Promissory Estoppel - Essay Example

Exploring the Extent of Promissory Estoppel in the UK Introduction Promissory estoppel is a doctrine that enables contract parties to modify the provisions of the contract. Daniel Farber and John Matheson (1985) refers to is as the “invisible handshake”, or a promise made in order to further an economic activity. Through this doctrine, individuals do not need to draft new contract for lease, sales or loans, particularly when the provisions of the promise is socially beneficial. For Farber and Matheson (1985), promissory estoppels enforces “promises in settings not amenable to traditional bargaining transactions, in which reliance is beneficial both to the promisor and to the society as a whole” (905). In this view, promissory estoppel is established as a contractual obligation that will in fact harmonize the often-divergent philosophies adhered to by legal scholars. This article looks at the different circumstances when promissory estoppel is used in the English courts and tries to summarize why the doctrine is an important part of contract law. It also tries to explain why the use of promissory estoppel is being contested. This paper maintains that promissory estoppel is still important in contract law and that instead of declining, it is actually evolving. The Need for Promissory Estoppel Promissory estoppels has three distinct elements: (1) a clear and definite promise, (2) the promise induced action or forbearance, and (3) injustice can only be avoided with the enforcement of the promise (Boyer 1950: 460). The doctrine of promissory estoppels was first expounded in the case of Central London Property Trust Ltd v High Trees House (Denning 1946). In 1937, High Trees House Ltd. leased a block of flats from Central London Property Trust, with the conditions that the rent is worth £2,500 and duration is 95 years. But because London was suffering from war bombings at the time, High Trees may not be able to pay out its lease. To help the company sustain its business and since numerous flats were still unrented, the plaintiffs sent a letter to the defendant confirming the reduction of the rent to £1,250. The defendants continued to pay the reduced rent and by 1945, when all the flats have been rented out, High Trees paid only £1,250. In September 1945, the plaintiff wrote a letter to the defendant collecting the original amount of £2,500 for the entire year starting from September 29 to December 25, 1945. The defendants held that the letters passed on between the parties was evidence of modification in the original contract and that it was equally legally binding to the plaintiff company. Lord Denning cited promissory estoppel and ruled that the promise given by the plaintiff was legally binding, thereby preventing the plaintiff company from collecting the full rent for the lease periods before 1945. However, he also said that it should’ve been apparent to the two parties involved that the reduction in rent was based only on the prevailing conditions, hence, at a period when all units already been let out and business is starting to pick up, the defendant company is obligated to pay the full amount in rent. In his ending statement, Lord Denning said, If the case had been one of estoppel, it might be said that in any event that estoppels would cease when the conditions to which the representation applied came to an end…I prefer to apply the principle that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. (Denning 1946) Traditionally, estoppels can only be binding if consideration has been supplied by the two contracting parties. In promissory estoppels, however, the concept of equity comes into play in which it prevents the an individual from doing anything except what one promised to do (Kramer 2002: 17). Hence, unlike other types of estoppels, promissory estoppels allows promises to become binding without the need for contract, especially when the promisee has acted in accordance to the promise and will suffer loss because of such reliance. Some legal scholars would say that promissory estoppel is the end of the doctrine of consideration (Boyer 1950; M. 1933), but Adam Kramer (2002) says that this claim is largely unfounded. For Kramer, promissory estoppel is best labeled as “equitable forebearance” because it allows parties to modify their contract without consideration. In essence then, the promisor is waiving his/her rights in order to receive consideration from the promisee. Using the case of Stilk v Myrick (1809) and Foakes v Beer (1883-1884), Kramer said that the strict implementation of the doctrine of consideration has led to the detriment of various parties, and it has even promulgated perjury in cases when no written evidence can be found to prove the modification of the contract. For a country that views promises as an important social convention, providing the legal basis to enable contracting parties to retract their promises may constitute the failure of law to enact justice. In the case Hughes v Metropolitan Railway (1877) wherein a landlord gave notice to his tenant requiring him to perform repairs in the property within six months. The landlord entered into a dialogue with the tenant in the effort to purchase the lease, but negotiations broke down and the landlord sought to enforce the provisions of the lease contract. The court however, ruled that by entering into a negotiation phase, the landlord led the tenant to believe that the 6-month limit will not be enforced. In short, by choosing to dialogue with the tenant, the landlord has suspended his earlier contract and has waived his right to enforce it in conjunction with the negotiation. Through promissory estoppel, the rights of the tenant to the property was protected and court ruled that his 6-month requirement did not start until the negotiation was officially terminated. The same context of waiver was applied in Central London Property Trust Ltd v High Trees House Ltd when the court ruled that the plaintiff could not collect the full amount rent as provisioned in the contract during the war-time period because a modification to the contract was in force. The Limits of Promissory Estoppel Kramer says that while promissory estoppel has been beneficial, there have been calls to ensure that it is restricted to the law of waiver and not as a general ruling to enforce all types of promises. This call was answered in