What is a promissory estoppel?
What are the estoppel elements that you need to prove in court?
What are some concrete examples?
In this article, we will break down the notion of “promissory estoppel” so you know all there is to know about it
We will define a promissory estoppel from a legal perspective, look at the different types of estoppels, its elements to prove in court, the remedies available, examples and more.
Keep reading as you’ll learn things that you may have not known before.
Let’s dive right in!
Promissory estoppel is a legal concept rooted in equity allowing the enforcement of a person or entity’s promise when a person relied on that promise in a detrimental way.
In other words, a court may prevent (or “estop”) someone from either making certain assertions or reneging on their promise.
For example, a court may prevent someone from filing a certain type of claim (the person is estopped from asserting a claim).
Alternatively, the court may enforce a promise (the person is estopped from going back on his or her promise).
This legal principle is a common law principle found in the United States and other common law countries.
However, the actual legal requirements may vary from one jurisdiction to the next.
Doctrine of promissory estoppel
Promissory estoppel is a doctrine in contract law stating that a party detrimentally relying on a promise made by another party may enforce a non-express obligation.
This means that an aggrieved party may recover damages from the breaching party (promisor) if such damages result from the promise made and the aggrieved party’s reliance on that promise.
A promise made by a party will legally bind that person to the same extent as a contractual agreement
As a result, the promissor must execute his or her obligation in favour of the promisee to avoid breaching the terms of the obligation created by the promissory estoppel.
Promissory estoppel definition
According to Cornell Law School’s Legal Information Institute, promissory estoppel is defined as:
Within contract law, promissory estoppel refers to the doctrine that a party may recover on the basis of a promise made when the party’s reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.
What is notable with this definition is that a party relied on the promise of another to his or her own detriment may enforce what was promised.
What is a promissory estoppel
Let’s look at what is a promissory estoppel when:
- Someone relies on another’s promise and acts in his or her own detriment
- Someone acts to his or her own detriment due to misrepresentation
Promissory estoppel: Reliance on a promise
The notion of promissory estoppel is a legal principle allowing the enforcement of a promise when someone took the promise in a serious way from an objective point of view and suffered damages when the promise was not kept.
A major software distributor promises a software developer that it will distribute the developer’s software products within its large and lucrative customer base provided they work in jointly developing a software solution.
After receiving and accessing the software developer’s trade secrets, the distributor develops its own software product and does not distribute the software within its customer base.
In this example, the software developer acted in a detrimental way by sharing trade secrets and did not get access to the anticipated market.
Promissory estoppel: Misrepresentation
A person misrepresenting important facts to another or making false statements or promises to induce another to act based on that promise will be precluded from denying it later on.
On the basis of the legal theory of promissory estoppel, the party making the false statement will be estopped from denying such promise.
To make justice, the court will likely consider that the promisor must act on the promise to adequately compensate the aggrieved party.
This is referred to as equitable estoppel.
Promissory estoppel elements
What are the elements to prove in court?
What are the requirements to succeed in a promissory estoppel action?
Let’s find out!
For a promissory estoppel action to success, you must demonstrate certain elements:
Essentially, the requirements of a promissory estoppel claim consist of demonstrating that a person made a promise that was significant, you relied on that promise and took some action or did not take some action.
Then, by relying on the promise, you suffered an economic loss resulting from the actions you took and the failure of the person making the promise to uphold the promise.
Finally, the most equitable outcome and the only possible remedy is to enforce the promise against the promisor.
To win a promissory estoppel case, the plaintiff must clearly prove and establish the elements of the case.
There must be a clear injustice leading the court to award equitable remedies.
By preparing your case using the doctrine of unconscionability, you can put the chances on your side to win the promissory estoppel lawsuit
The notion of unconscionability under contract law should be used as the foundation of a promissory estoppel case.
An unconscionable dealing is when there is an overwhelming injustice or an unjust and one-sided benefit realized by one party having bargaining power.
Types of promissory estoppel
The doctrine of promissory estoppel is a common law principle applied in many jurisdictions.
Over the years, different types of promissory estoppel actions have emerged and can be summed up as follows:
- Reliance-based estoppels
- Estoppel by record
- Estoppel by deed
- Estoppel by silence
Reliance-based estoppel is a type of estoppel where a person relies on the promise of another in his or her own detriment.
The estoppel by record is a type of estoppel where a person is prevented from litigating an issue on the basis of a judgment already issued.
Estoppel by deed is when a person is prevented from denying a factual position.
Estoppel by silence is to prevent a person from asserting a right when he or she had the time and opportunity to do so and failed to do anything.
Promissory estoppel in contract law
In contract law, the courts give importance to the bargained-for exchanges in contracts and their enforcement.
However, should there be injustice, even in the absence of consideration, the courts will rely on reliance-based enforcement in the absence of an express bargain.
Exception to consideration rule
The doctrine of promissory estoppel is interesting as it allows for the enforcement of a promise (just like the enforcement of a contractual obligation) even in the absence of any consideration.
For a contract to be legally binding and enforceable, the parties need to have some form of legal consideration.
Consideration is a party’s bargain in the contractual exchange.
There is a saying that goes “no consideration no contract”!
It only makes sense for a party to legally commit to being bound by legal obligations in exchange for something of value, benefit or interest in something.
Without consideration, a contract will not be enforceable.
In the case of promissory estoppel, you do not necessarily need to demonstrate the consideration to obtain a remedy
To find justice, the courts may enforce a promise when there was a detrimental reliance on that promise even without consideration.
You can consider promissory estoppel to be an exception to the requirement of consideration for a contract to be legally binding.
