Use of Promissory Estoppel in Business Contracts

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Table of Contents

Introduction
Significance of consideration
Detrimental dependence
Sorts of promises
English law
Cases
Conclusion
Reference List

Introduction

Promissory estoppel underscores a significant doctrine in business contracts and contract law where a non-contractual promise that does not have deliberation is made enforceable to prevent an injustice. Promissory estoppel comes up when injustice is avoidable through enactment of a promise that could else be unenforceable for not having consideration. In most cases, promissory estoppel is applied in the situation of benevolent donations.

In a number of authorities, the contribution has to have dependence on the promise though in other cases it is not essential (Jimenez 2010). The perception of quasi contract is somehow comparable for such contracts have the same impact of imposing a promise in a bid to avoid unfair outcome. This paper explores the use of promissory estoppel in business contracts with support of different cases.

Significance of consideration

In simple terms, “promissory” denotes “associated with a promise”, whereas “estoppel” is an expression in law that fundamentally signifies an imposed ban or block. Judges utilise the doctrine to block an individual from reneging on a promise. Observing it from a different perspective, the doctrine is a device to implement promises efficiently by demanding both parties to carry out the things they promised to do. It is frequently viewed as an exclusion to strengthen contract law.

With respect to the United States and the English common law, there are three sections in an official contract (Epstein, Arbuckle & Flanagan 2010). These three sections encompass an offer, approval, and some kind of consideration. “Consideration” essentially refers to everything of worth and it is generally money, although it could as well be an accord for services or different privileges. Contracts imposed through the principle of promissory estoppel are distinctive for they are commonly lacking the consideration section.

A boss could verbally promise to offer a worker a given monthly remuneration for the period of his or her retirement. For example, there could be a lack of a formal contract except for the boss specifying that this agreement will be executed in substitute for something priceless. The priceless thing could for example be working for the company for a given number of years (Rong 2010). In the same regard, if the boss thinks otherwise in the course of the operation of the worker and before the said years are over, the worker is liable of being affected. If the worker depends on the promise and anticipates the recurring remunerations, he or she may have the right to file a lawsuit under the policy of promissory estoppel if the boss cuts him off.

Estoppel is an unbiased (contrary to common law) concept and its use is thus unrestricted. The universal decree is that when “a single party concurs to take a smaller amount of money in full settlement of a debt, there is no consideration that has been given by the debtor and thus the creditor has the right to claim the debt in full” (Rong 2010, p.19). This aspect differs from a situation where he debtor gives payment in advance prior to the agreed time. In the situation of earlier payment, the advantage to the creditor of having the money early could be taken as consideration for the promise to relinquish the remaining debt.

Detrimental dependence

Not every promise is eligible for implementation under the policy. To start with, the party seeking redress should have depended on the promise in a consequential manner in a bid to have an actionable allegation. Next, the dependence should have turned out to be unfair. This element commonly signifies that the individual depending should have lost money or encountered other unconstructive upshots as a direct outcome of depending on the promise. Just being discommoded is not sufficient. Dependence is crucial mainly since the policy is based on the notion of injustice. Injustice in law can be hard to confirm, but nearly at all times, it rotates about the status quo (Mcfarlane 2010).

When a party in a particular business has been harmed out of a promise that has failed, the law tries to remedy the harm. Devoid of harm, there is a great difficulty in trying to paint an image of injustice. The application of the principle of promissory estoppel is restricted to instances where it is essential to avoid unfairness. This assertion shows that it is used less frequently as compared to instances where it were used to merely do fairness, a nuanced though noteworthy distinction. Judges and the courts at large fail to interfere in personal matters to create fairness in them, but they could assist in restoring balance when an individual has encountered harm.

Sorts of promises

Individuals come up with many dissimilar sorts of promises, viz. promises to carry out particular services, offer a given amount of remuneration, and be present in particular places at a specified time. Whereas some promises turn out to be more direct when compared to others, there lacks an existing necessity with regard to how a promise has to appear or the manner in which it should be expressed so that a court deems it compelling. In the use of promissory estoppel, courts normally must be forced to weigh proofs seriously to determine if a promise was really ever made, and if it was, the terms in which it was set are evaluated (Ishibashi & Singh 2010). Courts normally recognise what is referred to as a “quasi contract” in cases where the conditions of an accord are not understandable, but the outcomes are nonetheless conspicuous.

A quasi contract signifies contract that is connoted in law. For instance, say Mary paints the house of John. John is very much aware that Mary is painting his house, and thus he permits her to access his assets, and he takes pleasure in the new look. Additionally, John does not sign any contract with Mary and does not promise to recompense Mary for painting the house. The enforcement of a quasi contract by the court in this case would hold John accountable for the cost of the services offered by Mary since he was aware of the services offered and gained from them (Perillo 2011).

A court could use promissory estoppel in opposition to John with the aim remedying the harm to Mary. Irrespective of the fact that John never openly offered to recompense Mary for the services, his implied approval of Mary and her painting shows that he was conscious of the gain. In this regard, the use of promissory estoppel could re-structure the grounds to balance the two parties with respect to costs and benefits.

English law

The use of promissory estoppel bars one party from backing away from a promise offered to another party when the latter has convincingly depended on that promise. With respect to English law, a promise that has been offered devoid of consideration is usually not enforceable and is instead termed as a bare or unjustified promise. Therefore, when a car salesman promises not to sell a car before a given date, but sells it before that date, the promise is not enforceable.