Combe v Combe (1951) wherein the court “held that the doctrine of promissory estoppel can only operate as a ‘shield’ and cannot be used to create a cause of action” (Kramer 2002: 18). Hence, the wife cannot sue her ex-husband to enforce his promise of £100 alimony. In short, promissory estoppel can only be used to prevent a promisor from enforcing his legal rights but it cannot be used to create new rights. Unlike in a contract, the promisee cannot force the promisor to fulfill his promise, instead, using promissory estoppels, the promisee can use the promise to protect himself in case the promisor decides to enforce a legal contact instead of the promise that modified that contract. Other limitations for promissory estoppel includes the following: (1) There is a need for an existing legal relationship: promissory estoppel can only modify an already existing contract, not create a new one. (2) There is proof that the promisee has relied on the promise and was given ample reasons to enforce to act in accordance to it. (3) Going back on the promise will led to inequitability to the promisee. This has been explained previously in the discussion on the concept of waiver. (4) Promissory estoppel is generally suspensory in that it suspends the enforcement of a legal contract based on specific conditions put out and agreed by the contracting parties. (5) Promissory estoppel may not be used when the promise is prohibited by legislation. For example, in the case of Evans v Healthcare Ltd, wherein the man wanted the embryo and the woman wanted it used, the man may withdraw his consent to storage of embryos at any time he decides to because relevant legislation allows him to do that. Courts place a huge burden on the first and second elements, that the promise is clear and unequivocal, and that the reliance on the promise was reasonable affects may cases and is a subject of criticisms and debate. For some, using promissory estoppel can be cumbersome as it is almost equal to having a contract. Oral promises also do not count which brings into the question the practicality of the doctrine. The Four Phases of Promissory Estoppel Despite the abovementioned limitations, promissory is well-rooted in English law. It has been repeatedly endorsed by the court now considered as legally binding. In an article by Eric Mills Holmes (1996) he noted that far from waning, promissory estoppel is in fact developing. He summarized the four evolutionary stages: (1) estoppel phase, (2) contract phase, (3) tort phase, (4) equity phase. The estoppel phase refers to the capability of the promissory estoppel to act as a shield and sword wherein contracts can be “estopped" based on the statutes of frauds and limitations. In this phase, promissory estoppel can also be used to hold the promisor accountable for his/her promises. In the second phase, the promissory estoppel is used as an evidence to award expectation damages. In the tort phase, the court can award recompense to the promisee as payment to damages brought about by his/her detrimental reliance. Unlike in the contract phase, the tort phase does not require an existing contract in order for it to be used in court. Holmes says that in the fourth phase, the courts would’ve already assimilated the first three phases and promissory estoppel can be used to “rectify the wrongs by awarding relief based on the discrete facts of each case” (Holmes 1996: 51). In this phase, the remedy is differs based on the unique characteristics of the case. Using Holmes’ article, one can already see where the doctrine of promissory estoppels is leading to. Currently, promissory estoppel is in the second phase and it still has limited functions, but already, it is being used as a means of defeating the statutes of fraud. As promissory estoppels becomes entangled with enforceable contracts. It is bound to evolve towards the tort phase wherein the court will provide corrective justice between the parties. When this happens, the court strengthens the promisee’s right to rely on the promise and the promisor’s duty to ensure that the promisee will not be harmed because of this reliance. In this phase, the court can grant reliance damages and expectation damages. In fact in the United States, such corrective actions have already been granted. Reflective Journal In completing this coursework, I have began a better understanding of the topic. I have found the answer to many of the questions posted, answered on various journals. It was a joy to discover new knowledge and I have realized that this is something I like doing – researching and learning more than what was covered in class. This research has taught me to manage my time appropriately in order to complete the requirement. Through my open search online, I have found numerous resources, each one full with information that I could use for my paper. Choosing which resource to use was difficult, and there was a point when I thought I couldn’t start the paper because there was just too much information. But then, I discovered that by first determining what I wanted to cover in my paper allowed me to exclude some of those resources and enabled me to use my time more effectively. For this paper, I made my initial research online so I can get an idea on how promissory estoppels works in various applications. From here, I formulated my thesis statement in order to focus my research. As I was reading, I kept the thesis statement in mind, which in turn, allowed me to discover which parts of the resources could be used in my paper. Word Count: 1773 without reflective journal 1996 with reflective journal Works Cited Boyer, B.F., 1950. Promissory estoppel: Requirements and limitations of the doctrine. University of Pennsylvania Law Review, 98(4), p.459-498. Denning, J., 1946. Central London Property Trust Ltd v High Trees House. The Law Online. Available at: http://www.justis.com/data-coverage/iclr-s4720014.aspx [Accessed April 7, 2012]. Farber, D.A. & Matheson, J.H., 1985. Beyond promissory estoppel: Contract law and the “invisible handshake.” The University of Chicago Law Review, 52(4), p.903-947. Holmes, E.M., 1996. The four phases of promissory estoppel. Seattle University Law Review, 20(45), p.45-79. Kramer, A., 2002. The many doctrines of promissory estoppel. Student Law Review, 37, p.17-19. M., J.G., 1933. Contracts. Promissory estoppel. Virginia Law Review, 20(2), p.214-222. Read More