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Litigation calendar    Oct 12, 2016

The little-known cousin of contract law - Promissory Estoppel

Contracts exist at every juncture of society from international mergers to buying an ice cream. Promissory estoppel takes it even further.

Contracts exist at every juncture of society from international mergers to buying an ice cream. The rules of forming a contract are firmly established and relatively well-known:

  1. There must be an offer;
  2. There must be an acceptance of the offer;
  3. There must be consideration (an exchange of value).

Contracts are only enforceable when the above three requirements are met, except in the case of promissory estoppel.

What is Promissory Estoppel?

Promissory estoppel prevents a party from unconscionably relying upon the formal rules of a contract where they have made a promise which someone else has relied upon to their detriment.

There are generally seen to be five elements to promissory estoppel:

  1. There is, or is expected to be, a legal relationship between the parties;

Joe Blogg wants to employ John Smith at his Medical Practice in Perth. John lives in Sydney.

  1. A clear and unambiguous representation or promise by one party to the other (estoppel can only be used with respect to representations about either an existing fact or future conduct);

Joe tells John, “I’ll give you the job” (note that there has been no exchange of consideration)

  1. Reliance by the other party on the promise or representation;

John Smith, believing that he’ll get this new job, sells his own medical practice and his Sydney home and moves to Perth.     

  1. The other party has suffered loss or detriment because they relied upon the promise or representation; and

John has incurred significant expenses in money and time by moving to Perth. By selling his practice, he is now employed amd without a client-base.

  1. To not enforce the promise would be unconscionable.

It would be unconscionable (against good conscience) for Joe to deny the existence of the promise.

For promissory estoppel to be established in equity, each of the above five factors must be proved. Unconscionability is the central pillar of all equitable actions, including promissory estoppel, and whether unconscionability is borne out by the facts is a matter for the Court’s discretion, that is, there is no hard-fast rule. We explore unconscionability further in another article.

Once the promise is proven and unconscionability is established, the Court can rule that the person who made the promise is ‘’estopped” from denying the existence of the promise (or their obligations). The Court might then order the person who made the promise to compensate the other party for the loss suffered, or in some circumstances, order the other party to ‘specifically perform’ the contract or some other remedy to ‘right the wrong’. The Court has a great deal of discretion with respect to remedies. We will explore equitable remedies in a future article.

Promissory estoppel (and most equitable causes of action) are rarely simple or straightforward. 

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice. 

frank law-16

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