#7424 - Promissory Estoppel - Contract Law

Week 10- Promissory Estoppel

Page 141-160

What is estoppel?

• Estoppel operates where non contractual promises and representation have been relied upon. They provide enforceable rights where none are provided by contract law or can stop a person enforcing their contractual rights against another.

What is estoppel by conduct?

• Inconsistent conduct by one party that causes harm to another party due to reliance on their conduct.

What is common law estoppel?

• If person A leads B a long by making them believe a fact and then person B suffers a detriment, A will be estopped from denying the truth of the representation.

• For example if a person claimed that they signed a contract, they will be estopped from later denying that they did not.

What is equitable estoppel?

• It is a cause of action in respect to the future. It is used as a sword, not just a shield or a defence. You can enforce non contractual rights that might arise in the future.

• Proprietary estoppel is when one person acts to their detriment because they are relying on being granted an interest in land.

• Promissory estoppel is now used to describe any estoppel not relating to land.

• These terms are used less frequently.

• In the High Trees (1956) case, A landlord reduced the rent in WWI and at the end of the war, the liquidator sued for full rent. Lord Denning found that the liquidator should be estopped from reducing the rent. This was the first equitable estoppel case. He reasoned that all that must be established is reasonable reliance on the promise and not detriment or unconscionablity. This is not the case in Australia.

What are the elements of estoppel?

• Assumption

  • The relying party must have adopted an assumption.

  • Common law estoppel can only arise from an assumption of fact.

  • Equitable estoppel must arise from the assumption that the representor will act a particular way in the future.

  • The assumption must relate to a legal relationship.

  • E.g. Waltons Stores v Maher needed an existing legal relationship.

• Inducement

  • The assumption of the relying party must have been induced by the representor.

  • Estoppel can only arise from a clear or unequivocal promise or representation made by the representor.

• Detrimental reliance

  • The relying party must have acted on the assumption in such a way that they will suffer detriment if the representor is allowed to depart from the assumption.

  • There is a difference between expectation and reliance loss. In Waltons Stores v Maher, the expectations loss was the rent they expected to receive from the anticipated lease to the Waltons. The reliance loss was the wasted expenditure in demolition.

  • Reliance loss is often wasted expenditure or contract preparation.

  • Je Maintiendra Pty Ltd v Quaglia showed that detriment must be assessed at the time the representor tries to depart from the assumption.

  • The detriment does not need to be financial as shown in Commonwealth v Verwayen.

  • Material detriment: The loss of a single peppercorn is not enough for estoppel. The detriment must be material, significant or substantial.

Required in some cases:

• Reasonableness

  • The relying party’s reliance must be reasonable.

  • Did the relying party act reasonably in adopting the relevant assumption?

  • Did the relying party act reasonably in taking the relevant detrimental action on the faith of the assumption?

• Unconscionable

  • The representor’s departure from the relevant assumption must be unconscionable.

  • Does the representor deserve blame?

  • It is an underlying principle forming the elements of estoppel.

• Threatened departure

  • The relying party has nothing to complain about unless the representor tries to breach the promise or deny the truth of the representation.

What is the effect of an estoppel?

• A common law estoppel can be used to create a cause of action where one was previously not available. E.g. Able to enforce a contract.

• An equitable estoppel must give equitable relief. The court can give specific performance or damages in lieu of specific performance or transfer land or compensation.

Cases

Elements of equitable ESTOPPEL

Page 214

Je Maintiendrai v Quaglia (1980)

Facts:

• Qualiga owned a hairdressing business in a shopping centre.

• They had a contract with Je Maintiendrai, the landlord, for a fixed 278 pound rent to be increased at a rate of CPI each year.

• When Je Maintiendrai was unable to keep tenants, he agreed to reduce the rent to 240 a month.

• Quaglia later vacated the premise.

Remedy sought:

• Je Maintiendrai wants the unpaid rent.

Prior proceedings:

• Je Maintiendrai was estopped from claiming the rent in the Local Court.

• Je Maintiendrai is appealing to the Supreme Court of South Australia.

