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This article is written by Bheeni Goyal from Symbiosis Law School, Pune. This article talks about the increasing scope of the doctrine of the Promissory Estoppel and whether such doctrine should be used as a defence shield or a sword. 

Introduction

“Promissory Estoppel represents a series of legal doctrines that serve both as a shield and a sword, guarding against the unconscionable.”

The doctrine of Promissory Estoppel provides that the individual should stop himself from reclaiming his right that he previously promised to waive off.  Promissory estoppel is intended to stop the promisor from arguing that an underlying promise should not be legally upheld or enforced. The doctrine of Promissory Estoppel is not expressly provided under any Act, however, it is based on the concept of equity which shields the party from unjust claims. There are various precedents both in the English as well as Indian law that support this doctrine, and assert that this principle should be used as a shield for protecting the innocent parties and not as a sword which implies the cause of action filed in the court of law. 

The doctrine of Promissory Estoppel

The doctrine of Promissory Estoppel is a significant doctrine in the Law of Contract. This doctrine has emerged from the concept of estoppel. It is based on the maxim allegans centraria non est audiendus which basically means that a person making contradictory statements is not to be heard. This doctrine states that a promise will be enforceable in law, even if such promise is made without any formal consideration. This doctrine helps the injured parties to make recovery on those promises which could lead to any economic losses if not fulfilled.

Origin of the doctrine

Estoppel is considered as the rule of equity. The principle of the Promissory Estoppel came into existence from the concept of the rule of justice as given by Lord Cairns. He observed that “this is the principle on which the courts of equity should proceed, that if parties whoever entered into definite and distinct terms involving certain legal results- certain penalties- or legal forfeiture afterwards by their own act or with their own consent upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties”. This basically stops the promisor from claiming that an underlying promise can’t be upheld in the court of law.

This principle of equity has been invoked in the case of Central London Property Trust Ltd. v. High Trees. In this case, the tenant used this doctrine defensively against the claim made by the landlord with regard to his strict legal rights under the lease. The difference was that the landlords claimed for the full rent after the war ended as the estoppel extinguished his strict rights only for the duration of the war. 

After the development of this principle in Central London case, it was upheld by the court in many cases. Some of those cases have been discussed herewith. 

Promissory Estoppel in India

The doctrine of Promissory Estoppel was developed as the doctrine of equity and is evolved to prevent any injustice. This doctrine of promissory estoppel does not find any place under the Contract Act or realm of estoppel. In India, the doctrine of estoppel finds its place in the Indian Evidence Act, 1872 as the ingredients of Section 115 of the Indian Evidence Act, 1872, should be satisfied for the application of the doctrine. 

Section 25 of the Indian Contract Act, 1872 talks about the contracts without consideration. However, we don’t have any provision for the enforcement of Promissory Estoppel in India. It acts as an exception to the three instances mentioned under Section 25 of the Act. Therefore, if an agreement is not supported by consideration, then that agreement would be declared null and void. Hence, if a person makes a promise, and if the promisee does something or has done something without the desire of the promisor, then that promise would be considered as a promise without consideration and can not be enforced in the court of law. 

The application of the doctrine per se can only be depicted through various case laws. The term Promissory Estoppel was used by the Supreme Court for the first time in the case of Collector of Bombay v. Bombay Municipal Corporation. In this case, the government called upon the Municipal Council of Bombay to remove some old markets from some sites as requested and vacate them as soon as they can, based on the application filed by Municipal Council in 1865. However, the Municipal Council gave up that site and spent Rs. 17 lakhs to maintain and develop markets on certain new sites. The Collector of Bombay made an assessment of the new site to land revenue in 1940.

Afterwards, the Municipal Council filed a suit for a declaration that it was entitled to hold that land even if there is no payment of any revenue declared after the assessment. The Supreme Court held that the Council has the right to hold the land free of rent for perpetuity. Chandrasekhar Iyer has held that that since the transfer of land was not affected after complying with the statutory formalities which were required for entering into a contract with the Government or transfer of property by the Government, the Municipality did not acquire a legal title to the land on which the market was built, but the Municipality had perfected its title by adverse possession of the land and the right to hold the land in perpetuity on the basis of the promise held out by the Government being an integral part or inseverable incident of the title so acquired, the Municipality was entitled to the declaration sought by it and the assessment to land revenue made by the Collector was ultra vires. 

The main revolution in the development of this doctrine was brought up in the case of Union of India v. Anglo-Afghan Agencies, where the doctrine of the estoppel was made applicable to the government. The court held that any party, who has acted upon the representation made by the government authorities, can invoke the doctrine of the Promissory Estoppel after their rights are affected. Prior to this case, this doctrine was not applicable to the government.

Our judiciary has made a desperate effort in identifying the major ingredient of the doctrine of estoppel. In the case of Union of India & Another v. Wing Commander R.R. Hingorani, the court highlighted certain ingredients or conditions which are required to be satisfied.

  1. The first requirement is that one party must make representation to the other party. 
  2. Secondly, the other party should have taken actions or acted upon the representations made by another party.
  3. Such actions should have a detrimental effect on the interest of the party to whom such representation was made.

