pre-existing contracts and/or legal obligation which is subsequently modified or altered; clear, unequivocal promises; a change of position; and an insoluble inequitability in going back on the promise4. The pre-existing contract was only the law. But the promise was not unambiguous, as it had multiple components. Kramer argues that promissory estoppel is an “equitable forbearance or waiver”5. “[B]asic contract law holds that a variation cannot be binding without consideration, and so in order to permanently waive (give up) one’s legal rights, one would have to receive some consideration from the other party, since removal of those rights from the contract amounts to a variation of that contract... The rules of promissory estoppel were developed as equity’s answer to the strictures of the law of consideration in the particular context of waiver”. In Hughes v. Metropolitan Railway, a landlord was forced to fulfill a lease even when negotiations broke down: He had estopped his right to deny the lease. Amelia may be vulnerable to estoppel, despite strictly having the right to back out of any element of the contract. Amelia has a legal right to one thousand pounds. There is an estoppel that is part of the contract. The severability issue is again relevant. Amelia forgave part of the debt: This is the kind of thing that estoppel is intended to deal with, preventing someone from changing their mind and seeking a loan that has been unofficially forgiven. The question is, “Did Amelia make three separate offers, one of which is not contingent on the other two parts being fulfilled, or did Amelia make one unified offer?” If there was one unified offer, then the estoppel of the remaining two hundred fifty pounds Dan would have owed only occurs if the entire contract is fulfilled. If Amelia could prove that Dan did not fulfill his end of the contract (with the aforementioned difficulties in mind), then Amelia would not have to pay the two thousand or the five hundred, and Giles would have to pay the two hundred fifty. But if they are severable, then Giles paying seven hundred fifty triggers estoppel on the remaining two hundred fifty, no matter the determinations on the other two aspects. Conclusion Amelia has some recourse not to pay some or all of the contract thanks to the interpretation of estoppel and consideration. However, her options are limited based on considerations and estoppel. Payment underneath the framework of her contract could trigger both a consideration as part of an offer and acceptance, and an estoppel requirement. Works Cited Adam Kramer, 'The many doctrines of promissory estoppel' (2002), Student Law Review, Volume 37. Encyclopedia of Business, 2nd Edition, “Contracts” (2011). Duhaime's Legal Dictionary, 'Consideration'. Gilhams Solicitor LLP, “Promissory estoppel” (2010). JH Baker, 'Origins of the Doctrine of Consideration 1535-1585' in JH Baker, The Legal Profession and the Common Law: Historical Essays (London 1986). John Wilson Twyford, 'The Doctrine of Consideration (the role of consideration in contract modifications', (2002), University of Technology, Syndey. Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Read More