Equitable Promissory Estoppel - Case Study Example

Equitable Promissory Estoppel Introduction The doctrine of estoppel prohibits an individual from rejecting or disavowing that which has been accepted as verity. This could be via his actions, deeds, representations, or by the acts of legislative or judicial officers. Although, estoppel is frequently defined as a rule of evidence, it is better regarded as a substantive law tenet. The following conditions are essential for invoking the doctrine of estoppel. 1 First, there has to be a clear representation by one individual to another. Second, the other individual should have acted on the basis of the representation made to him by the first individual. Third, it should have been inequitable for the promisor to resile from his promise.2 Thus, in Gyarsi Bai v Dhansukh Lal,3 the Apex Court ruled that even when the first two conditions were satisfied, in the absence of fulfilment of the third condition, the doctrine of estoppel could not be invoked. A general principle of equity declares that the litigants should have been equitable in their conduct related to their transaction, in order to seek the assistance of the court. When the conduct of a claimant is unworthy, then relief cannot be obtained from the court. This principle is mirrored in equitable estoppel. The fundamental objective of equitable estoppel is to prevent a person who has intentionally misled another person, by word or deed, to believe that a right does not exist or would not be asserted, from claiming such right.4 As such, equitable estoppel entails the striking of a balance between the parties and the arrival at a relative assessment of the liability and responsibility of the parties involved. As a consequence, equitable estoppel does not grant relief when the party asserting the rights has intentionally engaged in the misleading conduct. In addition, that party should have known that its behaviour was misleading and would have the likelihood of inducing the other party to act to its detriment. Furthermore, the other party should have relied upon the misrepresentation in a manner that proved to be detrimental to its interests.5 Initially, the principle of equitable estoppel had been restricted to transactions between landlords and tenants. With the House of Lords review of this principle in Tool Metal Manufacturing Co Limited v Tungsten Electric Co Limited,6 it was extended to commercial transactions.7 The appeal to the House of Lords, in Woodhouse Israel AC Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd,8 was with respect to a contract for the procurement of cocoa from Nigeria. This contract contained a clause that required payments to be made in the Nigerian currency. The appellant requested the respondent to accept payment in pound sterling, as he apprehended a devaluation of the pound sterling. The respondent communicated his consent to the change in currency.9 Subsequently, the pound sterling was devalued against the Nigerian currency. It was contended by the appellants that the acquiescence of the respondent had proved to be to their detriment. They also contended that in the absence of such agreement, on the part of the respondent, they would have insured against the devaluation of the pound sterling. 10 In his ruling, Hailsham LC stated that the appellants could not claim estoppel. Nevertheless, in Brikom Investments v Carr,11 a landlord provided his tenants with certain concessions, without consideration. Denning MR, ruled in favour of the tenants by the application of the doctrine of promissory estoppel. 12 In general, a promise that is unsupported by consideration, is not enforceable in English law. With the ruling in Hughes v Metropolitan Railway Co,13 the doctrine of promissory estoppel came to the fore. Hughes had leased his property to the railway company. Their lease agreement provided that the tenant could be compelled by the landlord to repair the building, within six months of being served a notice in that regard.14 Hughes, served the notice to the railway company on 22 October 1874. 15 Subsequently, on 28 November 1874, the railway company sent an offer letter to Hughes, for purchasing that property. The sale negotiations continued without any agreement being reached between these parties. By that time, the six months period for conducting the repairs, had lapsed. Subsequently, Hughes sued the railway company for contractual breach, and in addition, he attempted to have the railway company evicted from the premises.16 In this case, the Law Lords ruled that the commencement of the negotiations denoted an implied promise by the landlord to refrain from enforcing his strict legal rights. This was with respect to the time limit on the repairs. Moreover, the railway company had acted upon this promise to their detriment.17 Consequently, the owner was deemed to be estopped from claiming to the contrary. As such, promissory estoppel had the effect of preventing the promisor from going back on the promise and insisting on the enforcement of their precise legal rights under the contract. This equitable doctrine differs from the Williams v Roffey rule. The emphasis in the equitable doctrine is not upon determining consideration for the change in the contract, and it is upon reliance of the promisee on the promise made by the promisor. 