The Books Ltd and Print UK Ltd - Promissory Estoppel - Article Example

Promissory Estoppel The Books Ltd, entered into a contractual agreement with Print UK Ltd for printing and binding a book. The agreed upon amount was'29, 000, on completion of the work. Subsequently, Print UK suffered a significant diminution in its workforce. The Print UK offered its remaining workers, '500 as a bonus, if they would work extra hours till the completion of the Books Ltd, contract. After the completion of the work, Print UK refused to pay the bonus amount to its workers. Relying on the promise of Print UK Ltd, the latter's workers had worked extra hours, in order to complete the task. They completed this task, within the deadline, notwithstanding the fact that there had been a significant reduction in their strength. Moreover, in the absence of the extra efforts put in by the workers, the Print UK Ltd would not have been in a position to release the book on the agreed upon date. Failure to have released the book would have proved detrimental to the profits of the Print UK Ltd. This undesirable circumstance had been thwarted, solely on account of the extra work put in by its workers. In order to advise the workers whether they can assert their right to obtain the bonus amount from Print UK Ltd, the doctrine of promissory estoppel in contracts has to be examined. Promissory estoppel is an important remedy, provided by the law, to an injured party in a contract. It enables the plaintiff to sue the promisor, if the former acts on the promise of the promisor, who subsequently, fails to fulfil the promised benefit to the former1. Promissory estoppel, also known as detrimental reliance, is that which the promisor can be reasonably expected to initiate some action or forbearance by either the promisee or a third party. If injustice can be prevented only by the performance of a promise, then such promise will be binding. Under this precept, a promisor who influences a promisee to significantly change his stance is disallowed from refusing the binding nature of the promise, for the reason that there had been no consideration from the promisee2. In the realm of equity, the notion of promissory estoppel binds the parties to the agreements; despite the lack of consideration. The plaintiffs in breach of promise cases can invoke this concept. However, legal luminaries have contended that it can be used as a shield and not as a sword. Therefore, an aggrieved party cannot use this concept to enforce a promise3. In Williams v Roffey, the Court of Appeal held that if a party to a contract promises an additional amount to the other party to ensure the performance of the contractual obligations by that other party; then such a promise is binding, provided, the promisor receives some new practical benefit or circumvents some disadvantage4. In this case, the defendant Roffey offered the bonus amount to the plaintiff, Williams. As a result, Roffey received three benefits, from that offer to pay an additional amount. First, Roffey could ensure that Williams would not stop the work. Secondly, he could avoid payment of damages under the main contract's damages clause, which stated that he should not delay performance; and lastly, Roffey could circumvent the incurring of additional expenditure by engaging a sub-contractor5. Thus these tangible benefits that are consequent to the completion of the existing obligation represent the consideration. The Court held that the plaintiff, Williams was entitled to receive the additional payment, as promised by the defendant, Roffey6. In accordance with the decision in Williams v Roffey, the Print UK Ltd, had derived a practical benefit, on account of the completion of the work, within the deadline, by its workers. As such, circumvention of this loss is the practical benefit that had been obtained by the Print UK Ltd. This practical benefit constitutes the consideration for the existing obligations in the contract. The workers had put in quite a bit of extra effort, consequent to the promise made by the Print UK Ltd. In this connection, some important judgements, relating to the doctrine of Promissory Estoppel have been examined in the sequel. Certain promises have legal effect and are enforceable even in the absence of consideration. This principle was demonstrated in the ruling in Central London Property Ltd v. High Trees House Ltd7. Under this principle, persons making promises to modify or waive their rights in an existing contract cannot annul their promise; if the other party had acted by relying upon this promise. In the case of Central London Property Ltd, the plaintiff had promised to reduce the rent for a block of flats, by fifty percent, on account of the Second World War8. In CTN Cash and Carry Ltd v Gallaher Ltd, the Court held that the practical benefit received by the promisor was the consideration for the additional payment9. There are several conditions to be satisfied for promissory estoppel to be applicable. First, there should be a promise, which can be recognized immediately, as such. Such a promise can be either an oral promise or discernible from the conduct of the promisor. Second, it has to be established that the promise emanating from the promisor had wrought change in the actions of the promisee. Third, it should prove to be inequitable, if the promisor's promise was rescinded or if the there had been a failure to keep to the promise10. It had been recommended that affording protection to reliance, rather than expectation, was a superior means of dealing with the duty of rule, with regard to contractual renegotiations. This constitutes the rationale behind accepting promissory estoppel as a circumvention of the ruling in Foakes v Beer. This prevailing of a reliance measure was clarified with the decision in Williams v. Roffey. The damages awarded, solely related to the actual work done, subsequent to the renegotiation; and not for the renegotiated contractual expectation11. In Hughes v Metropolitan Railway Co, the Court established the concept of promissory estoppel12. However, the courts did not recognize this notion in subsequent cases. It once again came to the foreground, in the case of Central London Property Trust Ltd v High Trees House Ltd. Lord Denning revived this principle of promissory estoppel, on recognising its crucial nature. The plaintiffs in that case had leased out apartments to the defendants at an annual rent of ' 2,50013. During the Second World War, the City of London was subjected to heavy bombardment. During that war, the defendants could not find tenants for their flats. There was no demand for these flats, on account of the war; and the rate of occupancy had come