Promissory Estoppel in the Contract of Law - Case Study Example

I. Promissory Estoppel in the Law of Contract Promissory estoppel in the contract of law is part of the rules of evidence which is similar to a waiver. Derived in the case of Central London Property Trust Ltd v High Trees House Ltd1, the doctrine of promissory estoppel covers promises made between parties with the intention of creating legal relations. This doctrine is based on the grounds of estoppel and equity but it generally differs from common law rules on estoppel in the sense that this doctrine applies to promises made rather than the representation of facts. Also, this rule is applied generally operates in a suspensory manner whereby the parties involve inhibits or does not act on a right that he or she has waived. Promissory estoppel is important in the sense that it can be used as a defense by a party to prevent another from turning back from the concession he or she has given and enforce his or her rights against the recipient of the concession. a. Unequivocal Representation In order for promissory estoppel to arise, there must be a clear and unequivocal representation made by the parties that a right will not be enforced against the other. According to the court in the case of Woodhouse Israel Cocoa v Nigerian Produce Marketing Company2, there is a need for the party or the parties making the concession to inform the other party or parties regarding the concession made. The parties must clearly state the rights being waived or the favors which are extended to the other parties to create a clear representation. In other words, the concession made must be clearly communicated and understood by both parties otherwise said concession may not be considered as validly made. As decided by the court in the case of Baird Textiles holdings ltd V Marks & spencer plc3, where the concession made is ambivalent and insufficient to establish a clear representation, the party or parties to whom the concession was made may not use the doctrine of promissory estoppel as a defense. Is there a need to make an express concession to in order for the parties to make use of the doctrine of promissory estoppel? Apparently, the court does not require an express concession from the parties but rather it only requires that the concession must be unequivocal and sufficiently clear to be understood by the parties. According to the decision of the court in the case of Hughes V Metropolitan Railway Co.4, an implied representation can be a ground for promissory estoppel. Thus, if the acts of one party impliedly tell the other party that it is granting a favor to the other and the party who had been impliedly granted the concession relied on the same in making decisions, then the other party may be bound by the implied concession it granted to the other party. To sum it up, a party to a contract can use promissory estoppel as a defense if there is a clear manifestation be it implied or express that a concession is granted to him or her. b. Pre-exiting contractual Relations The application of the doctrine of promissory estoppel is restricted to certain circumstances and not all people or entities can make use of this doctrine to protect their rights. In fact, the application of this principle is somewhat narrow in the sense that it limits its scope on people or entities that have pre-existing contractual relationships. Technically, the promissory estoppel established in the case of High Trees arises when there is an existing contract between the parties and one of the parties thereto waived his or her right to enforce a certain provision of the contract. As established by the Court in the case of High Trees, where there is no existing contractual relationship between the parties, the doctrine of promissory estoppel may not apply. To illustrate the situation, let us take the case of X and Y, whereby X granted a concession or issued a promise to Y and such concession or promise is not supported by any considerations. If there is no existing contractual relationship between X and Y, then X cannot cite the doctrine of promissory estoppel as a defense in the event where disputes arises involving the concessions made by X in favor of Y. Is the application of promissory estoppel limited to the subject of the pre-existing contract between the parties? No, it is not necessary that the concessions made by the parties are directly related to the subject of the contract that they entered into. What the court said in the case of High Trees is that there must be pre-existing contractual relationship between the parties. It did not specifically say that the concessions made must be confined to the pre-existing contractual relationship of the parties. Also, the party to whom the concession was impliedly or expressly granted relied on the concession given making it inequitable for the party who gave the concession to withdraw the favor given. c. A Defense But Not a Cause of Action Aside from being limited to parties who have pre-existing contractual relationships, the doctrine of promissory estoppel can only be used as a defense and not as a cause of action. As enunciated by the court in the case of Amalgamated Investment Co v Texas Bank5, this doctrine may be treated as a waiver of a right but it cannot be used to bring action against a party to enforce a promise. In other words, promissory estoppel can be used to prevent the party who gave the concession from turning back on their promise and insist on enforcing their rights but it cannot be used as a legal ground to sue the party who made the promise to compel the party to honor his or his promise. According to the court in the case of Combe V Combe6, the doctrine of promissory estoppel is meant to be a shield and cannot be used as a sword. For instance, if A promises B that he or she will give money to B on a monthly basis as allowance and such promise was made without any consideration involved, if A does not honor his or her promise, B cannot go to court to compel A to honor his or her promise. As stated by the court in the case of Combe V Combe7, the doctrine of promissory estoppel cannot create an obligation where no obligation actually existed. Similarly, this doctrine cannot be used to make an existing obligation more onerous that it used to be. II. Case Analysis A contract creates an obligation between the parties to perform or to deliver something in exchange for a consideration. In order for a contract to be valid, there must be a mutual assent, where an offer is made and such offer is accepted with the clear intention of creating a contract, consideration for the contract, legality of the entities involved and there are no factors that vitiate the contract. The offer does not necessarily be made to a specific person or entity to be valid. In fact, a valid offer may be made to the