Contract Law lecture - Estoppel - its origins and forms
Estoppel is a judicial device in common law legal systems whereby a court may prevent, Legal doctrines of estoppel are based in both common law and equity. Treitel on Contracts notes that "unconscionability provides the link between .. can be thought of as consideration for the promise to waive the rest of the debt . Explain its relationship to the equitable doctrine of promissory estoppel In order for Professor Atiyah has challenged the orthodox definition of consideration. 1 The doctrine of consideration, defined in Currie v Misa as 'some right, . was no pre-existing legal relationship between them; if estoppel were to work in this.
Consideration, therefore, maintains contracts and the essence of bargain and autonomy in order to allow humans to 'flourish' economically Cohen Readings in Jurisprudence and Legal Philosophy [, Beard Books] 26 Gay Choon at par Fourthly, keeping the doctrine of consideration would undoubtedly be the 'most practical solution'.
Even Phang, despite his argument against consideration in the case of Gay Choon, had to acknowledge this fact; that keeping consideration would enable courts and parties to use a 'range of legal options to achieve a just and fair result' in any case As will be argued, consideration, duress and promissory estoppel have distinct functions within contract law; it is not simply a good solution to do away with one in favour of another.
For example, duress provides a more 'refined control mechanism' for protecting a participant in a variation of a contract because it renders a contract voidable not void McKendrick concurs that duress and consideration 'cannot be collapsed into one' Similarly, if promissory estoppel were allowed to create a new cause of action in English contract law it would simply undermine consideration's efficacy. This situation will be analysed later.
Keeping all three doctrines active and in-use whilst delineating between them — especially between promissory estoppel and consideration — reveals the truth that they complement each other and provide a structure to contract law allowing for the most just resolution of litigation. Promissory estoppel does not provide a replacement of the doctrine of consideration. Promissory estoppel is an effective doctrine. It is well suited to modern commercial practice and has had new life breathed into it by the Australian case Waltons Stores, in which Phang argued that it could be used to found a cause of action.
However there are two reasons why promissory estoppel would not perform the functions of consideration as effectively as the doctrine itself. Firstly, promissory estoppel is merely a fledgling doctrine. This is borne out by the fact that the effect of estoppel is unclear, in sharp contrast to the effect of consideration. The crucial debate is whether estoppel is suspensory or extinctive. Generally the doctrine is regarded as suspensory, in that it holds the promisor's rights in suspense and does not change or do away with them.
For example in Hughes v Metropolitan Railway Co 27 the landlord could still enforce the repairing covenant after giving reasonable notice.
Contrastingly, in the case of High Trees, Denning J argued that the lessors' rights to demand the rent between and would be extinguished The suspensory-extinctive divide is a significant one because it highlights a contention at the heart of the doctrine. The divide must be bridged in accordance with the key aims of promissory estoppel in order for it to become a serious and feasible doctrine. The fact that the rule described above clashes so clearly with the principle in Foakes v Beer merely serves to highlight the inadequacy of promissory estoppel and lack of expansive case law on the subject, in sharp contrast to the detailed case-law on the doctrine of consideration consideration.
Whilst that is not to say that consideration is not without its own confusions and particularities, there is little to be said for replacing one imperfect although better thought-out and more clearly-regulated doctrine with another imperfect one.
The judgment in Collier elaborates how promissory estoppel is less 'well thought-out' than consideration: This is where the suspensory-extinctive confusion at the heart of promissory estoppel is brought to bear.
Doctrine of Consideration and Promissory Estoppel
B tells the shopkeeper that he will get the money and come back later that day to purchase it; there is no discussion of price. The shopkeeper says that when B returns, he will welcome B as a customer—unless he sells all three of his radios first. In equity, can you argue that the shopkeeper is estopped by conduct? This element would be absent if B sold the watch at the market price. But the shopkeeper did not guarantee to hold one of the radios against the possibility of B's return nor did they agree a fixed price.
In some common-law jurisdictions, a promise by the shopkeeper to hold a specific radio would create a binding contract, even if B had to go for the money. A promise to pay the owner in the future is good consideration if it is made in exchange for a promise to sell a specific radio one from three is probably sufficiently specific: So the shopkeeper's actual words and knowledge are critical to deciding whether either a contract or an estoppel arises.