18 Moreover, the doctrine of promissory estoppel is principally related to situations, wherein there is a temporary suspension of the original contract. Upon the provision of a reasonable notice, the promisor can insist upon the recommencement of the strict rights provided by the original contract to him. When the original positions cannot be restored, then the variation can assume a final and binding status. The promisor has the option of enforcing the original rights, under circumstances in which only the rights had been kept at abeyance.19 However, the promisor cannot recover any balance amounts owed to him, while his leniency became effective. In general, it is presumed that the promisee can merely employ the promise as a defence to an action by the promisor. The promisee, per se, cannot sue the promisor for compelling him to waive his full rights, as consideration had not been provided by the promisee to the promisor. Thus, the doctrine of promissory estoppel functions as a shield for the promisee and not as a sword. Therefore, this doctrine fails to generate new rights that override the doctrine of consideration. All the same, it can furnish temporary relief from a contract that cannot be performed, under certain circumstances.20 For example, in Combe v Combe, the erstwhile husband, after divorce, consented to pay the erstwhile wife £100 per annum. However, this individual failed to make even a single payment to her. After several years had lapsed, she sued him for £675. The trial court awarded her £600, stating that she was not eligible for amounts that were beyond six years. 21 On appeal, the Court of Appeal ruled that she was not eligible for any amount, as she had not provided any consideration for the amount. In addition, the Court held that the principle of the High Trees case was inapplicable, as it did not create a cause of action.22 Due to its nature being that of an equitable doctrine, the doctrine of promissory estoppel is characterised by certain requirements for its application. For instance, it should be unjust for the promisor to break the promise made to the promisee. Consequently, this doctrine is applied at the discretion of the court. For instance, in D&C Builders v Rees, a small firm of builders, namely D&C Builders, performed a certain work for Rees.23 Realising their financially difficult position, Rees asked them to accept a lesser amount. She made it very clear if they did not accept the lesser amount, then they would not be paid anything by her. 24 The upshot of this negotiation was that the D&C Builders consented to accept £300, instead of the £482 owed to them. Subsequently, they claimed the remainder of the original amount owed to them by Rees. The court determined that Rees had taken undue advantage of their financial straits and had ruthlessly exploited them. In addition, there had been no consideration from Rees with regard to the acceptance of the lesser amount. Moreover, the conduct of Rees was deemed to be extremely inequitable by the court. While arriving at this conclusion, the court made a thorough examination of the transaction that had taken place between these parties. Thereafter, the court held that the D&C Builders could recover the remaining portion of the amount owed to them by Rees. 25 In the aftermath of this decision, Denning LJ, made several attempts to enlarge the ambit of this doctrine. However, this was opposed by the House of Lords, who cautioned the courts regarding the necessity for coherent exposition. Furthermore, the doctrine of estoppel was rejuvenated in the Central London Property Trust Ltd v High Trees House Ltd by Denning LJ.26 In the year 1937, High Trees House Ltd had leased some flats from the Central London Property Trust Ltd. With the commencement of World War II, these flats experienced a dramatic reduction in occupancy rate. In order to arrive at an equitable solution to this unanticipated development, the parties arrived at an agreement to reduce the rent from £2,500 to £1,250. There was no specification regarding the period for which the reduced rent was to be collected. This was due to the uncertainty regarding the duration of the war. 27 For the succeeding five years, High Trees enjoyed the facility of paying half the rent. Thereafter, the rate of occupancy commenced to increase dramatically, and by the year 1945, the occupancy of these flats was at a maximum. In view of this development, Central London claimed full rent from June 1945. Denning J, relied on previous rulings and held that the full rent had to be paid from the time that the flats had been fully occupied.28 In addition, whilst providing his invaluable judgment, Denning J, made an obiter statement that Central London could not have claimed full rent from 1940. This was due to the fact that when a party to a contract causes the other party to the contract to believe that it will abstain from enforcing its strict legal rights, then the courts will prevent that party from enforcing its strict legal rights at a later stage. 