The Doctrine of Promissory Estoppel to Prevent Unjust Outcome from Strict Application of Common Law - Case Study Example

The doctrine of promissory estoppel is necessary to prevent unjust outcome that mayresult from strict application of common law. Australian courts however, have expanded the doctrine to the point where consideration is no longer relevant. Introduction If one makes a promise to another person and the one who is promised relies on what is promised in good faith to his/her detriment, such a person may want to seek justice. When the Court is approached in such a case and its bid to ensure that justice is done, the court would treat the statement as a promise and hence the judge would preclude the one who made the promise from denying it1 . This legal inability of a person who makes a promise that turns out to be false from denying it hence making it an enforceable promise is called promissory estoppel2. It is the doctrine that provides that when a party changes their position substantially either through action or forbearing from acting in reliance upon a gratuitous promise , then such a party could enforce the promise though the essential elements of a contract be absent as was held in CCC Films (London) Ltd v Impact quadrant films Ltd3. However, for the doctrine of promissory estoppel to hold, the promisor must have made a gratuitous promise which he should have reasonably expected to induce action or forbearance of a definite and substantial character on the part of the promisee. In other words, the promise must have justifiably relied on the promisee. In addition, a substantial detriment must have ensued to the promise from action or forbearance4. The issue of consideration as a condition for promissory estoppel has been present in many jurisdictions including the English law. The English law sees a contract not simply as an agreement in that a person will not be bound by the force of his will alone or declaration of his will. For an informal contract, a person will be bound to his promise provided the other party has provided consideration for the promise5. The implication of this is that the promise must have done something or even promised something as a result of the promisors express or implied promise/ request. A contract is therefore seen as a bargain since the promisee has earned the right to enforce it through paying the price for its enforcement through provision of something in return hence making the promise enforceable6. However, as will be discussed below, some countries such as Australia do not regard the element of consideration highly. As stated above, Australian courts however, have expanded the doctrine to the point where consideration is no longer relevant. The origin of the doctrine of promissory estoppel The modern day doctrine of promissory estoppel has its origin in the Denning J ruling where a landlord was unable to find enough tenants owing to evacuation of London during the war and hence he said to the tenant that the rent would be reduced from $2500 to $1,250. The tenant acted accordingly for five years but when the war was over, the occupancy level was back to normal and the landlord demanded the arrears7. The judge held that the plaintiff was trying to be reimbursed for the full amount but he would be estopped from doing so although no consideration was present since the plaintiff presented that he would accept half the rent and the defendant had acted on that8. The doctrine of promissory estoppel has evolved from four types of promises including charitable subscriptions, promises by gratuitous bailees and gratuitous promises for conveyance of land over the last century9. In all these categories, courts have enforced a promise made to a promise based on the promises justifiable reliance on the promise and the damage that would arise from the promise acting on the promise10. In Australia, the doctrine of promissory estoppel was accepted in Australian courts in Legione v Hateley11 and hasexpanded beyond the original contractual relations. The doctrine was authoritatively described judge Brenna J12 who stated that it is necessary for a plaintiff to prove that they assumed that a particular legal relationship then existed between them and the defendant or expected a legal relationship could exist later. That the defendant induced the plaintiff to adopt the assumption. The plaintiff acted or failed to act in reliance to the assumption; the defendant knew and intended the plaintiff to do so. The action by the plaintiff would cause detriment arising from acting or forbearing on the promise and that the defendant failed to act so as to avoid the detriment. However as will be seen below, the doctrine of promissory estoppel is applied differently in Australia from other jurisdictions. This is because it may be used as a cause of action as well as a defense. In other words, it is applied both as a sword and a shield. The element of consideration has thus been rendered less useful in the case of Australia by the Australian courts as stated above13 How Australian courts have expanded the doctrine to the point where consideration is no longer relevant Most legal jurisdiction requires that consideration to be present for the doctrine of promissory estoppel to be enforceable. The English law in particular regards consideration to be important for the doctrine to be enforceable. The law states that in the case of an informal contract, the party is only bound to his promise when the plaintiff has provided consideration for the promise14. In other words, the promisee must have done something or promised to do something in return of the promise by the promisor. The courts in US also seem to regard consideration as a condition for enforceabilityof the doctrine of estoppel. According to the law, the elements of exchange do not amount to consideration unless they are linked together in a bargain. A performance or return