The Doctrine of Promissory Estoppel - Case Study Example

Although the doctrine of Promissory estoppel was not argued in Williams v Roffey Bros.[1990]2 WLR 1153, it was indicated that it could have been of relevance. In your opinion, is this correct, or would the doctrine have had to have been undesirably extended to be applicable to Williams’ situation? Give reasons for your answer. It is important to note that the issue in Williams v Roffey Brothers & Nicholls (Contractors) Ltd[1990] 2 WLR 1153 raised the legal sufficiency of consideration in contracts. The facts are that the defendants who had contracted to refurbish a block of flats sub-contracted the carpentry work to the plaintiff for a price of £20,000 to be paid in instalments related to the work completed. The plaintiff got into financial difficulties because the price was too low and he did not supervise the work properly. He had received over 80 per cent of the price but still had far more than 20 per cent of the work to do. The defendants were liable to a penalty clause in the main contract if the work was not completed on time. They were aware of the plaintiff’s difficulties and that the price was too low. They met him and agreed to pay him an extra £10,300 at £575 per flat to ensure that he continued with the work and completed on time. The plaintiff completed eight further flats and received a payment of £1,500. He stopped work and sued for the money he alleged to be owing. The defendants denied liability and, in particular, that they were liable to pay any part of the additional £10,300 because their agreement to pay it was not supported by any consideration. The judge held that the plaintiff was entitled to eight payments of £575, less certain deductions. The defendants appealed. “My understanding of the meaning of the requirement that ‘consideration must move from the promisee’ is that such consideration must be provided by the promise, or arise out of his contractual relationship with the promisor. It is consideration provided by somebody else, not a party to the contract, which does not ‘move from the promisee’……but it is, of course, not the situation in the present case. Here the benefits to the defendants arose out of their agreement of April 9, 1986 with the plaintiff, the promise.(Glidewell L.J in Williams v Roffey Bros.[1990]) The judge(Glidewell L.J) further concluded that:” I repeat, therefore, my opinion that the judge was, as a matter of law, entitled to hold that there was valid consideration to support the agreement under which the defendants promised to pay an additional £10,300 at the rate of £575 per flat. For these reasons I would dismiss this appeal” In answering the question as to whether promissory estoppel could have been of raised or whether it could have added relevance to Williams v Roffey Brothers, the answer is no, because of the limitations on the doctrine of promissory estoppel. It may be of paramount importance to find the relationship between consideration and promissory estoppel. Consideration originated simply as an indication of the need for a reason for enforcing a promise or obligation, such as the fact that the promisee had given something to the promisor in expectation that the promise would be fulfilled(Atayah, 1986). The rigid set of rules requires that there must be benefit and detriment, that past consideration is no consideration; that consideration must be of economic value; and that gratuitous promises will not generally be enforced. The doctrine of promissory estoppel on the other hand, derives from Lord Denning’s decision in Central London Property Trust Ltd v High Trees Ltd[1947] KB 130. The doctrine gives rise to situations in which a contract can in effect be varied without there being consideration. The facts are that by a lease under seal made on September 24, 1937, the plaintiffs, Central London property Trusts Ltd, granted to the defendants High Trees House Ltd, a subsidiary of the plaintiff company, a tenancy of a block of flats for the term of 99 years from September 29, 1937, at a ground rent of £2, 500 a year. The block of flats was a new one and had not been fully occupied at the beginning of the war owing to the absence of people from London. With war conditions prevailing, it was apparent to those responsible that the rent reserved under the lease could not be paid out of the profits of the flats and, accordingly discussions took place between the directors of the two companies concerned, which were closely associated, and an arrangement was made between them which was put into writing. On January 3, 1940, the plaintiffs wrote to the defendants saying;” we confirm the arrangement made between us by which the ground rent should reduced as from the commencement of the lease to £1, 250 per annum,” and on April 2, 1940, a confirmatory resolution to the same effect was passed by the plaintiff company. On March 20, 1941, a receiver was appointed by the debenture holders of the plaintiffs and on his death on February 28, 1944, his place was taken by his partner. The defendants paid the reduced rent from 1941 down to the beginning of 1945, by which time all the flats in the block were fully let, and continued to pay it thereafter. In September, 1945, the then receiver of the plaintiff company looked into the matter of the lease and ascertained that the rent actually reserved by it was £2,500. On September 21, 1945, he wrote to the defendants saying that rent must be paid at the full rate and claiming that arrears amounting to £7,916 were due. He subsequently instituted the present friendly proceedings to test the legal position in regard to the rate at which the rent was payable. In the action the plaintiffs sought to recover £625, being the amount represented by the difference between rent at the rate of £2,500 and £1,250 per annum for the quarters ending September 29 and December 25, 1945. By their defence the defendants pleaded (1) that the letter of January 3, 1940, constituted an agreement that the rent reserved should be £1,250 only, and such agreement related to the whole term of the lease, (2) in the alternative, that the plaintiff company were estopped from alleging that the rent exceeded £1,250 per annum, and (3) as a further alternative, that by failing to demand rent in excess of £1,250 before their letter of September 21, 1945(received by the defendants on September 24), they had waived their rights in respect of any rent, in excess of that at the rate of £1, 250, which had accrued up to September 24, 1945. “They are really promises-promises intended to be binding, intended to be acted on, and in fact acted on…….In each case the court held the promise to be binding on the party making it, even though under the old common law it might be difficult to find any consideration for it. The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel”(Lord Denning in Central London property Trust Ltd v High Trees House Ltd, 1947). Stone, R.