In this series of Law 101 articles, today we will be learning about the Doctrine of Promissory Estoppel. This doctrine can be a bit confusing at first to understand, especially for first years, however, I have tried my best to explain it in simple words. So, I am sure you will be able to understand the basic concept without going through the hassle of browsing through different articles.
- The doctrine of promissory estoppel is one of the principles through which courts look for a bargain for exchange in order to evaluate whether a promise establishes an enforceable contract or not.
- The concept can be found to have roots in the 1898 Nebraska case Ricketts versus Scothorn, in which the courts recognized a legally enforceable pledge despite the absence of a bargain for exchange.
- According to Samuel Williston’s 1920 book on contract law, the modern definition of the term, promissory estoppel was derived. The definition can be found under the first restatement of contracts and is included under section 90.
- In simple parlance, the doctrine can be understood as a legal concept, according to which, when a promisee decides to rely on the promise made by the promisor and then performs an act or omission that is directly motivated by such a promise then the promise is enforceable by law, even if made without formal consideration.
- Example: For instance, a father made a promise to his married daughter to give her $200 a month for nine months (during her pregnancy). When the daughter got pregnant, relying on the promise she quit her job. [It is important to note that there is no formal consideration in this case.] Now, even in the absence of a formal consideration, the promisor that is the father can not back away from his promise and if breached the promise, he will be liable to fulfil the promise. [Note: There are other important things that have to be considered which will be discussed later in the article.]
The Definition & Its Elements
A promise that the promisor reasonably expects to elicit action or forbearance from the promisee or a third party, and which elicits such action or forbearance, is obligatory if the promise is the only way to prevent injustice. In simple terms, when it comes to enforcing a promise, consideration isn’t always required.
If a promisee legitimately depends on a promise and changes her position as a result, the promise may be enforceable even if no consideration is given. The remedy for the breach may, however, be restricted to compensating the promisee for her reliance. However, the court is not required to award the whole value of the promise [Explained later].
There are three crucial elements to the doctrine:
- The promissory should have expected her promise to induce reliance;
- the promise must actually induce reliance;
- and injustice can be avoided only by the promises enforcement.
Generally, under contract law, it is required that a person should receive consideration for making a promise or agreement. For instance, a valuable asset traded between two parties to a contract at the time of a promise or agreement is one example of legal consideration. In order for a contract to be legally binding, it must include some sort of consideration, such as a monetary exchange or a pledge to refrain from taking certain actions. However, in order to promote justice or fairness, a court may enforce a promise even if no consideration was given, as long as the promise was fairly relied on and the promisee suffered a loss as a result of that reliance.
Case Law Example
The doctrine of promissory estoppel has its roots in the famous 1898 Nebraska case called Ricketts versus Scothorn.
Facts of the Case:
- The plaintiff in the Ricketts case, Katie Scothorn received a written promise from her grandfather, John C Ricketts that he would pay her, “On-demand $2,000 to be at six percent per annum”.
- When the promise was made, the grandfather told Ms. Scothorn that, “I have fixed out something that you have not got to work anymore.” and that none of my grandchildren work and you don’t have to.
- A year later with the consent and assistance of her grandfather, she got a new job. Two years later, the grandfather died having paid one year’s interest on the note, and having expressed regret that he had not been able to pay the balance.
- Consequently, Ms. Scothorn sued the executor of the grandfather’s estate, Andrew D Ricketts for the balance.
- Note that there was no formal consideration in this case. As in this case, the grandfather having promised to give his granddaughter the money, but he did not ask for anything in return nor did she promise anything in return. Although she quit her job after he implied that she would not need to work anymore, her grandfather did not condition the money on her quitting her job. According to the court, the plaintiff’s grandfather gave her the note as a gratuity and demanded nothing in return, and Ms. Scothorn’s decision to leave her job as a bookkeeper was entirely voluntary.
Consequent Result of the Case:
- As a result, the note was not granted in exchange for the plaintiff pursuing or agreeing to undertake any specific course of action. Despite the lack of consideration, the trial court ruled in favor of the plaintiff, and the appeals court affirmed.
- The plaintiff was encouraged by the grandparent to change her attitude for the worse on the promise that the note would be paid when it was due, according to the court. Allowing the executor to refuse payment on the grounds that the commitment was made without consideration would be extremely inequitable. The court used the notion of equitable estoppel to get past the consideration requirement.
- The court stated that the promise “Being given without any valuable consideration was nothing more than a promise to make a gift in the future, and that ordinarily such promises are not enforceable.” Nevertheless, the court decided that if the promisee changes her stance in reliance on the promise, the promisor who pledges to give a gift is prevented from disputing the existence of the consideration. In other words, even if the grandfather’s pledge to his granddaughter was not backed up by consideration, the estate executor was barred from claiming that the pledge was unsupported by consideration.