Doctrine of Promissory Estoppel Issues

This essay will evaluate the statement “The doctrine of promissory estoppel prevents (estops) a claimant from going back on a promise and has been described as a ‘shield and not a sword’.” It will be necessary to evaluate the doctrine of promissory estoppel through considering the judicial dicta of relevant case law and extracting the rules created by the judiciary. Through researching relevant cases and principles it is then possible to establish when the doctrine will be used and evaluate why it has been described as a ‘shield not a sword’.

To establish this, Open University (OU) module materials will be used, particularly Unit 3.2.2, Chapter 4, Section 4B of Furmston ‘Law of Contract’ (2017) and judicial dicta (Judges’ statements) in the relevant case law, particularly Hughes v Metropolitan Rly co (1877) 2 App Cas 439, Central London Property Ltd v High Trees House Ltd [1947] KB 130 and Combe v Combe [1951] 2 KB 215.

The foundation of promissory estoppel derives from the statement of Lord Cairns in Hughes v Metropolitan Rly co (1877) 2 App Cas 439. In October 1874, the landlord; Hughes gave notice to the tenant; Metropolitan to carry out repairs in the next six months, failure to do so would result in forfeiture of the lease. Negotiations between the parties for the sale of the property took place the following month but closed without agreement in December 1874. While negotiations were ongoing the tenants did not commence repairs and six months from when the notice was received Hughes brought action for possession of the property.

The House of Lords held the landlord’s conduct was an implied promise and led the tenants to believe that the time limit for the repairs was suspended during negotiations. Therefore, Hughes could not take advantage of the tenant’s reliance on this suspension. In his statement, Lord Cairns explained that a promise can be only held to be binding where it would be inequitable if a party reneged their promise to not enforce their existing legal rights on the other party, who had acted on reliance of that promise.

The use of promissory estoppel in this case meant that Hughes could not enforce his strict legal rights under the lease as these had been modified where he implied that such action would be suspended. As a result, the House of Lords suspended his right to have the premises repaired but did not extinguish them; it was held that the date of repairs would run again from the date of the breakdown of negotiations. Metropolitan was still bound to carry out these repairs within the adjusted time limit and given equitable relief against forfeiture of the lease.

The principles Lord Cairns laid down in Hughes were re-instated by Denning J in Central London Property Ltd v High Trees House Ltd [1947] KB 130. In 1937, the claimants; Central, let a block of flats at an annual rate of £2500 to the defendants, High Trees. In 1940, the claimant agreed to halve the rent due to war conditions causing evacuations and the inability for High Trees to reach the rent with reduced lettings. Once the war had ended in 1945 and the flats became fully let, Central requested High Trees to resume payment of £2500 a year, High Trees refused.

The court held that the rent for the last two quarters of 1945 were to be paid as the agreement was only valid while the war conditions were ongoing or until the flats were fully let, both requirements were fulfilled by this time. Denning J stated obiter dicta that had the claimant tried to claim for the arrears of the reduced rent between 1940 and 1945 it would have not been successful. The right to claim the rent in that time period will be extinguished. The legal right can only be reactivated when the conditions were fully met; last two quarters of 1945, but not with retrospective effect (OU, 2017a. 3.2.2). The promise not to pay full rent during such conditions was held to be legally binding. Denning J made the admission that it was time for a promise to be recognised as legally binding in spite of the absence of consideration and applied the following principles; A contracting party who makes a promise in which they intend to be binding will not be able to enforce their contractual right if the promisee acted on and relied on that promise.

In Combe v Combe [1951] 2 KB 215, a husband and his wife were involved in divorce proceedings when he promised to pay £100 a year maintenance. He did not fulfil his promise and the claimant who was in a better financial position did not bring court action until several years later after the divorce was finalised; in which she tried to use promissory estoppel to sue him on a promise he made. The wife argued that her forbearance of not exercising her right to claim maintenance was consideration enough for his promise.

The issue considered in this case was whether the husband could withdraw from his promise to pay the maintenance. The court contemplated whether the claimant had given consideration for the promise by her ex-husband. In addition, whether she could claim for the total of £675 in arrears over the previous years regardless of no earlier claim for the money.

However, the court could not find any consideration for the promise and the ex-wife’s forbearance could not be qualified as consideration as she did not express she would forbear nor was she asked to. In common law, the element of consideration requires reciprocity; the promise must move from the promisee to the promisor/third party (OU, 2017a, 1.3).

