Promissory estoppel is a legal principle that prevents a person from going back on a promise they made if another person has relied on that promise and acted in a way that would be detrimental to them to change that promise.
What is Promissory Estoppel?
Promissory Estoppel is a doctrine in contract law that stops a person from going back on a promise even if a legal contract does not exist. In simple terms, promissory estoppel is where we have a promise without a return or consideration, but the party might still be liable for the promise. There are 3 things that are necessary for a contract: offer, acceptance, and consideration. There is no contract even if one of the three do not exist. In Promissory Estoppel, instead of consideration, we have a promise inducing reasonable reliance and the court finds some liability for the promise. This states that the aggrieved party could recover damages from a promisor if the damages incurred were the result of a promise made by the promisor.
Understanding Promissory Estoppel
Promissory Estoppel enables an injured party to recover from a promise made to them. There are 3 important legalities when it comes to claiming Promissory Estoppel: a promisor, a promise and a detriment that the promise has suffered. The promise should be something that a person would ordinarily rely on. Due to the promisor, the person must have suffered an economic loss resulting from the promisor failing to deliver on his promise. Finally, promissory estoppel is only granted by the court if enforcing the promise is the only way to get the misconduct rectified.
In Cohen v. Cowles Media Co. 501 US 663 (1991), the supreme court passed promissory estoppel as a “state law doctrine creating legal obligations never explicitly assumed by the parties that are enforceable.” This means that an agreement made by the promissory will have the same binding effects on parties that a valid contract would.
Requirements of a Promissory Estoppel
The following elements must be present for promissory estoppel to be enforceable:
- A promise made by the promisor must cause the promisee to act on it
The promise must be significant enough so that any reasonable person would rely on that promise.
- Promisee relied on the promise
The promisee must have acted on the promise made by the promisor even though it was not supported by consideration.
- The promisee must have suffered damage by relying on the promise
The party must have faced economic loss due to the promise. The loss faced must be due to the promise of the promisor.
- Fulfilment of the promise is the only way to give justification
Promissory Estoppel is enforced if the court determines that the only way to get justice is by enforcing the promise. However, the court has discretion in choosing what to do in such a case.
- A construction company promises a landowner that they will build a new road in exchange for the landowner allowing them to use a portion of their property for construction. The landowner relies on this promise and sells their property to a developer, who plans to build a shopping centre on the land. The construction company then reneges on their promise, and the landowner is unable to recover the damages suffered by the developer.
- An employee is promised a promotion by their employer and is given a raise and additional responsibilities. Based on this promise, the employee turns down other job offers and commits to staying with the company. The employer then reneges on the promise, and the employee is unable to recover the damages suffered by not taking the other job offers.
- A landlord promises a tenant that they will make repairs to the property, and the tenant agrees to renew their lease. The landlord fails to make the repairs, and the tenant is unable to recover the damages suffered as a result of not being able to find a new rental property.
- A seller promises to a buyer that a certain product will be delivered by a certain date and the buyer relies on this promise and cancels other orders. Later the seller fails to deliver the product on the promised date, the buyer can sue the seller for the damages suffered as a result of not receiving the product on time.
In all of these examples, the person who made the promise is estopped, or legally prevented, from denying or going back on their promise because the other person relied on it and suffered a detrimental consequence as a result.
Promissory estoppel is often used in situations where one party makes a promise that they know the other party will rely on, and the other party incurs some type of expense or loss as a result of relying on that promise. In such cases, the party that made the promise will be held liable for the damages suffered by the other party.