DOCTRINE OF PROMISSORY ESTOPPEL

Abstract

The doctrine of promissory estoppel can be defined as principle that was devised to prevent injustice. The effect of this doctrine is that a promise can be enforced even if it is without any formal consideration, provided that it is unfair or unjust for the promisor to go back on his promise. The intended purpose is to prevent the promisor from retracting their words and stopping the promisor from arguing that an implied promise should not be legally upheld or enforced. It arises when one party relies on the promise of another to their detriment, and the court may enforce the promise to prevent injustice.

This article explores the essence of legal principle of doctrine of promissory estoppel and the importance of honouring promises to avoid unfair outcomes in contractual relationships. It will also highlight the importance and existence if this doctrine in Common Law, and will also explore the position in India.

Keywords

Promissory Estoppel, agreement, contract, equitable, government agencies, consideration.

Introduction

Estoppel is a legal principle that keeps people and their businesses from going back on their word or promise. Promissory estoppel helps deprived parties to recover damages they suffer due to broken promises by another party. There are three key essentials for a legal case involving promissory estoppel. This doctrine means that when an individual with an intention of forming a relationship which is lawful makes a promise to another individual and latter on believing on it individual acts upon it, that promise becomes an obligation for the individual who made the promise. Hence, going back from its own words is not permissible. For the applicability of the doctrine of Promissory estoppel it is not important for the promisee to suffer any damage while acting on dependence of the promise. [1]

The doctrine of Promissory estoppel in India is a rule of substantiation included into Section 115 of the Indian Evidence Act, 1872. Promissory estoppel is related to future promises whereas Section 115 addresses about representations regarding existing information. This principle is also known as Promissory Estoppel, Quasi Estoppel and New Estoppel. [2]

Evolution of the Doctrine of Promissory Estoppel

We can trace the evolution of the doctrine in England, and we can refer to some of the English Decisions for the same. The doctrine was first applied by the House of Lords in Thomas Hughes v Metropolitan Railway Co.[1]

A landlord had given notice to his tenant for the maintenance of the premises and if he fails to do so the lease will be terminated. A month after this the landlord entered into negotiations for the sale of the land to the tenant and consequently, during the period of negotiation, the tenant carried out no repairs. The negotiations failed to materialize and shortly there-after the period of six months expired and the landlord claimed the lease to have been forfeited.

But it was held that six months would run from the failure of the accommodation. The conduct of negotiation for sale was an implied promise on the part of the landlord to suspend the notice and the tenant had acted on it by not maintaining the premise. Lord CAIRNS gave a very brief exposition of the principle:

The fundamental principle guiding all equity courts is that parties enter into specific agreements with defined terms, leading to lawful outcomes and associated penalties, subsequently by their own act or with their knowledge, enter upon a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contact will not be enforced, or will be kept in hold then the person who might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which are therefore taken place between the parties.

DENNING J credited the modern avatar of the doctrine and bringing it into prominence through his celebrated judgment in Central London Property Trust Ltd v High Trees House Ltd.[2] Wherein the Denning J stated that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply.

It was followed in the case of Combe v Combe,[3] where Denning J said that principle does not create new cause of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be not just to allow him to enforce them having regard to the dealings which have taken place between the parties.

The decision in the Evenden v Guildford City Assn Football Club Ltd.[4] Marks a further extension of the boundaries of promissory estoppel. Lord DENNING MR stated that this doctrine applies whenever some representation is made, it can be of fact or law, present or for future that is intended to be binding, even on a person to act on it and he does act on it. A promise to pay more than the sum due under the sum due under an existing contract may be equally void.

In a case of Gilbert Steel Ltd v University Construction Ltd.[5] There was an agreement to supply steel at a fixed price for a construction contract. On account of rising of the steel prices it was orally agreed between the parties that increased price would be charged. After that steel was delivered in the same amount with the increased price rate but payment was not done in the same amount. The contractor was held to be not bound to pay the redundant price, the modification agreement being without any consideration.

Limitations on the Doctrine

The doctrine of Promissory Estoppel applies in the following conditions:

1.Pre- existing Legal Relationship: This doctrine applies only when there is an existing legal relationship between the parties and it is modified in some form. This means new contract must be supported by consideration. Promissory estoppel can support merely its modification or discharge.