promise is bargained for if sought by the promisor in exchange for his promise and has been given by the promisee in exchange for the promise. The plaintiff does not need to show that each party received a tangible benefit from the other as long as each performance was a genuine inducement for return consideration15. It is stated that it is the essence of consideration that by the terms of the agreement it is given and accepted as the motive or inducement of the promise. Conversely the promise must be made and accepted as the conventional motive or inducement for furnishing consideration16. Further importance of consideration in estoppel is seen in the statement that one who performs the act requested in an offer to pay a reward will not have satisfied the consideration requirement if he was not aware of the offered reward when he performed since he was obviously induced by other factors to act but not the consideration17. From the above cases and statements of law, it can be seen that many jurisdictions consider consideration as an important element for the doctrine of promissory estoppel. However as it will be seen below, How Australian courts have expanded the doctrine to the point where consideration is no longer relevant. As stated above, the doctrine of promissory estoppel was first accepted in Australian courts in Legione v Hateley. Initially, the courts considered two elements in determining whether promissory estoppel could be applied in a case. First, the promise had to have been made in the context of pre-existing legal relationship. In the case of High Trees referred above, the element had been satisfied since the parties had been in a lease relationship with the promise being in relation to the terms agreed for the lease. The element of consideration was therefore key in such determination. However, the doctrine in the case of Australia was to change with the decision in Walton Stores (Interstate) Ltd v Maher. The significance of this case is that it led to the removal of the consideration limitation on the promissory estoppel doctrine operation18. In this case, Walton had negotiated with Maher for the lease of a property Maher owned. The parties had the understanding that Maher would demolish an existingbuilding and erect a new one for Waltons to occupy. The agreement on terms and rent was reached. A draft lease was sent to Maher’s solicitors in October and some changes discussed. A revised lease was sent to Walton by Maher. In November, Maher informed Walton that demolition had started and hence it was vital for the lease to be concluded quickly. Later Waltons started to have reservations regarding the lease hence instructing solicitors to go slow. In January, Maher started building and when the building was approximately 405 complete, Walton told Maher that they did not wish to proceed with the lease19. This caused Maher to bring action for the enforcement of the agreement. The majority of judges held that though formal contracts had not been exchanged, Maher was entitled to assume that the exchange was a mere formality and hence could rely on promissory estoppel that extends to representations and promises as to future conduct. It was also held that in Australia, promissory estoppel could be used both as a sword and shield to provide the promisee with the cause of action where the promisor makes a promise that creates an assumption that a contract will come into existence or will be performed. The promisee must have relied on this to their detriment and it was unconscionable for the promisor to ignore the promise having regard to promisor’s conduct. As such, Walton had to fulfill the promise. This case thus eliminated the need for consideration in the doctrine of promissory estoppel. Conclusion Australian courts are therefore much more concerned about actual detriment incurred by the promisee in a particular case as opposed to consideration. It should be noted that even if the promisee did not believe that a contract had been exchanged when embarking on the action in a case where he was entitled to assume that exchange was a mere formality, promissory estoppel in Australia extends to promises of future conduct. However, for a non-contractual promise to be enforceable directly, a promisor must make a promise hence creating assumption that the promise would be performed. The promisee must have relied on this to their detriment20. As such, actual consideration is not important to Australian courts in deciding cases to do with promissory estoppel. The Australian courts approach to promissory estoppel is therefore based on equity with the alternatives of reliance based and expectation based remedies whichever is equitably appropriate. To Australian courts, the issue is not whether a consideration is present but whether six elements as explained above, the elements include creation of assumption, inducement, reliance, knowledge or intention, detriment, failure to avoid detriment and unconscionability and causation. Thus unlike in many other jurisdictions, Australian courts have expanded the doctrine to the point where consideration is no longer relevant. References: John, C2016, Protecting legitimate expectations and estoppel in English Law, Electronic Journal of Comparative Law, vol. 10, no. 3, pp. 1-22. Gerald, N& Kathleen, T2005, Promissory estoppel, Sydney, Prentice Hall Wright, V2011, Promissory estoppel and detrimental reliance, London, Rutledge. Jill, P2012, Enforceability of promises: Consideration and promissory estoppel, Oxford, Oxford University Press. Lewison. K2004, The Interpretation of Contracts (3rd ed.), Sweet & Maxwell, London. John, C2016, Protecting legitimate expectations and estoppel in English Law, Electronic Journal of Comparative Law, vol. 10, no. 3, pp. 1-22. Jared, B2011, Application of doctrines of unconscionability, London, Rutledge. Vermeesch, L2011, Business Law of Australia, Lexis Nexis Butterworth. Read More