In my last few blog posts, we have been looking at contract law – from invitation to treat and offer, to acceptance and intent, to consideration and capacity. All of these things are needed for a contract to be valid and legally binding on both parties. In this blog post, we will be considering the equitable doctrine of promissory estoppel which can, in rare cases, prevent a party from going back on a promise made even when no consideration has been given. There are a set of conditions a case must meet for this to be possible, which we will look at in detail later. Firstly, however, we will quickly review the rules of contract formation.
The first step for a contract to be created is for one party to make an offer with the intent to be legally bound by it. This should be distinguished from an invitation to treat, which merely invites offers and is not binding. For example, price tags in shops are invitations to treat and the customer makes the offer. However, parking ticket machines are the offer themselves just by being there. After an offer is made, it must be accepted for a contract to arise. Acceptance must be communicated to the offeree, match the offer details and be certain. In a shop, the cashier will accept the offer made by a customer on behalf of the shop owner.
Both parties must also have the intent to be bound by the contract. This is harder to show in cases where the agreement is between friends and family, as it is usually assumed there is no legal intent in these situations. However, this assumption can be rebutted if it is clear there was intent to make a contract. Consideration means that both parties get something out of the deal, such as money, goods or services. These things do not need to be equal, provided both parties have received a benefit. Finally, the parties must have the capacity to enter the contract. Essentially this means that they cannot be minors and must have the required mental capacity.
Promissory Estoppel
However, there are some situations where a promise can be enforced, even if there is not any consideration. This is when the equitable doctrine of promissory estoppel comes into play. Essentially, this allows for a party to be held to their promise in some, very specific, situations. As it is unusual for the courts to enforce a promise, there are four strict conditions that a case must meet before promissory estoppel can be used. This is to avoid unjust outcomes where parties are held to a promise that they didn’t really mean and don’t benefit from at all. We will now look at these four requirements and what they mean in practice.
The first requirement is that there must be a pre-existing contract or legal obligation which is modified by the promise. The promise alone is not sufficient, it must be in addition to a contract or obligation which is recognised in law. If this is a contract, then there will have already been consideration on both sides of the agreement. If the pre-existing obligation is a legal one, it is something the promisor is already bound to do, the promise that they make just modifies this in some way. A simple promise to do something, with no existing contract or obligation, cannot be enforced.
The next requirement is that there must be a clear and unambiguous promise. Both parties must know what they have agreed to and what the promisor is expected to do, or promissory estoppel cannot be enforced. What amounts to clear and unambiguous will be up to the court. Putting the promise in writing will likely be sufficient, but this is not the only way. In many cases, agreement can be implied by the parties’ actions or conduct. For example, inspecting and accepting delivery of slightly different goods with the same value as those originally ordered may be sufficient to allow the doctrine of promissory estoppel to apply.
Another requirement is that there is a change of position for the promisor. This can be as simple as changing the method of payment for a bill. It is not required that the promisor suffers detriment due to this change of position, so it is possible that the party making the promise might bring an action for promissory estoppel.
The final requirement is that it must be inequitable to allow the promisor to go back on their agreement. Inequitable simply means “unfair”, so this is fairly subjective based on the facts of the case. The courts will decide whether something is inequitable.
Wrapping Up
Promissory estoppel is an interesting and unusual area of law, so I hope that you now feel more confident in your understanding of it. In my next blog post, we will be looking at the advantages of juries, so come back in two weeks for that!
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