Contract law: Remedies - Quasi-contractual obligations: Promissory estoppel (Part 2 of 2)

Promissory estoppel.

The doctrine of promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise.

A promise made without consideration is generally not enforceable. It is known as a bare or gratuitous promise. Thus, if a car salesman promises a potential buyer not to sell a certain car over the weekend, but does so, the promise cannot be enforced. But should the car salesman accept from the potential buyer even one penny in consideration for the promise, the promise will be enforceable in court by the potential buyer. Estoppel extends the court's purview even to cases where there is no consideration, though it is generally not a 'sword': not a basis on which to initiate a lawsuit.

In English jurisprudence, the doctrine of promissory estoppel was first developed in Hughes v Metropolitan Railway Co  but was lost for some time until it was resurrected by Denning J in the controversial case of Central London Property Trust Ltd v High Trees House Ltd.

Promissory estoppel requires:

1. an unequivocal promise by words or conduct;

2. evidence that there is a change in position of the promisee as a result of the promise (reliance but not necessarily to their detriment); and

3. inequity if the promisor were to go back on the promise.

In general, 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 from early 1945 and could have restored the full rent at any time after the initial promise was made provided a suitable period of notice had been given. In this case, the estoppel was applied to a "negative promise", that is, one where a party promises not to enforce full rights.

Estoppel is an equitable (as opposed to common law) construct and its application is therefore discretionary. In the case of D & C Builders v Rees the courts refused to recognize a promise to accept a part payment of £300 on a debt of £482 on the basis that it was extracted by duress. In Combe v Combe Denning elaborated on the equitable nature of estoppel by refusing to allow its use as a "sword" by an ex-wife to extract funds from the destitute husband.

The general rule is that when one party agrees to accept a lesser sum in full payment of a debt, the debtor has given no consideration, and so the creditor is still entitled to claim the debt in its entirety. This is not the case if the debtor offers payment at an earlier date than was previously agreed, because the benefit to the creditor of receiving payment early can be thought of as consideration for the promise to waive the rest of the debt. This is the rule formulated in Pinnel's Case, and affirmed in Foakes v Beer.

The decision of the Court of Appeal in Collier v P & MJ Wright (Holdings) Ltd suggests that the doctrine of promissory estoppel can now operate to mitigate the harshness of this common law rule. Moreover, Arden LJ held that allowing a creditor to renege on his promise to forebear seeking the balance of a debt in return for part payment would be, in and of itself, inequitable. Therefore, the only reliance that the promisee must demonstrate is the actual making of the part payment. This approach has been criticised as doing violence to the principle set down in Hughes and the extent to which the other members of the Court, namely Longmore LJ, agreed with it is uncertain.