down drastically. At that juncture, the plaintiffs reduced the rent to ' 1, 250. However, there was no consideration for the promise to accept rent that was a reduction of the originally contracted rent14. After the World War, normalcy was restored in the England, and demand for flats increased to the extent that all the flats were occupied. The plaintiffs claimed that the original rent, which had been agreed upon before the war, had to be restored for all the flats, for the remaining period of the contract. Justice Denning held that the defendants had to pay the full rent as originally agreed upon from the time of the end of the war. Inter alia, this ruling prevented the defendants from claiming full rent from the beginning of the war15. Under the concept of promissory estoppel, the defendant could not claim the full rent, which he had reduced. Parties to an agreement must depict an intention to create a relationship that will be legally binding. In Foakes v Beer, the court disallowed the defendant's action to obtain arrears due from previous years16. Promissory estoppel is a legal concept, which can be used only for defence. It cannot be invoked in a cause of action. This principle was established for the first time in Central London Property Trust Ltd v High Trees Ltd17. Subsequently, the case of Coombe v Coombe served to fortify this all important concept18. A departure from this general thinking was visible with the decision in Re Wyvern Developments Ltd, wherein it was held that under certain circumstances, the notion of promissory estoppel could be used as a cause of action or sword. In this case, there were two parties to whom a third party made a promise19. On the basis of this promise the first two parties altered their mutual position. Afterwards, the third party failed to fulfil the promise made to the first two parties. Thereupon, the first two parties approached the court, in order to obtain compensation for the loss caused to them by the third party20. The court directed the third party fulfil its contractual obligation. This judgment had relied on the concept of promissory estoppel. The third party took recourse to the decision in the High Trees case, and contended that promises that were devoid of consideration could not be enforced. The court examined the application of the doctrine to this case and the presiding judge, Templeman J; declined to countenance the argument put forth by the third party, and pronounced a decision in favour of the first two parties21. In Greasley and others v Cooke, the court allowed the defendant to rely on the doctrine of promissory estoppel. It had also allowed a counter claim made by the defendant to obtain an irrevocable license. This license enabled the defendant to occupy the disputed property. The promise made by the plaintiffs had acted as a barrier for claiming the property in dispute. Their promise had formed the basis for allowing the counterclaim by the defendant22. The Lord Justice Glidwell, opined that the decision in Williams v Roffey had limited the scope of the principle established in Stilk23. The decision in Williams v Roffey did not attach much importance to the principle of consideration, in respect of a promise for additional payment24. It also overlooked the necessity of practical benefit to the person making the new promise. In contrast to this, the principle established in Stilk examined the modification of a promise, from the perspective of commercial interest. In this case, the captain of a ship had altered the initial agreement with his sailors, and this had bestowed upon him practical benefit25. Consequent to this change in the promise, he was able to bring the ship back to port in a safe and sound manner. Subsequently, the captain refused to pay the extra amount to the sailors. The court on being approached held that the captain's promise was gratuitous; hence there was no necessity to honour it. The principle established in Williams v Roffey contrasts with the principle established in Stilk26. Thus, the decision in Williams v Roffey removed the basic requirement of consideration in contracts, if there had been any alterations made to the contract. The commercial interests of the parties were given greater importance. Thus, the decision in Williams v Roffey dealt with contractual alterations and the obligations inherent in these changes27. The avoidance of contractual obligations was addressed by Foakes v Beer. As such, the very same principles applied to the formation of contracts govern their discharge28. If the promisor withdraws the new promise made by him, then the contractual terms become what they had been initially29. The Print UK Ltd could complete its work, due to the extra efforts put in by its workers, who had relied on its promise to pay a bonus to them. If the workers had not put in extra effort, the Print UK Ltd would have sustained loss due to its failure to release the book on time. The practical benefit accruing to the Print UK Ltd is in circumventing this loss. If the Print UK Ltd fails to provide a bonus, as had been agreed upon, to its workers; then the workers can invoke the principle of promissory estoppel to obtain the bonus amount. As such, detrimental reliance constitutes a very important aspect of the doctrine of promissory estoppel. The workers had put in extra effort, which was detrimental to them, in the absence of compensation. Consequently, the Print UK Ltd has to make payment of the bonus amount promised to them by it. Failure to do so would render the Print UK Ltd liable for damages. List of References Central London Property Trust Ltd v. High Trees House Ltd (1947) KB 130. Consideration. (2006). In Collins Dictionary of Law. London: Collins. Retrieved February 20, 2009 from http://www.credoreference.com/entry/5979319/ CTN Cash and Carry Ltd v. Gallaher Ltd (1994) 4 All ER 714. Coombe v Coombe (1951) 2 KB 215. Feldman, Steven W.(December, 2004). Promissory Estoppel. Tennessee Bar Journal, 40(12), 24 - 26. Foakes v Beer (1884) 9 App Cas 605. Greasley and others v Cooke (1980) 1 WLR 1306. Hughes v Metropolitan Railway Co (1877) 2 AC 439. Judge, S. (1999). Business Law (2nd ed.). New York, NY USA: Palgrave Publishers. Kelly, D. & Hayward, R. (2005). Business Law. Routledge Cavendish. Poole, J. (2005). Oxford Higher Education: Guidance on Reading Cases. Retrieved 22 February 2009 from http://www.oup.com/uk/orc/bin/0199275505/resources/cases/guidance_2.pdf Re Wyvern Development Ltd (1974) 1 WLR 1097. Stilk v. Myrick (1809) 170 ER 1168. The Extinctive Effect of Promissory Estoppel. (1 June 2008). Common Law World Review, 37(2), 105. Williams v Roffey Bros. and Nicholls (Contractors) Ltd (1991) 1 QB 1. Read More