2.Alteration of Position: The quality of bilateral executory contract is that it comes into existence the moment promises are exchanged forming consideration for each other. But this doctrine applies when the party relying on the promise has altered its position. It is important that mere reliance is not sufficient but such reliance should be to the detriment of the party relying upon the promise.

3. Inequitable to retract: This doctrine will apply only in those cases where it would be inequitable for the promisor to go back on his promise. If that was not the case then this doctrine will not apply. Thus, in D and C Builders v Rees[6] it was held that the promisor was not allowed to go back on his promise.

4. Shield not a Sword: The nature of the doctrine is that it can be used to save the party from the from the effect of a promise which was modified by the promisor. It cannot be used to give a rise to a claim. Hence, it can only be used as a tool of defence and not of attack. This does not mean that one cannot file as a complainant. It simply means that this doctrine can only be used to protect the promise from the effect of the original obligations.

5. Suspensory: It can be seen that the doctrine can have only suspensory effect on the obligations created under the original contract and cannot extinguish them. The promise can be retracted, and the original obligations would revive for the future upon giving a reasonable notice. However, the doctrine may extinguish the original liability when the performance of the original obligations becomes impossible or even highly inequitable. [2]

Promissory Estoppel: The Indian Situation

In India the doctrine evolved into two stages: Pre- Anglo Afghan case and Post- Anglo Afghan case. This concept was applied for the first time in India in 1880 by a Division Bench of the Calcutta High Court consisting of two English judges in Ganges Mfg Co v Soorujmull.[7]Prior to this case, the position was that the promissor estoppel did not apply against the government. But this changes in the case of Union of India v. Anglo Afghan Agencies[8].

The Government of India announced certain discount in case of import of certain raw material to encourage export of wooden garments to Afghanistan. But there was only partial concession and not full concession as announced. The Supreme curt held that the Government was estopped by its promise. Therefore, after this case the jurisdiction of the case extended to the government. [3]

Elaborate Discussion of this doctrine

We can find the elaborate discussion of the doctrine in the case of Motilal Padmpat SugarMills case[9], where the respondent government had made an announcement to give exemption from sales to all new industries in the State for a period of three years. The appellant proceeded to establish a factory in the State, however, the government changed its position and rescinded the concession.

The state was held liable on the basis of promissory estoppel despite there being no existing legal relationship between the parties. The court widened the scope of the doctrine as applied in England by stating that the doctrine can give rise to a cause of action in itself. A estoppel can only be used only as a defence, and hence the scope of promissory estoppel also developed in a similar manner as a measure of the defence. Thus, promissory estoppel is not a product of the law of estoppel, rather it is a product of equity.

Difference in the Indian and English Position

In England this doctrine is used in restrictive manner It has five conditions as explained above.[10]On the other hand in India, the doctrine has been used to its optimal potential. First and the foremost, it can give rise to a cause of action unlike in England. This is because there is no need to prove detrimental reliance. It is sufficient that the promisee has changed his position in reliance upon the promise made with him.

Relation of Promissory Estoppel with the Government Agencies

There are number of cases where government bodies have been made liable on the basis of Promissory estoppel, if the promisee has altered his position in reliance upon the promise irrespective of whether the promise was supported by any consideration.

Related Cases

In Motilal Padmpat Sugar Mills the court has stated that it is elementary that in the republic governed by the rule of law, no one, howsoever high or low, is above the law. Everyone is subject to the law as fully and completely as any another government is no exception. It is indeed a sovereign body and it is a rule of law that the government will be in the place as a private individual.

In Delhi Cloth and General Mills Ltd v Union of India[11] the court held that all that is now required is that the party asserting the estoppel must have acted upon the assurance given to him. Must have relied upon the representation made to him. It means that the party has changed or altered his position by relying on the assurance or the representation. This alteration of his position by the party is the only indispensable requirement of the doctrine.

In the case of Union of India v Godfrey Philips this was reiterated and taken further when it was held that no duty of excise was assessable on cigarette manufactured by the assessee by including the cost of corrugated fibre board containers when it was clearly represented by the central Board of Excise and Customs in response to the submission made by the Cigarette Manufacturers Association and the Representation was approved and accepted by the Central Government that the cost of the containers would not be included in the value of cigarettes for the purpose of the assessment of excise duty.

