Estoppel "is a principle of justice and of equity. It comes to this: when a man, by his words or conduct, has led another to believe in a particular state of affairs, he will not be allowed to go back on it when it would be unjust or inequitable for him to so" Moorgate Mercantile v Twitchings [1976] 1 QB 225, CA at 241 per Lord Denning MR. The definition in American law is similar:
- Speaking generally, estoppel is a bar which precludes a person from denying or asserting anything to the contrary of that which has, in contemplation of law, been established as the truth, either by the acts of judicial or legislative officers, or by his own deed, acts, or representations, either express or implied. 28 Am Jur 2d ESTOPPEL AND WAIVER § 1
There are many species of estoppels under English, Australian, and American laws. Estoppel by record (frequently manifests itself as issue/cause of action estoppel, judicial estoppel or res judicata) and estoppel by deed are rules of evidence and are often described as technical or formal estoppels. Although many authorities regards the English doctrine of estoppel by representation of fact (known as equitable estoppel in American legal parlance) as a mere rule of evidence, it is in reality a rule of substantive law. Equitable estoppel as understood in English law, which includes promissory and proprietary estoppel, is a rule of substantive law.
Under English law, estoppel by representation of fact, promissory estoppel and proprietary estoppel are regarded as reliance-based estoppels by Halsbury's Laws of England, Vol 16(2), 2003. Both Halsbury's and Spencer Bower (see below) describe all three estoppels collectively as estoppels by representation. These estoppels can be invoked when a promisee/representee wishes to enforce a promise/representation when no consideration was provided by him. The court will only enforce this lack-of-consideration promise if and only if it would be "unconscionable" for the promisor/representor to resile from his promise/representation ("it's not fair!"). Estoppel when invoked in such a manner is often considered a rival or alternative to the law of consideration under contract law. Under Australian law, all these estoppels can create a cause of action as well as act as a defence. However, only proprietary estoppel can create a cause of action in English law, though the other two can act in support of a cause of action or a reply to a defence. Under American jurisprudence, equitable estoppel is available only as a defense, while promissory estoppel can be used as the basis of a cause of action.
It is better to describe estoppel by examples. If your bank puts money in your bank account by mistake, estoppel may operate by denying the bank from saying it is not yours, provided only if it would be unconscionable for you to return the money (eg, you spent it already), see Lloyd's Bank v Brooks (1960). A landlord may tell his tenant that he is not required to pay rent for a period of time ("you don't need to pay rent until the war is over"). After the war is over, the landlord would be estopped from claiming rents during the war period.
The requirement of inducement and detrimental reliance are broadly the same for all reliance-based estoppels: (i) the representor must have intended (actual or presumed) the representee, or have been reasonably understood by the representee as having intended him, to act on the relevant representation (or promise), (ii) the form of reliance must have been reasonable or intended, and (iii) the representation must have caused the representee to act in such a way that it would be "unconscionable" for the representor to resile. Detriment is measured at the time when the promisor proposes to withdraw his promise, not at the time when the promise is made.
Estoppel by representation of fact and promissory estoppel are mutually exclusive: the former is based on representation of existing fact (or of mixed fact and law), while the latter is based on a promise not to enforce some pre-existing right (ie, an intention as to the future). Proprietary estoppel can operate only between parties who, at the time of representation, were in a pre-existing relationship, while this is not a pre-requisite under estoppel by representation of fact.
English and Australian courts will consider unconscionability taking into account many factors, including the behaviour, state of mind, and circumstances of the parties. Generally, the following eight factors are determinative (Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Oxford: 1999, pp60-66):
- how the promise/representation and reliance upon it were induced
- the content of the promise/representation
- relative knowledge of the parties
- parties' relative interest in the relevant activities in reliance
- nature and context of the parties' relationship
- parties' relative strength of position
- history of the parties' relationship
- steps, if any, taken by the promisor/representor to ensure he has not caused preventible harm.
Issue Estoppel/Res Judicata
Under English law a person should not be tried twice for the same offence. This maxim has been extended when there is a general public interest that the same issue should not be litigated over again even when the parties are different. In the notorious Birmingham Six saga, there was a case Hunter v. Chief Constable of the West Midlands Police (1982) where the House of Lords ruled that the case came under issue estoppel. Lord Diplock included in his speech:
- the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.
Estoppel by Representation of fact under English law
Estoppel by representation of fact is a term coined by Spencer Bower. This species of estoppel is also referred to as "common law estoppel by representation" in Halsbury's Laws of England, vol 16(2), 2003 reissue.
In The Law relating to Estoppel by Representation, 4th edition, 2004 at para I.2.2, Spencer Bower defines estoppel by representation of fact as follows:
- where one person (‘the representor’) has made a representation of fact to another person (‘the representee’) in words or by acts or conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive) and with the result of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time, and in proper manner, objects thereto.
A second definition can be found at Wilken and Villiers, The Law of Waiver, Variation and Estoppel, 2nd ed, Oxford: 2003, at para 9.02:
- An estoppel by representation [of fact] will arise between A and B if the following elements are made out. First, A makes a false representation of fact to B or to a group of which B was a member. [It is not necessary to demonstrate A knew that the representation was untrue.] Second, in making the representation, A intended or [in the alternatively,] knew that it was likely to be acted upon. Third, B, believing the representation, acts to its detriment in reliance on the representation. [It must have been reasonable to rely on the representation.] Fourth, A subsequently seeks to deny the truth of the representation. Fifth, no defence to the estoppel can be raised by A.
