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5 Elements of Promissory Estoppel in Contract Law and Legal Agreements

Don’t Make Promises in Business You Can’t Keep

The court may decide you must uphold your promises even though you don’t believe you have entered into a contract or legal agreement. Promissory Estoppel is one of the elements of contract law that must be considered when drafting or entering into a contract or agreement.

Promissory Estoppel

Broken egg shells - broken promises. You can't break a promise in a legal agreement

A promise must normally be in a deed (legal agreement or contract) or supported by consideration to be enforced.  The principle of estoppel however may allow a promise to be enforced even though these requirements are not satisfied.

The development of the concept of “promissory estoppel” in contract law has led to the proposition that a court may decide that a “contract” has come into being even though the traditional rules for contract formation have not been satisfied.

The 5 elements of Promissory Estoppel are:

1.     Some form of legal relationship either exists or is anticipated between the parties.

A contractual relationship is the most common type of “legal” relationship. Parties to pre-contractual negotiations also fall within this principle.

2.     A representation or promise by one party.

Traditionally, estoppel could only be used with respect to a representation about an existing fact.  The High Court decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, however, extended the doctrine to representations about future conduct.  This type of “promissory estoppel” arises where the promise is given in circumstances that lead the other party to assume the promise will be performed.

3.     Reliance by the other party on the promise or representation.

The party relying on the promise must suffer a detriment

4.     Detriment

The party relying on the promise must have suffered some sort of detriment.  In other words, the party must be in a worse position for having relied on the promise.

5.     Unconscionability

There is no general restriction, which prohibits a person from breaking his or her promise.  Accordingly, before an action for estoppel will succeed, it must be shown that, in the circumstances, it would be unfair or inequitable to allow them to do so.

Remedies

Quote from Olex Focas Pty Ltd v Skodaexpert Co Ltd 1997The remedies available to someone who has relied on a promise to their detriment are equitable.  This means that the court has a discretion in deciding what to do and it will do what it can to relieve the detriment suffered.  The courts will not necessarily force the party to honor its promise, unless this is the only way to do justice.

When and How to Use Estoppel

A party seeking to raise estoppel must make out a clear case and show that it would be unconscionable for the promisor to go back on their promise.  Unconscionability is really the backbone of estoppel.

It is important to realise that failing to fulfil a promise does not of itself amount to unconscionable conduct, nor does mere reliance on a promise to a person’s detriment.  Something more is really needed such as encouragement by the party that the promise will actually be performed.

The principles outlined above should always be the starting point if estoppel is to be used.  The nature of estoppel, however, is such that it cannot be defined into simple elements.  At best, the principles are a guide as to what the court will look for.

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Why Planning and Consideration are Important When Writing a Will

Why Planning for your will is important

The Supreme Court of Western Australia recently handed down its decision in the case Ioppolo & Hesford v Conti. The case illustrates the importance for will makers to take proper legal advice when dealing with their estate and assets that they have an interest in but which they do not legally control. An example of such a situation would be attempting to bequeath entitlements in a self-managed superannuation fund (SMSF) pursuant to a will.

Background

Mrs Conti and her husband established a SMSF in 2002. Mrs Conti and her husband were the only members of the fund and Mrs Conti made a Will on 13 January 2005. Mrs Conti attempted to give her entitlements of her membership of the SMSF to her children. She specifically stated in her Will that she did not want any entitlements to be paid to her husband. By the time of her death on 5 August 2011, Mrs Conti had not made a binding written direction to the trustee of the SMSF, directing where to pay her SMSF entitlements. The sole remaining trustee of the SMSF was her husband. 

Following the death of Mrs Conti, the husband remained the sole trustee of the SMSF. Mr Conti exercised his powers under the terms of the SMSF and a new trustee company was appointed the sole trustee of the SMSF. Mr Conti was the sole shareholder and director of the new trustee company (Augusto Investments Pty Ltd). Augusto Investments Pty Ltd then resolved to pay the whole of Mrs Conti’s death benefit to Mr Conti in accordance with the rules of the SMSF. 

The executors of Mrs Conti’s estate filed proceedings with the Court seeking relief on 4 main points that:

  • Mr Conti was obliged to appoint one of the executors of Mrs Conti’s estate as a trustee of the SMSF;
  • Mr Conti – as sole remaining trustee of the SMSF – did not exercise his discretion in a bone fide manner as required by the SMSF deed
  • The Executor be appointed as a trustee of the SMSF; and
  • The Court should review the discretion exercised by Mr Conti in his capacity as sole remaining trustee of the SMSF.

The Court held that the sole surviving trustee of the SMSF was entitled to ignore the direction contained in the Will. The Trustees not being in anyway bound by the direction in a member’s Will.  The Executors claims were dismissed.

Conclusion

The case illustrates the importance for will makers to consider all aspects of their estate planning when preparing their Will. In particular what assets they have the power to deal with in their Will and to consider what legal steps they need to take to deal with other interests such as those in SMSF’s, trusts, assets within a company, or superannuation funds controlled by retail managers. Will makers should consider seeking professional legal advice.

When writing your will you need to know which assets can be dealt with inside the will. It is a complex area and needs professional advice. By not dealing with the assets correctly in the will your wishes will not be fulfilled. Call Etienne Lawyers today on 1300 882 032 for an expert opinion on your will. www.etiennelaw.com

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Etienne Lawyers is now associated with Davis and King.

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