29 This obiter statement constitutes the genesis of the doctrine of promissory estoppel. In general, it is indispensable to provide new consideration, when a contract is varied. In the absence of new consideration, such contracts will become unenforceable. In the Pinnel’s case, it was established that the payment of an amount that was less than the amount due, failed to satisfy the law.30 The rule that emerged from this decision was fortified by the Law Lords in Foakes v Beer.31 The brief facts of this case were that Beer was owed £2,000 by Foakes. Beer obtained a judgement from the court, whereby Foakes was required to pay that amount to her.32 Foakes beseeched Beer to grant him some time to arrange the amount. These parties finally agreed that Foakes would immediately pay her an amount of £500 and the remaining amount in instalments.33 When the entire amount had been paid to her, Beer demanded an additional amount from Foakes as interest on the amount owed to her. At court the claim of Beer was upheld. With regard to her promise to forego interest, the court held that her promise was not effective, as there had been no consideration provided for the same by Foakes to her.34 Furthermore, in Williams v Roffey, 35 the court was favourable towards the contention that a promise to perform an existing obligation could constitute good consideration, as long as the promisee would derive some practical benefit.36 With the decision in Williams v Roffey, and the development of the doctrine of promissory estoppel, there has been an increase in the number of altered agreements that are being enforced in a fair manner. However, due to the ruling in Re Selectmove Ltd, the decision in Williams v Roffey cannot be applied to instances wherein the pre-existing obligation is one that involves payment and not that of supply of goods or services, and moreover, the change proposed is for a reduction in the payment. 37 Moreover, in Re Selectmove Ltd, the court held that a promise to carry out an existing obligation could be deemed to be good consideration. However, the promisee had to derive practical benefits from the performance of the obligation.38 In this case, the Selectmove Ltd had to pay considerable amounts as past tax and national insurance dues to the Inland Revenue.39 In order to circumvent liquidation, this company offered to repay the amounts owed by it, in instalments to the Inland Revenue. The latter consented to this arrangement. Subsequently, the Inland Revenue approached the court, stating that it had been paid a lesser amount. The Court of Appeal ruled that in the absence of consideration, that arrangement was unenforceable. 40 Consequently, in common law, the part payment of a debt was held to be no consideration, in the absence of change in performance. Furthermore, in Alan & Co Ltd v El Nasr Co, 41 Denning LJ stated that the promise need not have resulted in detrimental reliance. It was sufficient if the promisee had been induced to act in a different manner.42 Nevertheless, contracts made by deed, which had also been termed as contract under seal, provide an exception to the requirement of consideration. A gratuitous promise, incorporated in a deed, is deemed to be contractually binding. Another perspective declares that contracts made by deed are agreements that are binding outside the law of contract. Thus, such agreements can be regarded, ab initio, as not being contracts. 43 In addition, certain gratuitous promises can possess a binding nature, from the perspective of the doctrine of promissory estoppel. In contrast to this, the important features of the doctrine of consideration are; first, it is not essential for the consideration to be adequate. Second, no significance is attached to past consideration. Third, it is uncertain as to whether the performance or the promise to perform a pre-existing duty constitutes good consideration.44 Moreover, a gratuitous promise regarding the conveying of land is deemed to be unenforceable. This is due to the absence of consideration. On the other hand, when the promisee takes possession of the land and subjects it to improvements of value, the situation changes. In such instances, the promisee will achieve success in a claim for enforcing specific performance of the promisor’s promise to convey the land. 45 Conclusion The above discussion and case law make it evident that promissory estoppel supports gratuitous promises, under certain circumstances. The promisee should have undergone a detriment due to reliance upon the promise made by the promisor. Furthermore, promissory estoppel can be employed as a shield and not as a sword for effecting a cause of action, as described in the case law discussed above. To a considerable extent, the doctrine of promissory estoppel comes to the assistance of debtors, when their debts have been gratuitously forgiven by their creditors. 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