However, if the car salesman receives even a single cent as a way of consideration of the promise, this promise becomes binding and can be enforced in court. Estoppel does not become exclusion to this law (Epstein, Starbird & Vincent 2009). Generally, estoppel acts as a guard rather than a weapon and it may not be employed on the foundation of an activity by itself. Additionally, it does not eliminate rights. The following are some of the conditions of promissory estoppel.

A clear promise, be it spoken or through conduct
Proof that there is an alteration in the situation of the person to whom a promise is made caused by the promise (dependence, but not essentially to one’s harm)
Unfairness when the promiser(s) were to change their mind concerning the promise

Cases

An example of a case where the court used the doctrine of promissory estoppel to enforce a contract otherwise deficient in consideration is McIntosh v. Murphy. This case entailed an oral accord to employ the plaintiff at the auto franchise of the defendant in Hawaii for a full year. Subsequent to shifting to Hawaii, the employment of the plaintiff was terminated in a period of two months. In this regard, the court ruled to the advantage of the plaintiff since he had depended on the defendant’s promise and had delivered part execution (McNealy 2010).

In Miller v. Lawlor, the conclusion of the court was that it was not essential to settle on the comparative applicability of the principles of part execution against estoppel since it was not essential to discriminate them. In that situation, the court noted that different courts had identified that promissory estoppel has been identified as a different type of consideration or alternative to consideration. The court finally affirmed that language in the contract was adequate to back an outcome that the contract could be enforced through the principle of promissory estoppel (Bundy & Ikeda 2010).

In a case of The Peoples National Bank of Little Rock v Linebarger Construction Company, the court used the doctrine of promissory estoppel in settling on the amount of money that the bank could obtain from the defendant. In this situation, there existed exceptional conditions that had demonstrated a given reason in utilising the money and the court declared that devoid of those conditions the court could have given the bank the full amount of the account. In this regard, the money was utilised by the payroll department and the bank was not allowed to permit the use of money for other intentions (Miller & Jentz 2010).

In a different case of Salsbury v. North-Western Bell Telephone Company, the court vindicated the use of the principle of promissory estoppel as a concern of public strategy. In this instance, the court maintained that, for benevolent donations, no illustration of consideration or negative dependence was essential (McNealy 2010). In this regard, the court pursued the law as stipulated in the Restatement (2d) of Contracts section 90. In this consideration, North-Western Bell Telephone Company agreed to pay Charles City College 15,000 dollars and the court forced the Company to pay even if there existed no negative dependence.

The judgement by the court in the case of Collier v P and MJ (Holdings) Limited implies that the principle of promissory estoppel could then function to alleviate the severity of this normal law rule (McNealy 2010). In addition, permitting a creditor to go back on his or her promise to desist from searching the poise of a debt with respect to part payment could be unfair. Therefore, the sole dependence, which the promisee has to show, is the real making of a fraction of the payment.

Conclusion

Promissory estoppel arises when inequality is avoidable through enactment of a promise that could else be unenforceable for not having consideration. Judges make use of the doctrine to block an individual from reneging on a promise. The party seeking remedy has to have depended on the promise in a substantial manner in a bid to have an actionable allegation and the dependence has to have turned out to be unfair.

In the use of promissory estoppel, courts usually must be forced to weigh proofs critically to decide if a promise was really ever made and the terms in which it was set are evaluated. Courts generally recognise what is referred to as a “quasi contract” in cases where the stipulations of an accord are not comprehensible, but the outcomes are nonetheless conspicuous. The use of promissory estoppel has been clearly discussed with the support of some cases on the topic that arose in the past.

Reference List

Bundy, K & Ikeda, S 2010, ‘How Waiver, Modification, and estoppel May alter Franchise relationships’, Franchise LJ, vol. 30 no. 1, pp. 3-4.

Epstein, D, Arbuckle, M & Flanagan, K 2010, ‘Contract Law’s Two PE’s: Promissory Estoppel and the Parole Evidence Rule’, Baylor Law Review, vol. 62 no. 1, pp. 397-401.

Epstein, D, Starbird, R & Vincent, J 2009, ‘Reliance on Oral Promises: Statute of Frauds and Promissory Estoppel’, Texas Tech Law Review, vol. 42 no. 1, pp. 913-918.

Ishibashi, M & Singh, A 2010, ‘Evolution of Common Law: Promissory Estoppel’, Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, vol. 3 no. 4, pp. 170-177.

Jimenez, M 2010, ‘The many faces of promissory estoppel: An empirical analysis under the Restatement (Second) of Contracts’, UCLA Law Review, vol. 57 no. 1, pp. 669-678.

Mcfarlane, B 2010, Promissory Estoppel and Debts: In Contract Formation and Parties, Oxford University Press, Oxford.

McNealy, J 2010, ‘Plaintiff’s Status as a Consideration in Misrepresentation and Promissory Estoppel Cases Against the Media’, Journal of Media Law & Ethics, vol. 2 no. 4, pp. 215-227.

Miller, R & Jentz, G 2010, Business Law Today: The Essentials, South-Western Pub, Nashville, Tennessee.

Perillo, J 2011, ‘Restitution in a Contractual Context and the Restatement (Third) of Restitution & Unjust Enrichment’, Washington & Lee Law Review, vol. 68, pp. 1007-1016.

Rong, C 2010, ‘On Relation between Promissory Estoppel and Consideration’, Journal of Social Sciences, vol. 5 no. 1, pp. 12-23.

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