After Newland realised that it had under-priced the contract it stopped work and informed S4H that they would not be able to complete the work unless they were paid more. Although S4H were not happy about this request, they had to pay the extra money because no other company was available to complete the work and S4H was on a timetable. Newland completed the work after being paying the extra money and S4H demands a repayment of the extra cost. The issue in this case is whether S4H can recover the money from Newland.
Promissory estoppel prevents a promisor from going back on his or her promise if the promisee relies on the promise to their detriment. It allows a party to recover on a promise and prevents the other party from arguing that his or her promise should not be upheld. The equitable doctrine of promissory estoppel was established in Central London Property Trust v High Trees Limited where a landlord was prevented d from going back on a promise to accept lower rent despite the lack of consideration to support he promise.
In this case Central London Property Trust leased a block of flats to High trees at the rate of ? 2,500. Because of the war at that time most of the flats were unoccupied and Central London agreed to reduce the rates to 1,250 during the years of the wart. This agreement was put in writing and High Trees paid the reduced rent. After the war was over, and the flats were fully occupied, the landlord sort to revert to the previous rent rates and arrears accrued during the war period.
The issue in this case was whether the landlord could recover the accrued rent. The court held that the landlord was prevented from going back on his promise to accept the reduced rent. The court observed that if a party makes a promise to another which is intended to create legal relations and the other party relies on this promise then the promise must be honoured. The landlords promise to accept reduced rent in discharge of the full rent is valid where the tenant acted upon the promise even in the absence of consideration.
This decision was based on an earlier decision in Hughes v Metropolitan Railway where the court ruled that there was a promise to suspend repairs during negotiations and the landlord could not enforce legal rights with respect to the time limit on repairs. Hughes leased property to the railway company. Under the lease agreement, the landlord was authorised to require the tenant to repair the buildings within six months from the day the notice was given. The landlord gave the tenant notice to carry out repairs and before the expiry of the time, the tenant proposed that the owner of the property purchase the leasehold interest in the property.
Negotiations began but the two parties did not arrive at an agreement. After the six months’ notice period elapsed, tee landlord sought to evict the tenant for breach of contract. The court held that the notice was suspended during negotiations. The court held that if a party who has entered into a contract with legal results or penalties and thereafter enter into negotiations where one party supposed that the strict rights will be suspended the person entitled to enforce those rights would not be allowed to do so if it would be inequitable for the other party.
The landlord’s rights to require the repairs was suspended during the period the two parties were negotiating and this gave the tenant more time to carry out the repairs. The principle of promissory estoppel was confirmed in Tool Metal Manufacturing v Tungsten. In this case, Tungsten had been infringing on a patent held by Tool Metal Manufacturing. When the later discovered thus infringement, they waived all claims on the infringement provided they were paid 10% royalty and 30% compensation by Tungsten.
Tungsten agreed to pay this amount but during the war period they ran in to arrears. An agreement was reached between the two parties to waive the compensation during the period of war. After the war Tool Manufacturing sought to reinstate the license and sued for the license fees. The court held that Tool Manufacturing was entitled to reinstate the fees following a reasonable notice period but could not enforce the payments during the war period. The court noted that they were estopped from reverting on their promise to waive the fees during this period.
The court observed that promissory estoppel will suspend legal rights but in cases of periodic payments it could extinguish legal rights where a promise to reduce the payments has been made. From these cases it is evident that in order to rely on promissory estoppel it is important to establish the presence of a pre-existing contract which is later modified. In Combe v Combe a wife had sought to enforce a husbands promise to make maintenance payments. It was held that promissory estoppel did not apply because there was no contract which was later modified by the promise.
There must be a clear promise upon which the other party relies upon and it must be inequitable to allow the party that made the promise to go back on the promise. In D&C Builder’s v Rees, Rees contracted D&C to do some work at his home. The value of the work was ? 746 and tis was reduced by ? 14 when Rees paid ? 250 on account. The outstanding amount was ? 482 and the claimant requested the defendant several times to complete the payment. The claimant was in serious financial need at the time and the defendant was aware this.
The defendant gave the claimant ? 300 in satisfaction of the whole debt. Since the claimant was in need of the money and the defendant threatened to pay nothing if the claimant refused the payment the claimant accepted it reluctantly. When the claimant brought an action to recover the money, the defendant sought to rely on promissory estoppel. The court held that the defendant could not rely on promissory estoppel because there was no agreement to accept less and the defendant had taken advantage of the claimant’s financial position.
In the case of S4H, there was a pre-existing contract for the installation of seats between S4H and Newland. Newland stopped the work when it realised that it had under-priced the contract. S4H agreed to pay the extra amount and Newland proceeded with the contract. Newland relied on the promise that S4H paid the extra amount so that the contract could be completed. Without the extra payment Newland could not complete the contract and they relied on the promise by S4H. Moreover, it could be unequitable to allow S4H to go back on its promise to pay the extra amount.
The doctrine of promissory estoppel follows that when a party makes a promise and the other party relies on the promise the promising party will not be allowed to go back on the promise. After it became expensive to complete the work, S4H promised to pay Newland the extra cost to install the seats. Because Newland relied on this promise to complete the contract S4H should not be allowed to go back on its promise. There was a pre-existing contract which was modified by the requirement of extra costs. The promise to pay the extra costs was clear and it would be inequitable for S4H to go back on its promi