Estoppel under a different jurisdiction

The doctrine of Promissory Estoppel is primarily a part of the law of contract of the United States. It is also a part of the law of contract in many countries, although the requirements of the doctrine may vary from one country to another or between different jurisdictions. The United Kingdom defined Promissory Estoppel as, where one party, through his conduct or by words, make a promise to the other party which is most likely to affect the legal relationship between the parties and if the other party acts upon it which alters the position to his detriment, then the party who made the promise cannot act inconsistently with it. It has been provided that while comparing the principles of estoppel given in common law, Promissory Estoppel can create defence but cannot provide a cause of action.

Does Promissory Estoppel act as a shield or a sword

The doctrine of the Promissory Estoppel can be used as a defence only. It cannot be used to approach the court and initiate a cause of action against the other party. The above-mentioned metaphor, that the Promissory Estoppel should be used as a defence shield and not a sword, acts as a limitation for the doctrine of the Promissory Estoppel. 

This principle originated in the celebrated case of Combe v. Combe. In this case, during the proceeding conducted for divorce, the defendant promised to pay the plaintiff, his ex-wife, 100 pounds per year for maintenance. But the defendant failed to pay the plaintiff the required maintenance, and since the plaintiff was in a better financial situation, she did not pursue any court proceedings against him for any financial support. However, years after when the divorce was finalized, the plaintiff brought the action into the court of law for default on the defendant’s part in paying the maintenance of 675 pounds. 

The question that came before the court of law was whether she was entitled to the money and can she invoke the doctrine of the Promissory Estoppel in order to claim money from the defendant. It was held by the court that this doctrine can only be used as a defence to the action for enforcing the legal rights that have been waived. Therefore, the plaintiff would only be able to sue if she had provided consideration for the promise. In this case, the plaintiff argued before the court that not applying for maintenance in the court of law acted as a consideration for the promise made by the defendant. However, the court found that her forbearance was not done at the request of the defendant and, therefore, it will not form the consideration for his promise. Lord Denning, in this case, held that “this principle does not create new causes of action where none existed but instead only prevents a party from insisting upon his strict legal rights where it would be unjust to allow him to enforce them. In this case, Lord Burcket had introduced the phrase that Promissory Estoppel cannot be used as a sword but can only be used as a shield. It is used as a shield to block action on the pre-existing obligations, where there is a fresh promise, unsupported by consideration, to modify or discharge the pre-existing obligations.

Promissory Estoppel cannot be used as a sword which implies that it cannot be used to enforce a stand-alone non-bargain promise to pay a certain amount. The promisee, therefore, waits to be sued on a pre-existing obligation and then uses the Promissory Estoppel as a defence shield. Under English law, the doctrine of the Promissory Estoppel mitigates the harshness of the rule that a promise to modify or discharge a contract must be supported by consideration, but it goes no further than as it stands today. This can be better understood with the various judgments which bring out that this doctrine can be used as the shield and not as the sword.

Landmark judgements

In the case of Motilal Padampat Sugar Mills v. State of Uttar Pradesh and Ors, Justice Bhagwati clearly laid down that if this doctrine is allowed to be used for initiating a course of action, i.e., as a sword, then the floodgates of the cause of action will be opened.

In another case of Walton Stores (Interstate) Ltd v. Maher, the plaintiff company wanted to lease the defendant-owned property, demolish it and construct a new building there. The plaintiff company and the defendant entered into a contract and the defendant acted as if he has agreed upon the negotiation between them. The company constructed a new building in accordance with the contract. However, when the attorneys of the plaintiff prepared the lease papers, according to the negotiations between them, the defendant denied. The court held that the defendant is bound by the terms of the negotiation. It was held by the court that the doctrine of the Promissory Estoppel is said to be the defensive equity, and relying on the case of High Trees (as mentioned above), this doctrine could only be used as a shield and not the sword. 

In another landmark judgment of Legione v. Hateley, the parties entered into a contract for the sale of land. The buyers of the land paid up the deposit and, till the time remaining balance was to be paid, they constructed a house on the land without informing the seller. The buyer wanted to finance the purchase of the land by selling another property but due to some reasons, the sale of the other property could not be completed. When the buyers asked for some extra time for payment, their request was denied. The seller suggested the buyer take a bridging loan. The balance amount was to be paid until the 10th of August. On 9 August, the buyer had a word with the seller’s solicitor and further offered to settle this on 17th August. The administrative at the solicitors’ office stated that “I think that will be alright, but I’ll have to get further instructions.” On 14 August, the vendors’ solicitors said that the contract had been rescinded as of 11 August.

In this case, two pints have been brought up by the court. Firstly, to establish the doctrine of the Promissory Estoppel, any promise or representation, whether it is expressed or implied, should be made clear. Secondly, if there is reliance by the other party then it should be reasonable. It was further held that the Promissory Estoppel could only be used as a defence or a shield when the party who has made the representation is trying to change the terms and conditions of the promise which results in a detrimental effect on the interest of the other party.

Conclusion

Different laws of different nations have described the doctrine of the Promissory Estoppel through their own interpretation. Over these years, the scope of this doctrine has widened a lot. Although the ways of interpreting the doctrine could be different, every law has stated that this doctrine can be well described as the shield for the parties rather than their sword. It could be used as a shield for retrieving the past damage or as a sword against the future damages on the ground of the promised effect to the future, while unconscionable only affect the past detriment. Although the doctrine of the Promissory Estoppel is not found to be properly described in the Acts, the judiciary has expanded the scope of this doctrine through the various judgments given in all these years. Especially, including the government within the scope of the application of this doctrine. The evolution of the doctrine will never stop and its scope would widen in the future.

References


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