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Encyclopedia > Promissory estoppel

Estoppel is a concept that prevents a party from acting in a certain way because it is not equitable to do so. The concept of estoppel is applied in several areas of law.

Contents

Collateral estoppel

Collateral estoppel prevents a party to a lawsuit from raising a fact or issue which was already decided against that party in another lawsuit.


Issue estoppel

Under English law a person should not be tried twice for the same offence. This maxim has been extended when there is a general public interest that the same issue should not be litigated over again even when the parties are different. In the notorious Birmingham Six saga, there was a case Hunter v. Chief Constable of the West Midlands Police (1982) where the House of Lords ruled that the case came under issue estoppel. Lord Diplock included in his speech:

the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.

Equitable estoppel

Equitable estoppel prevents one party from taking a different position at trial than they did at an earlier time if another party would be harmed by the changed position. This is a bar precluding a person from taking advantage of, for example, not speaking when he should have because it was his duty to speak.


(This is not correct in American Law; the correct definition is closer to this: Equitable estoppel is designed to prevent one party from taking unfair advantage of another. When one party uses deceptive language or action with the result that a second party acts to the second party's detriment, the first party can be estopped from denying the language or changing the action on which the second party relies.)


Proprietary estoppel

Proprietary estoppel in English law

Proprietary estoppel arises when one party purports to give but fails to effectively convey, or promises to give property or an interest in property, to another party knowing that party will expend money or otherwise act to his detriment in reliance of the supposed or promised gift. See Dillwyn v Llwellyn (1862) 4 De G.F.& J. 517 C.A. in Chancery. In this case a father promised a property to his son, who took possession, expended a large sum of money on the house and otherwise improved the property. The father never actually gifted the property to the son. After his death the son, claiming to be the equitable owner, obtained a court judgment forcing the trustees to convey the land to him. See also Inwards v Baker [1965] 2 Q.B. 29, C.A.


Promissory estoppel

Promissory estoppel is the doctrine that prevents a party from acting in a certain way because the first party promised not to, and the second party relied on that promise and acted upon it.


Promissory estoppel in English law

In English law, a promise made without consideration is generally not enforceable. For example, a car salesman promises not to sell a car over the weekend, but does so. The promise cannot be enforced. If however, the car salesman accepts one penny in 'consideration' for the promise, the promise is binding and enforceable in court. Estoppel is one of the exceptions to this rule.


Promissory estoppel was developed by Lord Denning in Central London Property Trust Ltd v. High Trees House Ltd [1947] K.B. 130. Previously under English law, a promise to accept part payment in satisfaction of a debt is not enforceable. For example, a mechanic quotes 300 to fix a car, and does so. The owner of the car pleads that he can only afford 250. The mechanic accepts the 250. There is nothing to stop the mechanic from pursuing the remaining payment of 50 at a later time. Applying this principle to High Trees the agreement to accept a lower rent is an acceptance of part payment so there was nothing to stop the plaintiff pursuing the full rent in arrears at a later date. The agreement to accept the lower rent was a promise unsupported by consideration and so not binding.


Promissory estoppel requires (1) an unequivocal promise by words or conduct, (2) a change in position of the promisee as a result of the promise (not necessarily to anyone's detriment), (3) inequity if the promisor was to go back on the promise. Estoppel is "a shield not a sword" — it cannot be used as the basis of an action on its own. It also does not extinguish rights. In High Trees the plaintiff company was able to restore payment of full rent (although estopped back rent was lost) from early 1945, but probably could have restored full rent at any time after the initial promise provided a suitable period of notice had been given.


Estoppel is an equitable (as opposed to common law) construct and is therefore discretionary. In the case of D & C Builders v Rees the courts refused to recognise a promise to accept a part payment of 300 on a debt of 482 on the basis that it was extracted by duress.


Promissory estoppel in American law

In the many jurisdictions of the United States, promissory estoppel is generally an alternative to consideration as a basis for enforcing a promise. It is also sometimes referred to as detrimental reliance.


