Concept of Estoppel

1.0 INTRODUCTION

 All of us know what estoppel is. I first heard about it when I was reading section 28 of the Partnership Act, 1932 which provides that a person holding out to an outsider providing credit to the firm is estopped from pleading that he is not a partner when circumstances indicated that he so represented himself. There are varieties of other estoppels like those found in Contact law, law of sale of goods and law of evidences. This article seeks to discuss estoppel in contract law.

1.1 ESTOPPEL

The word “Estoppel” is derived from the French word “ESTOUPE” from which the word estopped in English language emerged. A man’s own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth” (See Lord coke in Co. Litt 352(a) as cited by the Hon’ Supreme Court in B.L. Sreedhar v/s K.M. Munireddy(2003) 2 SCC 355 at 365. Estoppel, simply put, means this: a man who made a promise or representation etc to another person who based on that promise or representation altered his position or situation, then the promisor shall be estopped in law to go back on his promise or representation.

It is a rule of equity invented by the courts to do justice. It is also a rule of Evidence. Section 115 of the Indian evidence act, 1872 contains express provisions recognizing the doctrine of Estoppel.Section 43 of the Transfer of Property Act also contains provisions recognising the doctrine of estoppel.

2.0 CONTRACT LAW

Let us see the application of the doctrine in the arena of contract law. It is settled that a contract without consideration is void subject to the exceptions for which the law makes specific provisions. But we may come across situations where there is no contract in law yet it requires to be enforced in the interests of equity, justice and good conscience. But the stringent rule of consideration would stare at us. Is there any remedy or solution when the statute provides none?

2.1 HISTORY OF THE DOCTRINE

When we strive to look into the history of application of this doctrine of “Promissory Estoppel” in the field of contract law, we may begin with JORDEN v MONEY (1854) 5 H.L.C 185, a decision of the House of Lords in England. In that case Mr. Money borrowed 1200 pounds from Marvell who died. Mrs.Jorden took the bond as successor. Money was about to marry and this debt caused concern for him. But Mrs. Jordan came to his rescue and promised that she will never enforce the bond. So he married. But Mrs.Jorden sought to enforce the bond after 5 years. Mr.Money defended the action by pleading that she be estopped. The House of Lords held that he is liable as estoppel work only in respect of a statement of existing fact was not to representations about future. But lack of consideration for the promise of Mrs.Jorden stood in the way. Thus the Lords refused to give relief to Money.

2.2 METROPOLITAIN RAILWAY CO CASE

The second case in line in the history of the doctrine is Hughes v/s Metropolitan Railway co (1877) 2 AC 439. It is definitely worthwhile to look into the famous passage from the speech of Lord

Cairns which is set out below.

"It is the first principle upon which all Courts of Equity proceed, that if parties who have 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 enter 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, or held in abeyance, 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."

2.3 THE DOCTRINE GETS WIDENED

The third case is Birmingham and District Land Co v London and NW Railway Co (1888) 40 Ch.D 268. it was stated by Bowen LJ that Estoppel is wider than cases of forfeiture and stated as follows.

“It seems to me to account to this, that if persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be kept in abeyance or suspense for some particular time, those persons will not be allowed by a court of Equity to enforce the rights until such time has elapsed…”

So by 1888 the doctrine assumed wider dimensions than before.

2.4 HIGH TREES….HIGH TREES…….HIGH TREES

The fourth but the most important land mark case is Central London Properties Trust Ltd. v/s High trees House Ltd (1941) 1 KB 130. The case is popularly known as High tree’s case. This judgment was delivered by none other than the great Lord Denning who shall ever be regarded as the one of the greatest English judges of the last century. He was only a junior judge of the Kings Bench of the High Court.  I shall set out below the facts of the case briefly as stated by the great judge himself in his book “the discipline of Law”.

2.5 FACTS OF THE HIGH TREES CASE

 The facts were quite simple. During the war many people left London owing to the bombing. Flats were empty. In one block, where the flats were let on 99 year leases at 2500 a year, the landlord had agreed to reduce it by half and to accept 1250 a year. Then the bombing was over, and the tenants came back, the landlord sought to recover the full 2500 a year.

2.6 LORD DENNING TURNS HERO

Lord Denning held that Landlord cannot recover the original rent of 2500 a year when the flats were empty. The learned judge in his judgement stated as follows which has become classic.