(2005), argues that:” If Denning’s statement is taken at face value, however, then it would mean that if A promises B £10,000, intending it to be a binding promise, and in reliance on this B decides to go out and buy a car, A would be bound to the promise. The classical doctrine of consideration would hold that B has not provided any consideration, and that A is not therefore bound to pay the £10,000.” In promises to supply goods or services, there is likely possibility that a renewed promise to the existing obligation leads to sufficient consideration. “The current position is, therefore, that in relation to a promise to supply goods or services, a renewed promise to perform an existing obligation can be good consideration if the other party will receive a ‘practical benefit’, but that in relation to debts, a promise to make payment will only be consideration if accompanied by some additional benefit, such as payment early or, or perhaps, in a different place.(Stone, R, 2005,p.93) It can be argued that an un enforced promises may not be applied within the reams of promissory estoppel. “Moreover, the unenforceability of gratuitous promises is not applied where promissory estoppel operates”(Stone, R, 2005,p.107). It should be noted that promissory estoppel is derived from the concept of equitable waiver. As an equitable doctrine, its use is not in the discretion of the courts, and even, if the other elements for the applicability of it exist, it may still not be applied because it would be inequitable in the circumstances to do so. In D and C Builders v Rees[1966] 2 QB 617, the plaintiff builders had done work for the defendants and were owed nearly £500. After pressing for payment for some time, the plaintiff agreed to take £300 in satisfaction of the account. Mrs Rees, who knew that the plaintiffs were in financial difficulties, had told them that, that was all they were likely to get. Despite their promise to accept the £300 (a promise for which there was no conditional, the builders then sought to recover the balance of the debt. Lord Denning, in the court of Appeal, held that although there was clearly a promise here of a type which might raise promissory estoppel, the element of intimidation in the defendant’s behaviour, knowingly taking advantage of the plaintiffs’ circumstances meant that it was not inequitable to allow the plaintiffs to go back on their promise. The other members of the court of Appeal did not think it was even necessary to discuss the doctrine. The other ailment to the doctrine of promissory estoppel is its limitation to suspensory effect. The limitation on promissory estoppel is the one about which there is most uncertainty. There is no doubt that in some circumstances a promissory estoppel will have a purely suspensory effect. In Hughes v Metropolitan Railway[1877]2 App Cas. 439, for example, the notice of obligation to repair was simply put in abeyance while the negotiations over a possible sale continued. It is also clear that in relation to some sorts of contract, the effect can be to both extinguish some rights and suspend others. This is what happened in High Trees itself. The right to receive the full rent during the war years was extinguished by the estoppel, but because the promise was interpreted as having only been intended to be applicable during the war, once that was over, the original terms of the lease automatically revived. To that extent, the effect was simply suspensory. Even if the promise is expressed to last indefinitely, it is likely that it will be able to be withdrawn by giving appropriate notice. In Tool Metal Manufacturing Co. v Tungsten Electric Co.[1955]2 All ER 657, there was a promise to accept a reduced royalty in relation to the operation of some patents. It was held that the promisor could withdraw the promise by giving reasonable notice, from which point the original terms of the agreement would come back into operation. The House of Lords in fact held that the initiation of a previous, unsuccessful action to escape from the promise constituted notice of withdrawal. “…..putting forward the suspensory nature of promissory estoppel as a basis for distinguishing it from the doctrine of consideration(and thus adding, weight to the view that it does not undermine consideration) does not look very convincing.”(Stone, R, 2005, p.103) The third limitation on the doctrine derives from Combe v Combe[1951] 2 KB 215, in which the parties, a husband and wife, were married in 1915, but separated in 1939. On February1, 1943, on the wife’s petition, a decree of divorce was pronounced. On February 9, 1943, the wife’s solicitor wrote to the husband’s solicitor. “With regard to permanent maintenance, we understand that your client is prepared to make her an allowance of £100 per year, free of income tax.” On February 19, 1943, the husbands solicitor replied that the husband had “agreed to allow your client £100 per annum, free of tax.” On August 11, 1943, the decree was made absolute. The wife’s solicitor wrote for the first instalment of £25 on August 26, and asking that future instalments should be paid on November 11, February 11, May 11, and August 11. On the other hand the husband himself replied that he could not be expected to pay in advance. In fact, he never made any payment. The wife pressed for payment but made no application to the divorce court for maintenance. She had an income of between £700 and £80 a year. Her husband had only £650 a year. On July 28, 1950, the wife brought an action in the King’s Bench division claiming from her husband £675, being arrears of payments at the rate of £100 per year for six and three-quarter years. The court of Appeal, including Lord Denning, thought that the attempt by the wife to use promissory estoppel to enforce her husband’s promise was an inappropriate use of the doctrine. Promissory estoppel could not form the basis of a cause of action, and would generally only be available as a defence. In conclusion, it would be submitted that the argument regarding promissory estoppel should not have been raised due to its limitations in the modern law of contract. The approach taken by the court was the correct one and the doctrine of promissory estoppel could have been misapplied if it was brought in. Bibliography Cheshire & Fifoot(2006),’Law of Contract’ 5th ed, OUP, Oxford Chitty on Contracts(2009),v.1,v.2. Combe v Combe[1951] Anthony, M(2006),’Contracts in a nutshell, Kindle ed. WEST PUBLISHING. D and C Builders v Rees[1966]2 QB 617. Hamson, C.J(1938),’The Reofrom of Consideration’, Pollock, 4. Hughes v Metropolitan Railway[1877]2 App Cas. 439. Smith & Smith(2009),’A Casebook on Contract’ 12th ed, Sweet & Maxwell. Stone, R(2005),’The Modern Law of Contract’, 6th ed, Cavendish publishing, London. Tool Metal Manufacturing co. v Tungsten Electric co.[1955]2 All ER 657. Read More