Legal issue:

• Did an estoppel arise when Je Maintiendrai led Quaglia to believe that the rent had been reduced even though there was no consideration for the reduced rent?

Outcome:

• Quaglia won 2:3. Cox J dissented.

Legal reasoning:

• King CJ reasoned that there was no contract and Quaglia did not suffer an obvious detriment but the detriment is enough. The landlord promised not to enforce his legal right. Even though the detriment of having to pay a lump sum payment is not large, the trial judge is in a better position to decide the magnitude of the detriment.

• White J reasoned that the detriment that Quaglia suffered must be judged at the moment when it is greatest and when the representor threatens to withdraw. Quaglia could have chose to abandon ship and taken their chances of being sued for breach of contract or found another tenant to replace them. It would be unjust in the extreme to demand a lump sum not readily available.

• Cox J dissented. He reasoned that it is impossible to find any detriment to Quaglia. They needed to prove that Quaglia substantially changed their conduct as a result on reliance of the promise. They might have suffered a detriment and they might not have. It is too hard to tell.

Ratio decidendi:

• Detriment in equitable estoppel must be assessed at the time the representor seeks to resile from the relevant assumption.

estoppel being used to estopp a party from denying the existence of a concluded contract. Also created new approaches to estoppel.

Page 220

Waltons Stores (Interstate) v Maher (1988)

Facts:

• Walton and Maher negotiated on terms that required the Mahers to demolish a building on their land and build a new one that Walton would rent.

• Maher needed to complete the agreement quickly to meet Walton’s deadline.

• Walton’s solicitors sent Maher’s solicitors a copy of the lease. The covering letter said that they believed the agreement was forthcoming but they needed to check that their client agreed with the amendments. They would contact them the next day. This never happened.

• Maher commenced demolition of the building.

• Walton changed his plans and did not sign the deed or correspond further. They withdrew the offer of the lease.

Remedy sought:

• Maher argued that a binding contract existed. They wanted specific performance or damages.

Prior proceedings:

• Maher won twice. Walton was estopped from denying the existence of a binding contract. They got damages.

• Walton wants to appeal to the High Court.

Legal issue:

• Can promissory estoppel be used when the parties have no pre-existing legal relations but the representor implicitly induced the relying party into believing that there was a contract?

Outcome:

• Maher won. Appeal dismissed.

Legal reasoning:

• Mason CJ and Wilson J reasoned Walton induced Maher to demolish and partially build the building through his conduct and silence. Walton was silent even though he knew that Maher was proceeding on the assumption of the agreement trying to finish before the deadline. This was unconscionable behaviour. Walton was not entitled to do nothing. They are estopped from retreating from their implied promise. Thought it was an equitable estoppel.

• Brennan J reasoned that it was unconscionable for Walton to withdraw after a substantial amount of work had been completed. It was too late for them to reclaim the freedom to withdraw. He thought it was a common law estoppel because it is based on a presumption of pre-existing facts. He identifies detriment as a requirement for estoppel.

• Gaudron J reached the same conclusion.

Ratio decidendi:

• There is a unity in principle between promissory estoppel and proprietary estoppel are manifestations of a broader principle of equitable estoppel.

• Equity will come to the relief of a relying party who has acted to their detriment, on the basis of an assumption that the contract would be completed.

• Estoppel does not require that the parties had pre-existing legal relations.

• In Australia it is important to show that the relying party suffered a detriment to enforce an estoppel.

Week 11- Promissory Estoppel

Page 165-169

What is promissory estoppel?

• You are estopped from denying a promise under equitable estoppel. This is use of estoppel as a sword.

What is proprietary estoppel?

• Describes the form that estoppel takes. In this case it is an interest in land.

What is estoppel by conduct?

• Not very revealing. Conduct could refer to silence or behaviour. It just tells you the estoppel has arisen based on a person’s acts.

Australia and estoppel:

• Australia does not follow precedents of estoppel from other jurisdictions. We did not follow Denning’s judgment in High Trees (1956) when he resurrected estoppel and reasoned that reasonable reliance on the behalf of the promisee is all that is needed.

• In Australia detriment and unconscionable behaviour are also needed. The usual measure of damages is expectations damages so you are put back...