whole world and it will still be considered under the law and once the offer is accepted, there is said to be a meeting of the minds between the parties and a contract is created. However, before the contract can be perfected under the law, a consideration must be given and such consideration must be sufficient. Since the law does not specifically define what sufficient consideration means, it is up to the parties to determine the value of the consideration provided that such consideration must not be too low or too onerous or unreasonable. In our hypothetical case of West Coast Engineering Ltd, there are at least three contractors involved but only one can be considered as legally bound to West Coast Engineering ltd. Based on the facts of the case, West Coast Engineering Ltd made an offer to the public for engineering works and four contractors responded to the offer with counter offers. However, only one of the contractors was accepted by West Coast Engineering Ltd and that is Master Builder. Since only Master Builder’s counter offer was accepted by West Coast Engineering Ltd, then the contract is only between these two entities. The failure of Master Builder to deliver or satisfy the provisions of the contract therefore gave rise to an actionable issue between Master Builder and West Coast Engineering Ltd. To give a clearer view of the legal resource available to West Coast Engineering Ltd to the contractors mentioned in this case, let us discuss the nature of the relationships between West Coast Engineering Ltd and these contractors. a. Master Builder Based on the facts of the case, we can say that there was a perfected contract between West Coast Engineering Ltd and Aster Builders. In the first contract which the parties entered into, Master Builder must complete the construction of the new factory within 12 months while in the second contract, Master Builder undertakes to make structural repairs on the old factory of West Coast Engineering Ltd. In the first contract, a consideration was given but in the second contract which is for the repair of the old building, there was no consideration given. Note that Master Builder offered to West Coast Engineering Ltd that it was willing to do the repairs as part of the original contract to construct the new building thus; it did not take additional consideration for the repairs. The failure on the part of Master Builder to finish the construction both for the new and the old factories give rise to a breach of contract. As it is, West Engineering Ltd can either compel Master Builder to honor the contract or rescind the contract and look for another contractor to finish the job. According to the court in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd8, the aggrieved parties in the contract may choose to go to court and demand for specific performance or it may choose to rescind the contract and ask for damages. However, according to the court in the said case, specific performance may not be granted to the petitioners if such relief would bring about severe hardships on the part of the defendant. In the case at bar, Master Builder had run into serious financial problems and given this circumstances it is unable to finish the construction of the new factory and the repairs of the old factory. Since it is no longer feasible for Master Builder to complete the construction of the buildings, the best remedy available to West Coast Engineering is to rescind the contract and seek for compensation for damages suffered by it in relation to the breach. Can West Coast Engineering sue Master Builder for damages on the two contracts? Following the decision of the court in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd9, West Coast Engineering may only recover damages with regards to the breach of contract involving the construction of the new building. In the case of the repairs of the old factory building, no compensation was given to Master Builders. Note that consideration is an essential element of a contract and as defined by the court in the case of Thomas v Thomas10, consideration means value in the eyes of the law that has the potential to benefit the defendant. In our case, there was no compensation given to Master Builder for the repairs of the old building even though Master Builders said that it is willing to do the repairs as part of the contract to construct the new factory building; such statement does not make it liable for damages for non-performance of the promise to do the repairs. You see, without compensation, there was no contractual obligation formed and the best that West Coast Engineering Ltd can claim against the Master Builder is promissory estoppel. Note that in the case of Central London Property Trust Ltd v High Trees House Ltd11, where the party made a promise to another to perform something and such promise was not accompanied by any compensation, there was actually no contract but a mere promise to do perform or deliver something. Since promissory estoppel is meant to be a defense and not a cause of action, West Coast Engineering has no grounds to sue Master Builder for failure to repair the old factory building. Note that what is involved here is a positive performance and as stated by the court in the case of Combe v Combe12, since there was no binding agreement between the parties to warrant the enforcement of an action, then, West Coast Engineering cannot compel Master Building to honor its promise to do the repairs. b. Quality Building Service Ltd Although Quality Building Service Ltd submitted a counter offer to West Coast Engineering, its counter offer was not accepted by West Coast thus there was no contractual relationship between these two entities. As it is, West Coast Engineering does not have any cause of action against Quality Building Service Ltd. Note that an offer does not bind the parties unless such offer has been accepted by the person or entity to which it is offered. c. Evans Building Co. Ltd Like Quality Building Service Ltd, Evans Building Co. Ltd does not have any contractual relationship with West Coast Engineering as its counter offer was not accepted by the latter. As it is, West Coast Engineering does not have any cause of action against Evans Building Co. Ltd. References: Books 1. Ewan McKendrick (2005), Contract Law - Text, Cases and Materials, Oxford University Press Laws and Cases 1. Amalgamated Investment Co v Texas Bank [1982] 1 QB 122 2. Baird Textiles holdings ltd V Marks & spencer plc (2001) EWCA Civ 274, (2002) 1 All ER (comm) 737 3. Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 4. Combe V Combe (1951) 2 KB 215 5. Hughes V Metropolitan Railway Co. (1877) 2 App Cas 439 6. Thomas v Thomas (1842) 2 QB 850 7. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5 8. Woodhouse Israel Cocoa v Nigerian Produce Marketing Company [1972] AC 741 Read More