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:
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:
Joe Blogg wants to employ John Smith at his Medical Practice in Perth. John lives in Sydney.
Joe tells John, “I’ll give you the job” (note that there has been no exchange of consideration)
John Smith, believing that he’ll get this new job, sells his own medical practice and his Sydney home and moves to Perth.
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.
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.