‘Promissory estoppel is now a mature doctrine
“Promissory estoppel is now a mature doctrine. Its role is to mitigate some of the harshness of the doctrine of consideration by protecting those who reasonably rely on promises. Its full potential can only be reached if the court permits its use not merely as a shield, but as a sword, where appropriate. The decision of the Court of Appeal in Baird Textile Holdings Ltd v Marks and Spencer plc [2001] therefore represents a missed opportunity to clarify and modernise the law.”
Promissory estoppel is an important tool in equity to create fairness within contract law. It deals specifically with consideration, which as a doctrine holds the parties that have entered into a contract to which they both intend to be bound. Therefore the parties must have the capacity to be bound to the contract; as well as the intention to be bound by the contract. There must be a value to amount to consideration, which does not necessarily have to be monetary[1]. Consideration can be a right, interest, service, benefit to one party and sufficient detriment to the other party. [2] Consideration does not have to be equal on both sides; one party may only leave a nominal amount of consideration[3] As long as there is sufficient intention and the terms are not vague then the law will not get involved in business dealings; therefore the courts will infer intention[4]; as long as the consideration for that particular business dealing illustrates that there is sufficient consideration.[5] Insufficient consideration is any act where the duty is already imposed by law or a valid contractual duty. However, there are exceptions to the rules, because consideration at times can be deemed as far too harsh.
The case of Williams v Roffey Bros[6] held that consideration could be inferred in a pre-existing contractual duty if there was further consideration that could be inferred. For example this case recognized that the contractor would be subject to a significant late charge, if he did not re-negotiate his contract with the subcontractor to finish on time. Therefore the renegotiation of the pre-existing duty saved the contractor a loss of money, which the courts held as sufficient consideration. However, in the case of paying a partial debt there can never be consideration. The rule in Pinnel’s Case[7] was confirmed in the case of Foakes v Beer[8] where it was held that part payment of a debt could be held as consideration because there was an existing contractual duty. The rule in Pinnel’s Case is that promissory estoppel is an invalid action when it comes to the part payment of debt, unless it is paid in full and benefits both parties. The reasoning behind this is that part payment of debt is inequitable because the person who is supposed to benefit from the consideration is put at a detriment and therefore defeats on of the central tenants of consideration, which one party is at a sufficient benefit whilst the other party is at a sufficient detriment. There are circumstances where promissory estoppel is possible in regards to a reduced payment of a price or fee. The case of Central London Property Trust v High Trees House Ltd[9] is such a case, because the political and social environment was drastically changed. The two parties where a property owner and a business tenant, who then leased the property as flats to other individuals residentially. An agreed business tenancy price came into question during WWII, because of the bombings in London the situation made it impossible for the renter to pay the whole rent due to the bombing and lack of tenants. Here equity stepped and promissory estoppel was used, because it would be unfair to make the renter pay the whole rental amount due to the circumstances. In addition the agreement by the property owner to accept less due to the WWII inferred intention, because otherwise the landlord would receive no rent because the renter would have vacated the premises; and no other businesses would have taken up the tenancy during the war. This is a very specific scenario, where WWII could have amounted to frustration of the contract, because the war would have made it impossible for the renter to satisfy the contract and an act of war is outside his ambit of control. After the High Trees case the courts extended the doctrine of promissory estoppel in the case partial full partial payment of a debt; however if it were revealed that the re-negotiation was due was an action of duress that forced the creditor to agree to the new credit agreement then equity could not step in with the doctrine of promissory estoppel. One such case that illustrates that equity will only aid those with clean hands is the case of D & C Builders v Rees[10] where Rees discerned that the building company was in financial distress and tried to use this to her advantage by offering a smaller payment in full or nothing. This amounted to duress, because the knowledge that Rees had of the problems that D & C Builders were facing was used as a sword against a fair and equitable outcome. The key factor that surrounds the doctrine of Promissory Estoppel is that it originates out of equity and aims to create a just outcome, as in the High Trees Case. In the case of D & C Builders the use of Promissory Estoppel was for unjust purposes and equity could not aid Rees, because an injustice would occur.
High Trees is the case that the modern doctrine of Promissory Estoppel has developed from; however it was the Hughes Case that the doctrine originated from, where a landlord’s actions gave the tenant contrary belief in the events surrounding a notice to repair. Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd[11] case allows for suspension of payment to be reverted back to active payment as long as reasonable notice is given. This also means with the reasonable notice that the creditor can also receive compensation for the suspended payments; therefore ensuring that there is not a case of part payment of debt, because the interest can keep running. The only exception to this is an agreement of an early settlement, with a lump sum that is considered reasonable by both parties.