Though the doctrine of promissory estoppel is applicable to the government, a promise which is against the public policy or in violation of a statutory prohibition cannot be the foundation of an estoppel. Further, the doctrine cannot be utilized to put fetters on the legislative capacity of the state. [3]

Applicability of Doctrine on Public and Private Entities

In many cases the court observed that both public and private individuals are equally obligated to fulfil representation and promises they make, especially when others have relied on these assurances to their detriment. The court emphasized the lack of distinction between private individuals and public bodies in applying the doctrine of promissory estoppel. The suggestion was that the obligation could lead to a legal action, and if the law stipulates a specific form for the agreement, it may be validated in equity.

After thoroughly reviewing the doctrine of promissory estoppel, the case determined the extent to which the doctrine applied to the government. However, the verdict also implies the potential use of the doctrine in relation to private parties.

Promissory estoppel cannot be invoked to compel the government or a private entity to carry out an action prohibited by law. Additionally, the paragraph emphasizes that promissory estoppel cannot be used to enforce the government or a private party to undertake an action restricted by law. It acknowledges, with approval, the observations that both public bodies and private individuals are equally obligated to fulfil commitments incurred by them.

The central issue in the case concerned whether the doctrine of promissory estoppel applied to the government in various capacities, and the court concluded affirmatively after determining the scope of the doctrine. While there is no explicit case applying the doctrine of private parties, except for one observation limiting its relevance to administrative law, there is no outright restriction on its use between private parties. The Supreme Court has not restricted the application of the doctrine when articulating it.

Therefore, it is asserted that the doctrine, as outlined in the case, equally applies to commitments made by individuals other than the government or public bodies.

Exception of this Doctrine

There are some exceptions of the doctrine of Promissory Estoppel:

The doctrine must respect equity when required. The principle should uphold fairness when necessary. If the promise seems unrealistic to enforce against the government due to an exception of legislative call, the government must demonstrate to the court the facts and circumstances. It is then up to the court to determine whether enforcing liability against the government would be unjust based on the presented information and its potential impact on public interest.
Merely stating a change in strategy is not adequate, it must be justified. The court will only reject enforcing the government’s commitment if it is convinced, based on substantial and relevant evidence provided by the government, that overriding and compelling public interest justifies releasing the government from the promise. The burden of proving this justification rests on the government, and the courts will refuse enforcement if not satisfied.
An officer’s representation or assurance cannot prevent the legislature from enforcing a legal restriction. The doctrine cannot be used to justify a violation of the law, and neither can the government or public entities be compelled to act if it goes against the law or exceeds their authority. Additionally, the doctrine cannot be invoked to challenge the exercise of legislative power. This principle also does not hinder the legislature from exercising its authority.

Conclusion

In conclusion, the doctrine of promissory estoppel serves as a crucial legal tool, providing individuals with a means to enforce promises even in the absence of a formal contract. Its evolution in jurisprudence reflects a commitment to fairness and justice in contractual dealings. As we navigate the intricate web of promises and agreements promissory estoppel stands as a testament to the legal system’s adaptability and its ongoing pursuit of equitable resolutions. By upholding the principle that promises should be binding when relied upon to one’s detriment, thus doctrine reinforces the foundation of trust and accountability essential for a just and stable society.

References

https://www.investopedia.com (last visited on 15^th November)
https://blog.ipleaders.in (last visited on 16^th November)
https://manupatra.com (last visited on 17^th November)
[13^th edition] [ Avtar Singh & Rajesh Kapoor], [Contract and Specific Relief] [2022]

[1] (1877) LR 2 AC 439 (HL)

[2] (1947) 1 KB 130

[3] (1951) 2 KB 215 (CA)

[4] 1975 QB 917 (CA).

[5] (1976) 12 OR (2d) 19 (CA)

[6] (1966) 2 QB 617: (1966) 2 WLR 288 (CA).

[7] 1880 SCC OnLine Cal 6: ILR (1880) 5 Cal 669

[8] AIR 1968 SC 718: (1968) 2 SCR 366.

[9] (1979) 2 SCC 409.

[10] Limitations on the Doctrine

[11] (1988) 1 SCC 86: AIR 1987 Sc 2414, 2419

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