The doctrine of promissory estoppel under contract law

1) Introduction

We come across a multitude of contractual matters, particularly in the corporate world. Since ancient times, thegrowth of trade and commerceenhanced the need to have contracts, and hence emergence and development of contract law derives most of its history from theIndustrial Revolution.[1] These contractual matters are governed by the contract law and in India by the Indian contract law 1872. This contract law involves various principles and doctrines, amongst which the doctrine of promissory estoppel is one of the important ones.

This article aims to establish a clear understanding of this doctrine.

2) Understanding the doctrine

The doctrine of promissory estoppel in contract law prevents a party from retracting its promise or consideration made to the other party and allows the recovery of damages by the other party, who has reasonably relied on the promise, even in the absence of a legal contract. It is a tool for the promise against the promisor.

There are three requirements for the doctrine namely promise, promisor, and promisee. But in seeking damages under this doctrine, the plaintiff must show that-[2]

A promise, either expressed or implied was made clearly.

There must be reasonable justifications for the promise to rely on the promise, that this relying must alter the position of the promisee. And the reliance of the promisee on the promise must be reasonable. Courts assess whether the promisee acted prudently in trusting the promise.

The reliance on the promise must be detrimental, which includes various forms, including financial loss, opportunity cost, or other forms of harm suffered because of relying on the promise.

The promisor must have unjustly and unreasonably denied fulfilling the promise made.

If the court finds that the elements of promissory estoppel are satisfied, it may grant equitable remedies to prevent injustice. This could include enforcing the promise, preventing the promisor from going back on their word, or providing compensation for the detriment suffered.

However, the promise becomes enforceable if the court determines that the only way the injustice committed to the promisee can be avoided is by enforcing the promise. However, the court has discretion in choosing what to do in such a case. Ideally, it will take an action that relieves the promisee of the detriment suffered.[3]

But this doctrine is not applicable in some cases wherein-[4]

Administration is not bound to refrain from withdrawal of tax exemption or tax holiday.

The administration is not bound to enact a proposed legislation.

Administration is not bound to refrain from performing statutory duty.

Administration is not bound to create or abolish a civil post.

3) Promissory estoppel and consideration

Promissory estoppel goes against the traditional rules of contract law i.e. requirement of consideration, as it allows the enforcement of promises even in the absence of consideration. This distinguishes it from the typical contract formation requirements, allowing the enforcement of promises even without a formal contractual relationship.

However, promissory estoppel does not provide comprehensive protection in all situations. Its application is contingent on the specific circumstances of each case, and there may be instances where the elements of the doctrine are not met. Furthermore, the relief granted is typically limited to what is necessary to avoid injustice, and the courts may exercise discretion in tailoring remedies to circumstances.

4) Remedies provided by the doctrine.

The rules of this doctrine differ with jurisdictions. Generally viewing, some common remedies would include the following.

i) Equitable relief- In some cases, the court may award remedies such as injunction or restitution to prevent further harm or to restore the promisee to the original position s/he was in before relying on the promise.

ii) Cancellation or modification of obligations- In some situations, the court may find it appropriate to modify/cancel the existing obligations between the parties depending on the detriment caused by the promise.

iii) Enforcement of the promise- the court may order the promisor to fulfil the promise they made, violation of which may further lead to punishment.

5) Some Cases that developed the understanding of the doctrine

i) Huges v. Metropolitan Railway Company (1877) [5]

This case is a primary example of the doctrine. It involved a railway company, that made an informal promise to purchase the claimants land, due to which the claimant acted on the detriment. The court held that despite the absence of a formal contract, if a party makes a promise based on which the other party relies, then the promisor cant revoke the promise.

ii) Ricketts v. Scothorn (1898) [6]

It involved a granddaughter who quit her job relying on her grandfathers promise to support her financially, but the grandfather refused to fulfil the promise. This case is a prime example of promissory estoppel to prevent injustice as an outcome of a broken promise.

iii) Combe v. Combe (1951) [7]

The court explored the limits of promissory estoppel in this case. It concluded that the doctrine cannot be used as a cause of action to claim damages and only as a defence to prevent the non-enforcement of promise.

iv) Union of India and Anr vs. Wing Commander R.R Hingorani [8]

A govt. employ stayed in a govt accommodation for 2 months after the concessional period, following which govt. claimed in court to order the employee to pay damages equivalent to market rent for the unauthorized stay. However, the government had failed to serve the respondent with a notice that he would be liable to pay market rent for the period of such unauthorized occupation, hence, the court held that the doctrine of promissory estoppel would apply, and the Government cant claim damages equivalent to the market rent. A principle was laid down, wherein to invoke the doctrine of estoppels, there are three conditions which must be satisfied- [9]

• Representation by a person to another.
• The other should have acted upon the said representation and.
• Such action should have been detrimental to the interests of the person to whom the representation has been made.

v) Motilal Padampat Sugar Mills vs State of Uttar Pradesh and Ors. [10]

The Chief Secretary of Govt. made an assurance that to establish industries the total tax exemption would be given to the new industrial units for the next 3 years, based on this assurance M.P. Sugar Mill started a hydro generation plant taking a huge amount of money as a loan. Afterward govt. makes some changes in the tax policy saying that industries will be taxed at a varying rate. Applying the doctrine of promissory estoppels, the SC held that the appellant took a huge loan relying on the assurance made by govt. so no tax should be imposed for 3 years from the date of production as the promise was made.[11]

6) Conclusion

Promissory Estoppel is a legal doctrine where parties can be held liable for broken promises that result in financial harm.[12] the doctrine is an important tool to fight injustice, and the judiciary has played a significant role in implementing the doctrine, though, there is no mention of the doctrine in the ICA.

Citation

1) Prashansa Shah, Origin and Development of Contract Law, Enhelion Blogs, available at https://enhelion.com/blogs/2019/04/23/origin-and-development-of-contract-law/ (last visited on 25 December 2023).

2) Andrew Ancheta, Promissory Estoppel Explained, with Requirements and examples, Investopedia, available at Promissory Estoppel Explained, With Requirements Example (investopedia.com) (last visited on 28 December 2023)

3) CFI team, promissory estoppel, Corporate Finance Institute, available at Promissory Estoppel - Definition, Requirements, Example (corporatefinanceinstitute.com) (last visited on 28 December 2023).

4) Law Bhoomi, Doctrine of promissory estoppel and its Applicability in India, Lawbhoomi. available at Doctrine of Promissory Estoppel and its Applicability in India (lawbhoomi. com)(last visited on 26 December 2023).

5) 2 AC 439

6) 57 Neb. 51, 77 N.W. 365

7) 2 KB 215

8) 1987 AIR 808, 1987 SCR (2) 94

9) Madhubala Solanki, Promissory Estoppel, Law octopus, available at Promissory Estoppel - Academike (lawctopus.com) (last visited 29 December 2023).

10) 1979 SCR (2) 641

11) Madhubala Solanki, Promissory Estoppel, Law octopus, available at Promissory Estoppel - Academike (lawctopus.com) (last visited 29 December 2023).

12) Andrew Ancheta, Promissory Estoppel Explained, with Requirements and examples, Investopedia, available at Promissory Estoppel Explained, With Requirements Example (investopedia.com) (last visited on 28 December 2023)