contract law

The many doctrines of promissory estoppel

If one concept in the early part of the contract law syllabus is difficult for the law student to digest, it is promissory estoppel, usually learned alongside the doctrine of consideration. This article tackles this tricky topic by dissecting promissory estoppel. by Adam Kramer, Lecturer in Law, University of Durham
Promises are special in our society because there is a societal or moral convention that allows a promisor to be treated as bound to his promise (promises here including behaviour making others believe that one has promised, as well as the more obvious overt statements such as I promise ). The law of England and Wales reflects this moral convention by enforcing promises that are given in exchange for other promises or consideration, ordering the promisor to perform or to pay expectation damages. As we all know, such legally binding promises are called contracts. Once a contract has successfully been formed, it cannot be varied without a further promise given in exchange for another promise or some consideration. In other words, the doctrine of consideration applies to variation as well as to the formation of contracts if two parties want to vary the contract by increasing or decreasing only one partys obligations, that variation will only be binding if consideration is given by the benefited party. Just because there is a moral rule that makes promises binding, this does not mean that there are not other (perhaps less stringent) moral rules governing promises, agreements and statements. Think about a professional carelessly valuing my property: the valuation statement will usually be actionable both as breach of a contractual undertaking and as a commission of the tort of negligence, counting both as a breach of a binding promise and as a wrongful interference in my life through my reliance upon the statements accuracy. It will be shown that the various forms of estoppel are like the tort of negligence they are legal responses to statements, agreements or promises yet do not arise from the binding nature of promises (which is dealt with by the law of contract and governed by a requirement of consideration); they arise, rather, from different moral principles. Equally important is the need to understand that promissory estoppel and proprietary estoppel are not best understood together they do not amount to one doctrine fulfilling one function, justified by one principle; rather it will be suggested that really there are at least three principles at work in the doctrines that we call promissory and proprietary estoppel. denying is incorrect. Nobody can sue for estoppel any more than they can sue for lying; the rules of estoppel merely help a claimant to prove his case when he sues under a different, more limited legal principle which does give rise to a right to sue (a cause of action), such as the principles allowing legal actions for breach of contract or the commission of a tort. In addition, there are two types of estoppel that are creatures of equity and that appear to be based upon promises. These equitable estoppels are called promissory estoppel and proprietary estoppel. The analogy between promissory (equitable) estoppels, on the one hand, and estoppel in pais, on the other, is, however, imperfect. Promissory estoppels do not relate to denying the truth of an evidential fact, rather they relate to not being able to do anything except what one promised to do; rather than binding a party as to what is the case, they bind a party as to what they will or will not do in the future. Thus not only are promissory estoppels not true estoppels, but they would seem, at first sight, to herald the death of the doctrine of consideration, since promissory estoppels seem to make promises binding without the need for a contract. As we shall see, this concern is largely unfounded.

Promissory estoppel as equitable forbearance or waiver

At least as far as the law of England and Wales is concerned, the foundation of promissory estoppel, as the eminent contract scholar Guenter Treitel has observed in his textbook The Law of Contract, is in the law of waiver the law of giving up ones rights. If this is correct, then promissory estoppels other name, equitable forbearance, is a more accurate label. As we have seen, basic contract law holds that a variation cannot be binding without consideration, and so in order to permanently waive (give up) ones legal rights, one would have to receive some consideration from the other party, since removal of those rights from the contract amounts to a variation of that contract. Examples of cases in which such variations were not binding because of a lack of consideration include Stilk v Myrick (1809) 2 Camp 317 and Foakes v Beer (188384) LR 9 App Cas 605. As one would expect, arguments in those cases that the performance of ones existing contractual obligations should amount to consideration for the variation were rejected by the courts. The rules of promissory estoppel were developed as equitys answer to the strictures of the law of consideration in the particular context of waiver. In Hughes v Metropolitan Railway (1877) 2 App Cas 439, a landlord gave notice pursuant to a lease (which for our purposes is a contract like any other) requiring his tenant to perform repairs within six months. The landlord then entered negotiations with the tenant to purchase the lease, but when the negotiations broke down the landlord sought to forfeit the lease (as the lease entitled him to do) on the grounds that the tenant had not performed the repairs he was required to do. The court found that by entering negotiations

Estoppel in general
For our purposes, estoppel (whose name is a variation of a Norman French word) comes from the law of evidence. Various doctrines are categorised under the heading of estoppel in the law of evidence, and they have little more in common than that they stop the defendant from saying or arguing something contrary to something else to the authority of which the defendant is bound. Most interesting to us is a category of estoppels called estoppel in pais, namely the rules of estoppel by convention and estoppel by representation. Under these rules, if you lead somebody to believe one thing then you cannot later claim the opposite to be true you are estopped from doing so, even if that which you are estopped from

