The doctrine of promissory estoppel has been a subject of the considerable recent development in England as well as in India. The legal system of England, in the 19th century, was dominated by the difference between law and equity. Law had its own strict rules. Equity, which was considered to be the means by which the needs of justice towards the people could be met, was supposed to be flexible. However, with the fusion of law and equity in England by the Judicature Act 1873, there came about a reconsideration of some principles. One such principle was that of the equitable doctrine of promissory estoppel.
The doctrine though known by various names came to be commonly known by the name of promissory estoppel. But, in fact, as will presently be seen below, it falls neither in the realm of contract nor in the realm of estoppel. The basis of the doctrine is the interposition of equity. Equity in the form of estoppel has been pressed into service to mitigate the rigours of the strict law and to bring the law closer to justice.
The necessity of the evolution of the doctrine of promissory estoppel resulted from a peculiar situation in which a promise is placed when one alters his position to his detriment by relying upon a promise intended to create a legal relationship which is not supported by consideration and the person making the promise goes back upon his promise. In such a situation the promise is left with no remedy in the common law because such promise does not create a legal obligation on the promisor to honour his promise for want of consideration. The age-old doctrine of consideration requires that a promise in order to be enforceable in law must be supported by consideration. To make it all the more clear a promise simpliciter under the common law could neither provide a cause of action nor could it prevent the promisor from going back upon his promise, as he had no legal obligation to honour his promise.
The point is well illustrated in Foakes v. Bear[i], a well-known case on English contract law in which the House of Lords held that a promise even if accepted to pay a smaller sum in the discharge of liability to pay a larger sum could not be enforced as it was without consideration. In this case, the debtor had paid and the creditor had accepted, when the amount had become due, the lesser amount under an arrangement. Nevertheless, the creditor’s claim subsequently for the balance of the amount was upheld. The doctrine of promissory estoppel came to be evolved to mitigate the rigours of the strict rule of common law as manifested in this case.
To go back upon one’s promise has always been decried as unfair and unjust in any civilized society especially when the promisor makes a promise with the intention of entering into a legal relationship and the promise acts thereon. In such a situation the crucial question, which arises, is whether the promise is left without redressal for the hardship caused to him. This unjust and dishonest conduct on the part of the promisor set the judges and jurists thinking how to deal with the peculiar situation in order to do justice by preventing the perpetration of fraud upon the promisee at the hands of the promisor. No solution to this knotty problem could be found in the common law, which required consideration as a necessary element to creating legal obligation arising out of a promise, under the law of contract.
In this situation, with a view to doing justice towards the promised equity in the guise of promissory estoppel stepped in to mitigate the rigours of common law and to do justice. It is significant to note that the early cases did not speak of this doctrine as estoppel. They spoke of it as raising equity and thus the doctrine found expression without naming it.
In the quest for doing justice the doctrine in its earlier form found expression in which Lord Cairns laid down the rule of equity in the following words:
“…if parties who have entered into definite and distinct terms involving certain legal results… afterwards, by their own conduct 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 under suspense or abeyance the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be in equity having regard to the dealings which have thus taken place between the parties.”[ii]
Bowen L.J. in Birmingham and District Land Co. v. London and North Western Railway Company[iii] substantially followed the same principle. Likewise, Lord Hodgson while delivering the opinion of the Judicial Committee of the Privy Council in F.A. Ajaji v. R.T. Briscose (Nigeria) Ltd.[iv] observed:
“The principle is that when one party to a contract in the absence of fresh consideration agrees not to enforce his rights equity will be raised in the favour of the other party”
In all these decisions, the parties were already bound by pre-existing contractual relationships and during the subsistence thereof one of the parties promised not to enforce his rights arising out of the contract. In such a case though there was no fresh consideration for the promise still the court did not allow the promisor to enforce these rights.
The reason seems to be that it was found inequitable to allow the promisor to enforce his rights by asserting want of consideration for his promise when the promise had already acted upon it.
However, instances of application of this doctrine in the situations as in aforesaid cases are not to be found under the Indian law because such a situation is covered by the statutory provisions contained in Section 63 of the Indian Contract Act, 1872 which clearly provides that every promisee may dispense with or remit wholly or in part, the performance of the promise or may extend the time for such performance or may accept instead of it any satisfaction which it thinks fit, thus, this provision of the Act may be said to be a statutory version of promissory estoppel.[v]
The doctrine, however, advanced further and is not necessarily confined to cases where the parties are already bound by a subsisting contract and one of them promises not to enforce his normal contractual right. The High Trees Case[vi] in which the doctrine was rediscovered and formulated in its modern form, the rule laid down by Denning J. clearly suggests that the parties need not be in any kind of legal relationship before the transaction from which the promissory estoppel takes its origin. It would be beneficial to mention the facts of the case for the present discussion.
A block of flats was let out for a period of ten years on an agreed rent. War intervened and the flats fell vacant. The lessee was not able to pay the full rent. The landlord agreed to reduce it to half and went on receiving half rent until the war ended. Flats were again fully occupied. The landlord demanded full rent for the future and also arrears for the period during which only half rent was paid. The Court held that the landlord was entitled to restore the full rent but not for the arrears of rent. One of the questions before the Court was, what was the consideration for the agreement to reduce the rent. In fact, there was none. In the opinion of Denning J., there was no necessity of finding consideration in cases like this where the promise is not set up as the cause of action, the plaintiff was estopped from alleging that there was no consideration for the promise.
Laying down the doctrine Denning J. ruled that “ a promise intended to be acted on and in fact acted on, is binding so far as its terms properly apply.” In a latter case, Lord Denning M. R. stated that the doctrine of promissory estoppel applies whenever a representation is made whether of fact or law, present or future which is intended to be binding to induce a person to act on it and he does act on it.[vii]
In India, the doctrine has not only been fully received but also unlike England has been recognized as affording ‘cause of action’. A promisor cannot escape from fulfilling his promise simply because there is no contractual obligation to do so. He may be compelled to fulfill his promise whereby putting reliance on his promise the promise has altered his position and it would be inequitable to allow him to go back upon his promise. Thus, the basis of liability under the doctrine is not a contract but equity. The Law Commission of India in its report[viii] on promissory estoppel has in recognition of this development suggested inclusion of a new section in the Contract Act which says that a promise may be enforced where requirements for the application of the doctrine are present and would not be unjust to the promise “notwithstanding that the promise is without consideration”.
The Authors of this article, Sanjeev Kumar is a Partner and Anshul Sehgal is a Managing Associate in the Litigation & Dispute Resolution Team at L&L Partners Law Offices, New Delhi. They can be reached out at sanjeevk@luthra.com and asehgal@luthra.com. The views expressed are personal.
[i] (1884) 9 A.C. 605.
[ii] Hughes v. Metropolitan Railway Co., (1877) 2 A.C. 439.
[iii] (1888) 40 Ch. D. 268.
[iv] (1964) 1 W.L.R. 1326 at p. 1334.
[v] Khurshid, Salman, “Estoppel Advent” in (1981) 3 SCC (Journal) 311, Eastern Book Company, Lucknow, 1981; Jit Ram Shiv Kumar v. the State of Haryana, AIR 1980 SC 1285.
[vi] Central London Property Trust Ltd. v. High Trees House Ltd., (1947) 1 K.B. 130 at p. 134.
[vii] Evenden v. Guildford City Football Club, (1975) 3 All E.R. 269, CA.
[viii] Law Commission of India, 108th Report, 1984, p. 20.
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