The American Law Institute included the principle of estoppel into 90 of the 'Restatement of Contracts', stating:

A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

A simple example: you go to a store and see a sign that the price of one of store owner's products, a radio, is $10. You speak with the owner and tell him you will get the money and come back later that day to purchase it; there is no discussion of price. He says that when he returns he will be happy to deal with you as he deals with all his customers, but that if he sells all the radios (he has three) then he will not be able to help you. You go sell your watch for $10 (while it was really worth $15), but since you wanted the money right away you could not wait for the best price, and you sold it to someone who you knew would pay $10. When you return, the sign says $11, and the owner tells you he has changed the price. In equity, he may be estopped from his conduct. You relied upon his representation that he would sell you the radio when you came back the same day with the money; you had sold your watch at a price lower than the market price, and thus you have acted to your detriment. (Note that if your watch was worth $10, and you received fair price, there would not be any detriment on your part).


An example of promissory estoppel in the construction of a building: A construction company puts together the estimates of a number of subcontractors and quotes its client a price. The client accepts, and construction begins. However, thereafter one of the subcontractors drastically raises the price above its original estimate. Because of this change, the construction company cannot profit from the building. A court would be likely to give the construction company promissory estoppel, which would allow them to pay what the subcontractor originally estimated rather than the new, higher price.


Note that, in some common law jurisdictions, if when you had approached the owner and indicated that you wanted to purchase one of those radios and he had said "Sold," you may be able to argue that a contract had been created, even if you had to go get the money. But under the classical idea of consideration, until you paid him, the contract would not have concluded. (This is not necessarily true in any common law jurisdiction; a promise to pay the owner is good consideration if it is made in exchange for a promise to sell you the radio later on. This is called a bilateral contract: a promise in exchange for a promise. Both promises are enforceable.)


One contentious point during the drafting of the Restatement was how to calculate damages from promissory estoppel. During the deliberations, an example was created: a young man's uncle promised to give him $1,000 to buy a car, the young man bought a $500 car, and the uncle reneged. The reporter of the Restatement believed that the young man should be entitled to all $1,000 (the amount promised); many other legal scholars believed that the young man should only be entitled to $500 (the amount he actually lost). The language eventually adopted for the Second Restatement read: "The remedy granted for breach may be limited as justice requires."


Estoppel by acquiescence

The doctrine of estoppel by acquiescence may prevail when Party A makes legal notice to Party B of Party A's assertion of a fact or legal principle or claim, and Party B fails to refute, reply to, or to defend (within "a reasonable period of time") against said claim. In this circumstance, Party B is said to have acquiesced to the claim or position taken by Party A, and by acquiescence, generally is considered to have lost the legal right to make a counterclaim.


An example: Jack owns a property, on which Jill has stored a vehicle, with no contract between the two over the storage of Jill's car on Jack's property. Jack sends Jill a registered letter to her legal address, stating: "I am no longer willing to allow your car to stay here for free. Please come get your car, or make arrangements to pay me rent for storing it. If you do not do so, within 30 days, I will consider the car abandoned and will claim ownership of it. If you need more time to make arrangements, please contact me within 30 days, and we can work something out. … Jill does not respond. … In this case, Jill may be said to have relinquished her ownership of the car in question, by acquiescence and Jack's subsequent actions of registering the car in his name and exercising ownership of it, may be upheld by court under the doctrine of estoppel by acquiescence.


External links

  • On issue estoppel: House of Lords - Arthur JS Hall and Co. v. Simons (http://www.hrothgar.co.uk/WebCases/hol/reports/06/21.htm)

  Results from FactBites:
 
BIGpedia - Estoppel - Encyclopedia and Dictionary Online (2988 words)
Estoppel by record (frequently manifests itself as issue/cause of action estoppel, judicial estoppel or res judicata) and estoppel by deed are rules of evidence and are often described as technical or formal estoppels.
Estoppel by representation of fact and promissory estoppel are mutually exclusive: the former is based on representation of existing fact (or of mixed fact and law), while the latter is based on a promise not to enforce some pre-existing right (ie, an intention as to the future).
Promissory estoppel is the doctrine that prevents a party from acting in a certain way because the first party promised not to, and the second party relied on that promise and acted upon it.
  More results at FactBites »

 
 

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