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the landlord had led the tenant to believe that the six month limit would not be strictly enforced, and that the landlord could not then go back and require the repairs without reasonable notice. In other words, the landlord had waived his right to strictly enforce the contractual time limit. Denning J secured the place of equitable estoppel in our law in the case of Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. The plaintiff let a flat to the defendants at a rent of 2,500 per annum, and then the Second World War broke out. In 1940 money was tight and many flats were unlet, and the plaintiff agreed to reduce the defendants rent by half. At the end of the war, the plaintiff put the rent back up to the amount to which the parties had contracted, and the court permitted him to do so. The court did, however, make it clear that the landlord could not have claimed the amount of rent to which he was contractually entitled for the war-time period because of his agreement to a lower rent even though that agreement was not contractually binding as the tenants had not provided any consideration. This is all very well, but how can we be so sure that promissory estoppel is restricted to the law of waiver rather than being as wide-ranging a basis for the enforcement of promises as the general law of contract? In English law, this point was decided in the case of Combe v Combe [1951] 2 KB 215, in which the Court of Appeal (including Denning again, now a Lord Justice) held that the doctrine of promissory estoppel can only operate as a shield and cannot be used to create a cause of action. Thus, a husbands promise to pay his wife 100 per annum after their divorce did not give her a right to sue for that money even though she had relied upon the promise. The doctrine of promissory estoppel (by analogy with waiver) can be used to prevent a promisor from enforcing his legal rights, but it cannot be used to create new legal rights in the promisee. Promissory estoppel can be used, in effect, to reduce the obligations already owed by the promisee to the promisor, but not to increase the obligations owed by the promisor to the promisee or to create new ones. It cannot, therefore, be used to create a new cause of action. This does not mean that the promisor must always be the claimant, as opposed to the defendant, only that the estoppel will not provide a cause of action and will only help a party to prove their case under a different cause of action (such as breach of contract). The fact that promissory estoppel is primarily a doctrine of waiver a shield and not a sword makes the analogy with other forms of estoppel a little stronger: you still cant sue for estoppel (like you can sue for contractual breach or tort), you can only use it to prove your case. Nevertheless, because promissory estoppels are about future conduct, the analogy with estoppel is just that. A final important point is that it is as yet unclear whether promissory estoppel operates to permanently waive the promisors legal rights, or whether the effect is only temporary (the term usually used is suspensory). The weight of opinion appears to be with the latter view.

The interaction between promissory estoppel and doctrine of consideration

Another controversial question about promissory estoppel is whether an estoppel arises when the promisee relies upon the promise, or whether the promisee must show a particular detriment that they have suffered. The former view appears preferable. It is important to realise, however, that even if detrimental reliance is required for a promissory estoppel to arise, such a case is still distinguishable from a binding contractual variation, and this is true even though detriment is good consideration. The difference between promissory estoppel and contract in such cases is that detriment is satisfactory to give rise to an estoppel merely when it is in reliance upon the promise, whereas it will only amount to consideration when the detrimental reliance is at the request of the promisor. If my father promises to let me off a debt (or to reduce it) if I go out and buy a new suit with the money saved, then the promise becomes binding in contract law the moment that the suit is bought (assuming that an intention to create legal relations can be found). In contrast, if my father promises to let me off the debt without stipulating any conditions, then he may be estopped from going back on the promise if I buy a new suit with the money saved, even though he did not request me to buy anything and doesnt care what I do with the money. It is also interesting to see how the doctrine of promissory estoppel brings the law of consideration into sharp relief. Although it is not overtly recognised by our system of contract law, many of the reasons for requiring consideration at the formation of contracts do not apply to the situation of variation, in which the parties already know that they are dealing with a legally binding situation and are already involved in an exchange. The basic legal position is still that consideration is required for variations of contract; however, if we look more closely we can see that the doctrine of promissory estoppel now plays a role, in effect, in removing the requirement of consideration from cases of contractual variation (albeit that the variations in estoppel cases may only be temporarily binding). Variations of only one side of the contract can usefully be divided into two types: on the one hand are variations whereby one partys obligations are increased (that party promises to do more, pay earlier, etc), and on the other are variations whereby one partys obligations are decreased (waiver cases in which that party is allowed to do less, pay later, etc). In the former type of situation, the strict requirements of consideration of Pinnels Case (1605) 5 Co Rep 117 and Stilk v Myrick (1809) 2 Camp 317 have been effectively removed by the decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.