“If I were to consider this matter without regard to recent developments in the law, there is no doubt that had the plaintiffs claimed it, they would have been entitled to recover ground rent at the rate of 2500 a year from the beginning of the term, since the lease under which it was payable was a lease under seal which, according to the old common law, could not be varied by an agreement by parol (whether in writing or not), but only by deed. Equity, however, stepped in, and said that if there has been a variation of a deed by a simple contract (which in the case of a lease required to be in writing would have to be evidenced in writing), the courts may give effect to it…. That equitable doctrine, however, could hardly apply in the present case because the variation here might be said to have been made without consideration. With regard to estoppel, the representation made in relation to reducing the rent, was not a representation of an existing fact. It was a representation, in effect, as to the future, namely, that –payment of the rent would not be enforced at the full rate but only at the reduced rate. Such a representation would not give rise to an estoppel, because, as was said in Jorden v Money, a representation as to the future must be embodied as a contract or be nothing”

2.7 LORD DENNING LEAPS OVER THE FENCES   

Thus time has come to do something to do justice and to leap over the fences created by law and the binding decision of the House of Lords in Jorden v Money (1854) 5 HLCas185.  Lord Denning observed as follows:

“In my opinion, the time has now come for the validity of such a promise to be recognized. The logical consequence, no doubt, is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration: and if the fusion of law and equity leads to this result, so much the better. That aspect was not considered in Foakes v Beer. At this time of day however, when law and equity have been joined together for over seventy years, principles must be reconsidered in the light of their combined effect. It is to be noticed that in the sixth Interim report of the Law Revision Committee, paras 35, 40, it is recommended that such a promise as that to which I have referred, should be enforceable in law even though no consideration for it has been given by the promise. It seems to me that, to the extent I have mentioned, that result has now been achieved by the decisions of the courts”.

Thus justice has been done even in the absence of consideration for the variation in the terms of the contract.

3.0 CANNOT BE OVER THROWN BY A SIDE WIND

Thus now the doctrine is firmly established and “cannot be over thrown by a side wind”. Thus the doctrine came to be accepted as legally firm and conceptually sound. There was no going back. There was no appeal to the Court of Appeal or to the Lords. Thanks to the parties. On a close look at High trees case it can be seen that the court intended to assist the parties for defending an action and has not recognised the doctrine of promissory estoppel as a cause of action.

3.1 NOT A SWORD

Soon came the decision of the Court of Appeal in Combe v Combe(1951) 2 KB 215 decided by Lord Denning himself now a judge of the Court of Appeal (CA). It was in 1950.Mr.Combe promised to give Mrs.Combe an annual maintenance amount before divorce. But after divorce Mr.Combe refused to pay. Mrs.Combe thought that there is a breach of promise. Mr.Combe promised, she relied on that promise and in fact acted upon the promise (by not seeking assistance of courts for getting maintenance order). So she thought she can rely on HIGH TREES and get relief. The lower court allowed her claim based on High trees. But on appeal to Court of Appeal (CA) the matter came up before Lord Denning and the very person who is regarded as the defender of the doctrine refused to apply the same.

He stated the estoppel could only be used as a "shield" and not a "sword". In the High Trees case, there was an underlying cause of action outside the promise. Here, promissory estoppel created the cause of action where there was none. In this case, the court could not find any consideration for the promise to pay maintenance. He further stated that the High Trees principle should not be stretched so far as to abolish the doctrine of consideration, He went on to add “"The doctrine of consideration is too firmly fixed to be overthrown by a side-wind....it still remains a cardinal necessity of the formation of a contract".

4,0  AS CAUSE OF ACTION

Presently the subject matter of discussion among legal experts is regarding the limitation placed by Combe v Combe. They plead for widening the scope of its application. The doctrine should be capable of being used as a cause of action  in addition to its application as a shield of defence. It is to be noted that United states abandoned this restriction long back in Hooffman v Red owl stores 133 NW 2d 267 (1965). Australia also in a recent case in Walton’s stores (Interstate) v Maher (1988) 164 CLR 387 widened or stretched it to give relief as a cause of action. It may also be noted that the House of Lords (now Supreme Court) is yet to discuss the doctrine of promissory estoppel and its limitations.

5.0 PROPRIETORY ESTOPPEL

The courts have invented a new species of estoppel known as “Proprietory Estoppel” which is related to promises on properties. The Hon High Court of Kerala in a very recent decision in Jammeela Beevi V Basheer and others reported in AIR 2012 KER107 held that the seller shall not be allowed to go back on the representation when the purchaser acted upon it in full faith of the representation so made. The Hon Court relied on the judgement of the Hon Supreme court in Jumma Masjid Mereara v Kodimaniandra Devian and others reported in AIR 1962 SC 847.

6.0 CONCLUSION

To sum up, let us try to understand the main ingredients necessary for application of the doctrine in the field of contract law.There must be a promise by one person to another which can be enforced in a court of law. The promisor makes a representation to the promisee and the promisee based on that representation acts or alters his position fully relying on the representation.. Then subsequently the promisor shall not be allowed to go back on his promise and on an action by the promisor the promise can invoke the doctrine of promissory estoppel as a defence. He can even use it positively as a cause of action in view of the developments in US and Australia etc after the land mark decision in High Tree’s case. This article is mainly confined to English decisions and the application of the doctrine in the field of English law.