Restatement (Second) of Contracts
The Restatement (Second) of Contracts is titled “Promise Reasonably Inducing Action or Forbearance” states:
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
Section 90 of the Restatement of Contracts outlines three requirements:
- The promisor should reasonably expect to induce action or forbearance by the promisee
- Such action or forbearance is induced
- Injustice can be avoided only by enforcement of the promise
Based on the Restatement of Contracts, the promisor will reasonably expect that the promisee will be induced to take action.
In that case, the courts should oblige the promisor to follow through with the promise.
Promissory estoppel remedies
What are the remedies under a promissory estoppel action?
A person invoking promissory estoppel may claim equitable remedies to remedy the injustice.
As such, a judge will have the discretion to decide the most appropriate remedy to the detriment suffered by the non-breaching party.
The courts will evaluate the factual circumstances of the case to determine what was the intention behind the promise and how the promisee relied on the promise to his or her own detriment.
If the court finds that there is injustice should the promise not be carried out, then equitable remedies will be awarded.
A court relying on the promissory estoppel doctrine to award damages may award reliance damages or expectation damages to the non-breaching party.
Bear in mind that a plaintiff filing a promissory estoppel action must come with “clean hands”.
The court will exercise some discretion to determine the most suitable remedy to enforce a promise perhaps without consideration and to alleviate the detriment of the aggrieved party.
Limitations of promissory estoppel
Having the court award damages based on an action for promissory estoppel will not be an easy task.
You must make a clear case and not have contributed to your own demise.
The legal theory of promissory estoppel is an exception to the general rule of consideration under contract law
The courts will be careful to ensure that not all statements are construed as a promise leading to an enforceable obligation.
Without proper legal checks and balances, the courts may end up getting flooded by promissory estoppel cases.
It’s important to balance enforceable bargains vs unenforceable donative promises.
The notion of an enforceable promise must also be weighed against the notion of an illusory promise.
The court must consider the facts of the carefully to assess the nature of the promise and if it was whether a reasonable person could have objectively relied on that promise to act in a detrimental way.
Promissory estoppel vs issue estoppel
An issue estoppel is when a person is prevented from asserting a legal claim against another.
A plaintiff files a lawsuit against a defendant in one jurisdiction for a tortious act and the court rejects the claim.
On the basis of the doctrine of issue estoppel, the plaintiff can be estopped from asserting that the defendant committed a tortious act before the courts of another jurisdiction.
Promissory estoppel, as the name says it, relates to a promise.
In other words, the doctrine of promissory estoppel is used to compel a person to respect the terms of a promise when the plaintiff objectively relied on that promise to do or not do something to his or her own detriment.
Promissory estoppel example
What are some examples of promissory estoppel?
A lender promises a borrower to discharge the outstanding interest on the sums borrowed.
When the borrower does not pay the interest, the lender files a lawsuit to collect the outstanding interest.
The borrower may oppose estoppel against the creditor having discharged the interest on the outstanding debt.
The promissory estoppel action results in the lender being unable to assert a claim to collect outstanding interest.
The landlord makes a promise to the commercial tenant that he will not exercise his right to terminate the commercial lease for at least another five years.
On the basis of that promise, the tenant spends significant sums of money as leasehold improvements.
Then the landlord moves to terminate the lease.
The tenant may oppose the doctrine of promissory estoppel to prevent the landlord from reneging on his promise.
The promissory estoppel action results in the landlord being estopped from asserting a claim (lease termination).
A service provider promises a client that should the client renew the contract for at least a three-year term, they will waive any price increase as stipulated in the contract.
The client commits to the renewal of three years.
The service provider then moves to increase the prices as per contract.
On the basis of the legal theory of promissory estoppel, the service provider may be estopped from increasing the price and reneging on the promise.
A company orally promises a contractor that is awarded a construction contract.
The contractor relies on that promise to start the work and incur important expenses.
The company does not recognize the contractor’s work and does not pay.
The doctrine of promissory estoppel may be used in the absence of a formal commitment on the part of the company to award damages to the contractor who suffered damages by relying on the company’s promise.
In fact, the contractor had no justifiable reason to do the work and incur important expenses if he did not objectively believe that he was awarded the contract.
Promissory estoppel FAQ
What is promissory estoppel?
Promissory estoppel is a legal doctrine offering protection to companies and entities who have relied on the promise of another, in good faith, and have acted in such a way that led to their detriment.
Even if a contract was not formed and without consideration of the parties, the courts may provide equitable remedies to deal with an unjust outcome resulting from a person’s promise to another.
What is an example of an estoppel?
An estoppel is when a person is prevented from asserting a claim or breaching a promise.
A builder negotiates a contract with the City.
The City’s legal counsel reviews the contract and confirms it’s valid.
On the basis of the legal theory of promissory estoppel, the City may be prevented from asserting a claim on the basis that the contract was invalid.
What are the 5 elements of promissory estoppel?
There are five elements to a promissory estoppel action:
- The parties have some form of legal relationship
- One of the parties makes a representation or promise to the other party
- The other party relies on the promise to act or not to act
- The actions of the other party lead to a detriment
- There is injustice or unconscionability
What is promissory estoppel in contract law?
In contract law, promissory estoppel is a legal doctrine creating an exception to the consideration requirement for the enforceability of contracts.
Typically, a contract is enforceable when there is consideration for both parties.
Consideration does not need to be monetary but something of value or a benefit.
Based on the principle of promissory estoppel, a person’s promise can be enforced without expressly agreeing on contractual terms and without consideration.
If a person objectively relies on another’s promise to act in a detrimental way, the aggrieved party can claim reliance-based damages to compensate for the damages suffered.
What is needed to prove promissory estoppel?
You will need to prove certain essential elements to win a promissory estoppel action:
- Someone has made a promise to you leading you to act on that promise
- You relied on the promise made to you
- You suffered damages by relying on that promise
- Having the person’s promise enforced is the only way you can be compensated