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In that important case, the Court of Appeal somehow sidestepped Stilk v Myrick and held that consideration can be found in such situations where the party whose obligations are increased gets some practical benefit from the variation. Note that the law of promissory estoppel does not apply to variations by increase (since promissory estoppel only operates as a shield). In cases of waiver-type variation (or at least cases of waiver-type variation of a debt), the Roffey Bros practical benefit form of consideration does not apply, per the Court of Appeal in Re Selectmove [1995] 1 WLR 474, who felt unwilling or unable to circumvent the House of Lords decision in Foakes v Beer in the way that the Roffey Bros court circumvented the Stilk decision. In all waiver-type cases, of course, the doctrine of promissory estoppel will apply. Thus, rather neatly, in no case of variation of contract does the strict doctrine of consideration apply: in half, mere practical benefit will do (consideration after the Roffey Bros case), and in the other half mere reliance (promissory estoppel) will suffice. For the sake of clarity, it should be repeated that waiver by estoppel is not a variation in law, only a variation in effect (and even that is subject to debate about its suspensory effect, mentioned above); it is a non-contractual way of getting to a similar destination. (In D & C Builders v Rees [1966] 2 QB 617 Lord Denning expressly observed that the doctrine of consideration, as exemplified by Foakes v Beer, was still good law and that equitable estoppel only operated where it would be inequitable to allow the promisor to enforce his strict legal rights.) rights. This gift should fail in law because of the formality requirements for conveying proprietary rights, but it doesnt fail because it would be unfair for it to fail. How does the law decide when it would be unfair for a gift to fail even when it does not satisfy the formality requirements? It looks to see whether the donee (the recipient) has detrimentally relied upon the gift. This explains why the proprietary estoppel gives a proprietary right, which will bind third parties who have made no promise and induced no detriment: the source of the promisees rights in such cases is not the estoppel itself, rather the property rights of the donee which the estoppel enabled to be conveyed.

Postscript: a general doctrine of promissory estoppel that is not based on waiver or land law formalities?
In Australia and the USA there is a general doctrine of promissory estoppel whereby detrimental reliance upon a promise (not only a variation by waiver but also a promise between those with no pre-existing contract) causes the promise to be enforceable. As with proprietary estoppel, the award in such cases is the minimum required to do justice. The Australian case of Waltons Stores v Maher (1988) 164 CLR 387 is a key example, in which case the courts concentrated upon the unconscionability (what we call inequitability) of the circumstances as a way of justifying enforcement of the promise. In Australia and the USA, then, promissory estoppel is a full-blown, wide-ranging way of enforcing promises that operates alongside the law of contract it can create new rights amongst those with no existing contract, and does not operate merely as a form of waiver. English law does not yet recognise a wide (sword and shield) estoppel doctrine in which promises are remedied by an award of damages measuring the detrimental reliance, but such a doctrine is much easier to justify than a wide doctrine in which expectation damages are awarded (as in many Australian and US cases) or performance is ordered (as in proprietary estoppel cases). I would suggest (although academics are split on this) that expectation damages and performance should only be awarded in contract cases cases in which the convention of promises being binding is enforced. On the other hand, the wider principles behind tort law could justify a wide doctrine of promissory estoppel giving rise to detrimental reliance damages. Just as it is an actionable wrong in many situations to cause someone to detrimentally rely upon ones statement where that statement is carelessly given (Hedley Byrne v Heller [1964] AC 465 applying the tort of negligence), one could argue that it is equally wrong to cause someone to detrimentally rely upon ones promise and then not perform it. This fits Brennan Js explanation of promissory estoppel in Waltons Stores, but not the general application of that doctrine in that case or any other significant Australian and American cases. For now, though, such a doctrine is not law in England and Wales.

Proprietary estoppel
You may think things are complicated, but theyre about to get worse. There is a second doctrine of equitable estoppel that is called proprietary estoppel. Proprietary estoppel applies to cases in which a party with rights to property leads another to believe either that the other party has rights to that property (often labelled acquiescence), or will be granted some in future. This doctrine is not merely an equitable doctrine of waiver, as the Combe v Combe shield not sword limitation does not apply to proprietary estoppel. It is also fairly clear that detrimental reliance, rather than merely reliance, is required on the part of the party gaining the rights. The remedy in such cases is whatever is required to do equity (fairness) between the parties. This will often amount to an award by the court of the full proprietary right that was promised. Thus, in Pascoe v Turner [1979] 1 WLR 431 a man told a former cohabitee woman that the house they had lived in was hers, and she later spent some money on repairs and improvements to the property. The man had led the woman to believe that she had a fee simple effectively ownership in the property, she had detrimentally relied on this, and so the court awarded her the fee simple. Spending 230 ensured that the woman got full title to a house. This apparently strange doctrine (newly formed promises being fully binding without consideration) can be explained by the proprietary context. To convey proprietary rights in land, in contrast with making other gifts, requires certain formalities to be satisfied (see ss 5253 of the Law of Property Act 1925 and s 2 of the Law Reform (Miscellaneous Provisions) Act 1989), although in many informal situations they often are not (since in informal situations people dont go to lawyers and without lawyers they dont know about formality requirements). The doctrine of proprietary estoppel is probably best explained (like part of the law of constructive trusts) as a set of situations in which the law ignores the formality requirements because of the detrimental reliance that has been incurred. Most cases of proprietary estoppel are gifts rather than promises to do things in the future one person tells the other that they have rights in property. In effect, this is an attempted gift of those proprietary

Conclusion
This has been only one interpretation of the messy law of promissory estoppel. What is certain is that no interpretation can explain all the cases, and that the various requirements of promissory estoppel are hard to state and harder to apply. Nevertheless, it is suggested that the basic ideas presented here, coupled with an understanding of the contractual variation context of promissory estoppel and the formality rules of land law that provide the context for the doctrine of proprietary estoppel, should go some way to demystifying a challenging topic.

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