Byrne J believed that the principle in High Trees would apply to the wife and she would succeed on the basis that the husband has made a clear promise to pay the maintenance intending for the wife to act upon it and that it could have been believed she acted upon it in her forbearance. Nonetheless, the Court of Appeal ruled that this judgment was incorrectly applied and reversed the decision. Denning LJ explained in the obiter that promissory estoppel cannot be used as a cause of action as it is not meant to undermine contractual formation and consideration. In addition, Denning LJ stated that while consideration is necessary in the formation of a contract, modification and discharge of a contract does not. The scope of promissory estoppel is limited to the modification of existing legal relationships rather than the creation of new ones.

Denning LJ developed the principles of promissory estoppel and applied that where a party by word or conduct, made a promise that is intended to be acted upon and affect legal relations; was then acted upon, the promisee can not renege from their promise.

From the evaluation of Hughes, High Trees and Combe, promissory estoppel can be described as an operation to suspend a party from enforcing their strict legal rights which they have already waived. The principles of promissory estoppel extracted from these cases are able to provide when the doctrine can be used;

First, there must already be a pre-existing legal relationship between parties. This can be seen in the case of Combe where it was established that there must be an existing legal relationship as the scope of promissory estoppel is limited to modification.

Secondly, the promise must be clear and unambiguous. In High Trees the claimants had agreed in writing to halve rent due to war conditions and reduced lettings. Although there was no express time limit, the promise was clearly applied to last until war conditions ended and fully let. In contrast, in Woodhouse Israel Cocoa Ltd v Nigerian Produce Marketing Board [1972] AC 741, the House of Lords rejected the application of promissory estoppel due to there being no “clear and unequivocal” promise.

Next, reliance; the promisee must have relied on the promise and shown by it affecting their conduct. If the promisee cannot resume to his original position due to reliance such as the tenant in Hughes as his reliance rested on forfeiture of the lease. If the promisee can resume their original position or can do with reasonable notice such as that in High Trees following war conditions they no longer rely on that promise.

Following this, is the principle of inequity which is extends on the principle of reliance. If the promisee is unable to resume their original position due to reliance of that promise without reasonable notice; it would cause unjust circumstances for the promisee if the promisor was to go back on that promise. In D & C Builders v Rees [1966] 2 QB 617, the defendants had taken advantage of the claimant’s financial position and threatened to break their promise of paying the original agreed amount. Due to this behaviour, Denning MR held that the promisee cannot rely on the doctrine of promissory estoppel if they have not acted equitably.

Lastly, promissory estoppel is a shield not a sword. It cannot be used in English law as a cause of action, it can only be used as a defence mechanism to protect someone who may suffer unjust enforcement of strict legal rights. As seen in Combe it cannot create new rights or extend the scope of existing rights, it can only modify the original contract formed between parties. To create a new cause of action could be described as a “sword” where rights are enforced where they did not previously exist. In other jurisdictions such as Australia, it may be used as a cause of action; as seen in Waltons Stores (Interstate) Ltd v Maher (1988) 76 ALR 513. However, as Denning commented in High Trees, this may overstep the line into consideration and undermine contract formation.

An aspect of promissory estoppel which Furmston (2017, p.137) states remains unsettled is whether the doctrine extinguishes or suspends the strict legal rights of the promisor. As seen in Hughes the action was suspensory while negotiations were taking place, whereas in High Trees the right of full payment of rent during the war would have been extinguished had this been challenged by Central. On the other hand, High Trees could also be seen as suspensory as it only suspended the legal rights of Central for so long.

In conclusion, the doctrine of promissory estoppel prevents a claimant from going back on a promise in certain circumstances. For the doctrine to apply, there must be a pre-existing legal relationship in which there has been a clear and unambiguous promise which the promisee has relied on and would be inequitable for the promisor to go back on. It can be used to extinguish and suspend strict legal rights and can only be used as a shield not a sword. The description of a “shield not a sword” is valid for the doctrine of promissory estoppel as it can only be used in English law as a defence to an action to enforce rights that have been waived.

References

Module Materials

The Open University (2017,a) W202 Unit 3: Consideration, intention to create legal relations, privity and capacity [Online] Available at: https://learn2.open.ac.uk/mod/oucontent/view.php?id=1177635 (Accessed 1^st November 2017)

Books

Furmston, M. (2017) Cheshire, Fifoot & Furmston’s Law of Contract, 17th edn, Oxford, Oxford University Press.

Cases

Central London Property Ltd v High Trees House Ltd [1947] KB 130

Combe v Combe [1951] 2 KB 215

D & C Builders v Rees [1966] 2 QB

Hughes v Metropolitan Rly co (1877) 2 App Cas 439

Woodhouse Israel Cocoa Ltd v Nigerian Produce Marketing Board [1972] AC 741

Waltons Stores (Interstate) Ltd v Maher (1988) 76 ALR 513