The effect of promissory estoppel

Promissory estoppel is an exception to the requirement that a contract must have consideration to be enforceable. An offeror is required to perform its promise where it would be unjust not to do so, even though the offeree has not provided consideration.

For promissory estoppel to be invoked, the offeree must have altered its position, in reliance on an assumption induced by the offeror and the offeree would suffer detriment if the promise is not performed.

The remedy for promissory estoppel is whatever is necessary to prevent the detriment to the offeree. If it is possible for the parties to resume their positions before the offeree acted in reliance on the offeror’s promise, then they may be able to resume that position. However, if this is not possible, then the estoppel may operate permanently and the offeror is required to fulfill its promise.

CASE STUDY

Facts

• Maher agreed to build premises on the basis that Waltons would lease the premises.
• Waltons sent Maher an unsigned lease agreement, which Maher signed and returned.
• Maher commenced demolition after returning the agreement to Waltons.
• Waltons then decided not to continue with the lease.

Result

The High Court held that equitable estoppel (which includes promissory estoppel) will apply where:

• a plaintiff has assumed that a legal relationship existed or will exist;
• the defendant induced the plaintiff to adopt that assumption;
• the plaintiff acts in reliance on that assumption;
• the defendant knew of the acts of the plaintiff;
• the plaintiff’s actions will cause detriment to the plaintiff if the assumption is not fulfilled; and
• the defendant has failed to act to avoid that detriment.

Silence will be sufficient to establish equitable estoppel where it was unconscionable (unjust) for the defendant to remain silent and the defendant knew that the plaintiff had assumed or expected something and acts on that assumption or expectation.

Accordingly, Waltons could not deny that they had signed the lease. Therefore, the rights of the parties were determined in accordance with the lease agreement.