The Tool Metal Case and the Hughes Case point to the doctrine of promissory estoppel being a shield and not a sword of equitable justice, because it believes that consideration plays an essential part of contract law. To eradicate the harshness of consideration may allow individual like Rees in the D & C Builders Case to use Promissory Estoppel for unfair and unjust purposes. However, the High Trees Case that is the key case for the modern doctrine of Promissory Estoppel seems to be pointing in a different direction, i.e. that the doctrine is a sword against the harshness of consideration. In this case WWII made it impossible for the original contract to be kept to, hence the parties re-negotiated during this period. The case of Coombe v Coombe[12] argued that the doctrine in High Trees could not be identified as a sword against the doctrine of consideration; rather it can only be used as a defense to an action and in the interests of justice. The cases of Re Wyven Developments[13] and Evenden v Guildford City AFC[14] argued that Coombe v Coombe was incorrect and that the doctrine of Promissory Estoppel could be used as a sword; as well as a shield if justice and equity dictated.
The Coombe approach makes sense by ensuring that the rules surrounding contract law are upheld and ensuring that certainty in contracts remain; otherwise there would be a mass confusion where courts could get too involved in business contracts. English law is based on a laissez faire system, where business dealings should be free from the ministrations of parliament and the courts; as long as just and both parties were capable to enter the contract. As Mitchell argues, parties enter a contract with specific expectations and to turn these upside down would be a breach a fundamental principle of contract law:
While we could dismiss this as assimilating reasonable expectation with contractual rights, and therefore making the appeal to reasonable expectation redundant, it is clear that many appeals to reasonable expectation rely upon an institutional or contract law-based source for such expectations. Reiter and Swan, for example, write that ‘[t]he assumption is that the fundamental purpose of contract law is the protection and promotion of expectations reasonably created by contract’. If ‘contract’ here is taken in a legal, rather than a social sense, then the utility of reasonable expectations as a counter-contractual reference point is in danger of disappearing.[15]
Therefore in the light of the essential principles of contract law and the doctrine of consideration the decision of Baird v M&S[16] would have been the correct decision, otherwise there would be a free for all for parties to argue that the contract is unjust and flagrant actions of Promissory Estoppel would occur. However, Promissory Estoppel would still remain as a defense in cases where the situation dictated that there would be an unjust outcome if the contract was upheld in its present form. The case of Baird v M & S, Baird used Promissory Estoppel as an action to enforce what Baird classed as an unwritten contract. In other words Baird was arguing that the long term relationship between the two created a reasonable expectation that there was an ongoing business relationship, which could only be altered or terminated with reasonable notice; as per the Tool Metal Case. The Court of Appeal however decided against this approach, because the reason that M & S did not enter a written contractual agreement was for flexibility and the option of changing suppliers if market forces dictated this route. Also the Court of Appeal stated that the lack of a (legal) contract was determinative for the court. The estoppel claim was also thought likely to fail, since estoppel cannot be used to create a cause of action. It was remarked that, despite the close relationship between the parties, ‘businessmen must be taken to be aware that, without specific contractual protection, their business may suffer in consequence.[17] However, this argument seems to be very one-sided, because as with the High Trees Case the situation in Baird v M & S does indicate that there was intention to create some form of business and contractual relationship that benefited both parties. In fact the long history of Baird supplying the goods could be inferred as terms and conditions of the contract; however the lack of a written contract seems to be an excuse for the Court of Appeal to open up Promissory Estoppel as an action; as opposed to just a defense. Therefore, as Mitchell argues the decision in Baird v M & S could be taken either way because both sides were arguing certainty of contracts and reasonable expectation; however the determining factor not to find a contract was because of public policy reasons NOT to make Promissory Estoppel a cause of action (a Sword) and open the floodgates to further actions:
One can see how a ‘reasonable expectations’ argument can be used to support Baird or M & S, but each relies on a different basis for the reasonable expectation. Baird will have non-contractual reasonable expectations concerning the parties’ mutual obligations, based upon their experience of the previous thirty years. M & S, on the other hand, have reasonable expectations based on their strict legal rights, and supported in the judgement, that there is no contract and hence the relationship can be terminated at will-an institutional interpretation of reasonable expectation… This result does not support the attempt to make contract law more sensitive to the social dimension of agreement-making, but undermines it by privileging the legal framework in the resolution of the dispute.[18]
Bibliography:
J. Beatson (2002) Anson’s Law of Contract 28th Edition, Oxford University Press
Hooley (1991) Consideration and Existing Duty JBL 19-35
David Kelly, Ann Holmes & Ruth Hayward (2002) Business Law 4th Edition, Cavendish
Ewan McIntyre, (2004) Business Law, Longman
McKendrick, 2005, Contract law, text, cases and materials, second edition, Oxford University Press
Mitchell, 2003, Leading a Life of its own? The Roles of Reasonable Expectation in Contract Law, OJLS 23 639
Stallworthy (1994) Case Comment: Variation of Contracts, ICCR 5(7)
Chris Turner (2004) Unlocking Contract Law, Hodder Arnold
