What is promissory estoppel? Katie Alsop, Partner at Wright Hassall, explains what promissory estoppel is and outlines the conditions which need to be met when considering using it as a defence.

What is promissory estoppel?

Promissory estoppel, or the doctrine of estoppel (there are various forms), is a legal principle designed to stop a party from going back on a promise that they have made to another party that has relied on it to their detriment.

For the principle to be enforced, there must be no ambiguity on the part of the party making the promise (which can be express or implied). They must be clear that they do not intend to enforce their legal rights, and the person(s) to whom the promise is made must have acted on that promise either to their detriment or have altered their course of action as a direct result of relying on that promise.

The principle of estoppel rests on equity rather than law; in other words, it would be inequitable not to uphold a promise made to someone who had acted to their detriment because of the promise.

It should also be noted that promissory estoppel can only be used as ‘shield’ rather than a ‘sword’. In other words, it can only be used as a defence when a legal relationship exists. A defendant being sued by another party can claim promissory estoppel in their defence but cannot use promissory estoppel to claim against a party that has gone back on a promise.

In court, an objectivity test is used to determine the equitability of the promise: for instance, if the party to whom the promise was made does not rely on it to change their course of action, a court would not consider it to be inequitable if the party making the promise goes back on it.

Promissory estoppel example

For example, let’s say you have a longstanding commercial relationship with a supplier. As a result of difficult trading conditions, you ask if you can defer your monthly payments for three months. Your supplier agrees and adds that they are happy to write off one month’s payment as you’ve been such good a customer as well as spreading the cost of the two months’ deferred payment. Relieved, you use the saved money to pay another, less understanding supplier who is demanding immediate payment.

Unfortunately, several months after your supplier’s original promise to waive a month’s payment, one of their other customers defaults so they ask you to pay the written off amount as soon as possible.

But what can you do? Because you relied on your supplier’s promise not to charge you for a month’s supplies, you are no longer able to pay as you’ve used the saved money to pay another supplier’s bill. Your supplier sues for the difference; after all, your written contract with them had not been altered. In response, you could use a defence of promissory estoppel.

What is the doctrine of consideration?

Promissory estoppel is seen as an alternative to the doctrine of consideration. The doctrine of consideration means that a party who has relied on a promise has to give something in exchange (a consideration) for that promise. In other words, there must be some contractual arrangement between the parties.

Foakes v Beer (1884)

In Foakes v Beer (1884), Dr Foakes owed Ms Beer a sum of money. Finding himself in financial difficulties, Dr Foakes could not repay his debt in full, therefore Ms Foakes agreed that he could pay the sum owed over a stated period. However, the agreement made no mention of any interest owed. Once Dr Foakes had paid the amount owed, Ms Beer sued for the outstanding interest.

Dr Foakes won his argument in the High Court which agreed that Ms Beer had gone back on her promise. However, the Court of Appeal (and subsequently the House of Lords) found for Ms Beer on the basis that Dr Foakes had simply paid what she was owed without further consideration. Lord Blackburn noted that had Dr Foakes given more than what he was contractually obliged to do, namely paid the debt early, or given Ms Beer something else over and above the principal sum owed (he mentioned a horse valued at £500 as an example), then that would have been sufficient consideration to satisfy the court that he had fulfilled his obligations.

Central London Property Trust v High Trees House (1947)

By contrast, a frequently referenced case is Central London Property Trust v High Trees House, heard by Lord Denning in 1947. Despite appearing to have similar features to Foakes v Beer, the case departed from the doctrine of consideration (as adopted by Foakes) and embraced the principle of promissory estoppel.

High Trees House had taken on the lease of a block of flats in London in 1937. During the war, it was difficult to find enough tenants for the flats, so the landlord agreed to waive half the ground rent. By the start of 1945, the flats were fully occupied so the landlord (or at least the receivers, as the landlord had gone into receivership) sued for the ground rent arrears that had accrued during wartime. High Trees House argued that the agreement for a reduced ground rent applied for the whole term of the lease, whereas the landlord was of the view that the promise only concerned the period when the flats were difficult to let.

Lord Denning noted that although common law was on the side of the landlord in respect of the signed contractual arrangement, ‘equity [had] stepped in’ and the promise to suspend part payment of the rent was understood by both parties and was binding but ‘only to apply under the conditions prevailing at the time when it was made, namely, when the flats were only partially let, and that it did not extend any further than that’.

Strictly speaking, the tenant had not given the landlord any consideration over and above payment of what was contractually owed and therefore it was not unreasonable for the landlord to try and recover all monies due over the term of the lease. Nonetheless, Lord Denning found that it would have been inequitable for the landlord to have enforced their contractual terms because the wartime conditions would have prevented the tenant from performing them.

Summary

For many, trading conditions have been difficult over the last two years and are not likely to get any easier as the economic and human impact of the war in Ukraine starts to bite. It is perfectly possible that many established supplier/customer relationships are relying on promises to adjust the terms of their contracts to navigate choppy commercial waters.

It goes without saying that while most promises will be made in good faith and consequently kept, a number will fail as the company making the promise suddenly finds its back against the financial wall and cannot afford to make good their promise.

However, as the above cases demonstrate, relying on promissory estoppel to uphold a promise made is not straightforward. Every case will turn on its own facts and the balance between law and equity will be at the heart of each.

About the author

Katie Alsop is a Partner at Wright Hassall and specialises in contested wills, disputed estates and the removal and substitution of executors. She has a keen interest in proprietary estoppel matters and her work in this area is recognised in the Legal 500 and Chambers & Partners.

See also

What is a proprietary estoppel claim?

What is the Debt Respite Scheme (Breathing Space)?

Find out more

Foakes v Beer (1884) (BAILII)

Central London Property Trust v High Trees House (1947) (BAILII)

Image: Getty Images

Publication date: 19 April 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.