The drafters of the Second Restatement debated how to calculate the amount of damages flowing from a promissory estoppel, using the following example: The Restatement states that "The remedy granted for breach may be limited as justice requires.
In practice, however, a recent study of over promissory estoppel cases decided under the Restatement Second of Contracts has found that many courts continue to enforce the promise to the full extent i.
The terms Estoppel in pais and equitable estoppel are used interchangeably in American law. Convention[ edit ] Estoppel by convention in English law also known as estoppel by agreement occurs where two parties negotiate or operate a contract but make a mistake.
If they share an assumption, belief, or understanding of the contract's interpretation or legal effect, then they are bound by it, if: Estoppel by convention is most commonly invoked if one party wishes to rely on pre-contract negotiation as an aid to construction of the contract.
Estoppel by acquiescence Estoppel by acquiescence may arise when one person gives a legal warning to another based on some clearly asserted facts or legal principle, and the other does not respond within "a reasonable period of time". By acquiescing, the other person is generally considered to have lost the legal right to assert the contrary. As an example, suppose that Jill has been storing her car on Jack's land with no contract between them. Maher then begins the construction of the new building.
Obviously, Mr Maher was far from thrilled to hear this. Here he was, having demolished his own buildings, and with a new building, half completed, all to Walton's specifications. What was he to do now? A half built store is completely useless. Even if he finishes it off, would he be throwing good money after bad? He brought a case against Walton's Stores, arguing that they were estopped from denying that a contract existed.
In the earlier stages of the case, it was argued on more technical aspects of common law estoppel. But as the case went up through the courts, it became clear that the High Court was willing to reconsider some of the earlier opinions about swords and shields and the like.
Doctrine of Consideration and Promissory Estoppel
So the basis of the argument shifted - this is one of the unusual aspects of the case. Even so, given the originality of the case, Maher met with remarkable success at all levels. The Court of Appeal found likewise. The High Court - it was pointed out that the trial court judge spoke of a representation constituted by silence in circumstances where the party should have spoken. This idea of a representation by silence will come up again in later lectures. The court of appeal spoke of knowledge of a mistake which the other labours under and does nothing to correct.
Our conclusion was that M assumed that the exchange of contracts would be concluded - not that the exchange had taken place, undermines these conclusions based on our earlier observation that an estoppel by representation must be as to an existing fact - not future conduct.
This is a shift in the argument from that presented in the earlier hearings - previously based on CL estoppel - now based on Promissory Estoppel. PE certainly extends to reps re future conduct. So far limited to situations where there is a pre-existing contractual relationship.
In principle, no reason why this should not extend to a promise re enforcement of a "non-contractual" right. This is important, for the judges are acknowledging the limitations of the earlier cases, but asking if there is any reason why they should not now push on to the next stage of development.
But we should at least pause to consider the effect of such a view - if the court is now willing to enforce non-contractual rights, might it not have a longer term effect of undermining the whole distinct identity of contractual rights - might it not become difficult to see the distinction between tort and contract law for example? The High Court appears to be willing to contemplate that this is a possibility. In other words, we are not any longer making marginal changes, but basic and structural changes.
In Combe, "estoppel may be part of an action, but not the whole cause of it" Now we are asked to go one step further. Holmes J [a famous American judge writing in the earlier part of this century] said that to enforce such a promise would be to cut up consideration by its roots. Yet here, the judges were willing to argue that perhaps there is no difference in principle between changing legal rights and establishing a new one. Looked to American position they said that the proposition was based on the fact that a there was a reasonable expectation of the promisor that the promise will induce an action or forbearance and b the promise will be enforced where to depart from it would be unconscionable, and there is no way to enforce it by other means.
Equitable estoppel is based in unconscionable conduct - mere reliance will not bring it into play - [very important to remember this - the factor here is an INDUCED reliance - you have been warned - forget this at your peril] - it must involve the creation or encouragement of the understanding by the party estopped. In this case, the judges asked, were Walton's entitled to stand by in silence when they knew that Maher must have been proceeding on the basis that an agreement had been concluded and that completion of the documentation was a mere formality?.
Walton's were responsible for stressing the element of urgency Walton's retained the counterpart lease without expressing any reservations, knowing that costly work was being undertaken. Their inaction here constituted a clear inducement to carry on. Probably the clearest statement of what the case stands for can be found in the judgment of Brennan J: A non-contractual promise can give rise to an equitable estoppel only when the promisor induces the promisee to assume or expect that the promise is intended to affect their legal relations and he knows or intends that the promisee will act or abstain from acting in reliance on the promise, and when the promisee does so act or abstain from acting and the promisee would suffer detriment by his action or inaction if the promisor were not to fulfil the promise.
When these elements are present, equitable estoppel almost wears the appearance of contract, for the action or inaction of the promisee looks like consideration for the promise.
This indicates that when we are talking about this form of actionable estoppel, we have really gone beyond the boundaries of more formal views of contract.
As the judge said, Differences between a contract and such an equity - these relate to estoppel may apply irrespective of whether the party bound agrees. The equity does not need consideration.
The contract depends on terms, and the equity on what is necessary to avoid that which is unconscionable. Equitable estoppel does not make non-contractual promises contractual, and is closer to the tortious remedy of damages for negligent mis-statement or fraud. This case is probably a clear indication that the view so loved of lawyers in the soapies and films - of the smart lawyer, who comes up with the clever technicality at the end of the day - is likely to become even more a matter of fiction than it ever was.
This case was not applied in Austotel v Franklins 16 NSWLR where there were commercial bodies with equal bargaining power and access to advice. The general view was that the Commonwealth did not owe a duty of care in such circumstances and thus would not be liable the Groves defence.
Bythere was some doubt about this, and Verwayen, a member of the RAN sued for damages. The Commonwealth admitted liability, did not plead Groves or Statute of Limitations, saying that it was not its policy to take advantage of either. Inthis policy changed and the Commonwealth sought to take advantage of both.
V said that they had waived their right to these defences. The issue before the High Court was dealt with on the basis of estoppel. Promissory estoppel, recognised by this court in Legione v Hateley undermined the idea that voluntary promises cannot be enforced in the absence of consideration. It recognises that the distinction between present and future fact is unsatisfactory and produces arbitrary results.
These developments have brought greater underlying unity to estoppels. The trend of modern decisions points inexorably to one doctrine of estoppel, rather than a series of them.
Estoppel by conduct was seen as an evidentiary principle, and prevented a person from departing from an assumption of fact - but equitable estoppel has expanded and recognises that an assumption with regard to future fact may ground an estoppel and has taken the principle from being evidentiary to being a substantive doctrine.
The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court may do what is required to prevent a person who has relied upon an assumption present, past or future after being induced to do so by the other from suffering detriment in reliance upon it.
There must be proportionality between remedy and detriment. The assumption may be with regard to legal as well as factual matters. In this case, was the assumption induced by the Govt?
Pleadings alone would not be sufficient. Here, there was more than that, so that Commonwealth did induce the belief that the limitation and Groves defence would not be pleaded and the decision with regard to that would not be changed. Here, to hold the Commonwealth to representations which would deprive it of defences which were available to it by statute or general law, would be a disproportionate response. An order for costs may be sufficient to meet prejudice in terms of expense and inconvenience occasioned by the need for pleading new defences.
To effect "the minimum equity to do justice". Scutiate Savings Bank Holmes J It would cut up the doctrine of consideration by the roots, if a promisee could make a promise binding by subsequently acting in reliance on it. Novation A transaction by which with the consent of all the parties, a new contract is substituted for one that has already been made. P was preparing a tender for the construction of a school.
Intending sub-contractors telephoned P giving their tenders for their specific parts of the work. On the basis of those figures, P prepared their tender, and were awarded the contract. P sued and recovered the difference. HELD A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice cannot be avoided in any other way.
The purpose of the relevant legislation here, is to make a promise binding even where there is no consideration.
P committed itself in reliance on Ds figures. D's mistake should not relieve, because it seriously misled P. Here, damages were granted in lieu of specific performance, and it may be thought that what we have here is an equitable route to damages.
It may be then that Walton's v Maher sees the beginning of the end for consideration, although the judges in the case said that this was not their intention. Perhaps the wider principle is the issue of unconscionability - this has to be weighed in balance with the need for formalities for a contract involving an interest in land. It could be said that everyone knows the rule in land deals. Both parties had solicitors and if they want to get going early, they know the risks and they do so at their own risk.
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