A representation can be made by statement or conduct. Although the representation must be clear and unambiguous, a representation can be inferred from silence where there is a duty to speak or from negligence where a duty of care arises. Under English law, estoppel by representation of fact is not a cause of action, though it may be a defence or acts in support of a cause of action.
There is some debate whether under English law courts will take into account unconscionability under estoppel by representation of fact, although Australian courts clearly do (see Wilken and Villiers, para 9-03; The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 per Deane J.)
The English doctrine of estoppel by representation of fact is the same as the American doctrine of equitable estoppel.
Equitable estoppel properly defined
As noted above, under both English and Australian laws, promissory and proprietary estoppel are both species of equitable estoppel. Although in English legal parlance, equitable estoppel does not include estoppel by representation of fact, the position in Australia is not entirely clear since the decisions of Waltons Stores (Interstate) v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394, both of which purport to fuse common law and equitable estoppels into a single unified doctrine. However, the New South Wales Court of Appeal in Bryon Shire Council v Vaughan [2002] NSWCA 158 continues to treate estoppel by representation at common law as distinct from equitable estoppel. (See Meagher, Gummow & Lehane's Equity: Doctrines & Remedies, 4th edition, Butterworth: 2002, Chapter 17 and Pakinson, The Principles of Equity, 2nd edition, LBC: 2003, Chapter 7)
There is little confusion in American law, however:
- The most comprehensive definition of equitable estoppel or estoppel in pais is that it is the principle by which a party who knows or should know the truth is absolutely precluded, both at law and in equity, from denying, or asserting the contrary of, any material fact which, by his words or conduct, affirmative or negative, intentionally or through culpable negligence, he has induced another, who was excusably ignorant of the true facts and who had a right to rely upon such words or conduct, to believe and act upon them thereby, as a consequence reasonably to be anticipated, changing his position in such a way that he would suffer injury if such denial or contrary assertion was allowed. 28 Am Jur 2d ESTOPPEL AND WAIVER § 28
Proprietary estoppel in English law
Proprietary estoppel arises when one party purports to give but fails to effectively convey, or promises to give property or an interest in property, to another party knowing that party will expend money or otherwise act to his detriment in reliance of the supposed or promised gift. See Dillwyn v Llwellyn (1862) 4 De G.F.& J. 517 C.A. in Chancery. In this case a father promised a property to his son, who took possession, expended a large sum of money on the house and otherwise improved the property. The father never actually gifted the property to the son. After his death the son, claiming to be the equitable owner, obtained a court judgment forcing the trustees to convey the land to him. See also Inwards v Baker [1965] 2 Q.B. 29, C.A.
Proprietary estoppel is not known to American law. It appears that English equitable estoppel (ie, promissory and proprietary estoppel) is coextensive with American promissory estoppel.
Promissory estoppel
Promissory estoppel is the doctrine that prevents a party from acting in a certain way because the first party promised not to, and the second party relied on that promise and acted upon it.
Promissory estoppel in English law
In English law, a promise made without consideration is generally not enforceable, and is known as a gratuitous promise. For example, a car salesman promises not to sell a car over the weekend, but does so, the promise cannot be enforced. If however, the car salesman accepts one penny in consideration for the promise, the promise is binding and enforceable in court. Estoppel is one of the exceptions to this rule.
The doctrine of Promissory Estoppel was first developed in Hughes v. Metropolitan Railway Co [1877] but was lost for some time until it was resurrected by Lord Denning in the controversial case of Central London Property Trust Ltd v. High Trees House Ltd [1947] K.B. 130.
In this case, the claimants let a block of flats to the defendants at an annual rent of £2500. However, they agreed to accept a reduction in rent to £1250, because the defendants were unable to find enough tenants due to the evacuation of London during WWII. This promise to accept a lesser rent was unsupported by consideration. At the end of the war the flats became fully let, and the claimants demanded the full rent, plus arrears for the period during the war. Denning J held that they were only entitled to the full rent from the end of the war. The claimants were estopped from going back on their promise, because it would have been inequitable for them to do so.
Promissory estoppel requires (1) an unequivocal promise by words or conduct, (2) a change in position of the promisee as a result of the promise (not necessarily to their detriment), (3) inequity if the promisor was to go back on the promise. Estoppel is "a shield not a sword" — it cannot be used as the basis of an action on its own. It also does not extinguish rights. In High Trees the plaintiff company was able to restore payment of full rent (although estopped back rent was lost) from early 1945, but would have been able to restore full rent at any time after the initial promise provided a suitable period of notice had been given.
Estoppel is an equitable (as opposed to common law) construct and is therefore discretionary. In the case of D & C Builders v Rees the courts refused to recognise a promise to accept a part payment of £300 on a debt of £482 on the basis that it was extracted by duress. In Combe v. Combe Denning elaborated on the equitable nature of estoppel by refusing to allow its use as a "sword" by an ex-wife to extract funds from the destitute husband.
Promissory estoppel is not available when one party promises to accept a lesser sum in full payment of a debt, unless the debtor offers payment at an earlier date than was previously agreed. This is the rule formulated in Pinnel's Case (1602) 5 Co Rep 117a, and affirmed in Foakes v. Beer (1884) 9 App Cas 605.
Promissory estoppel in American law
In the many jurisdictions of the United States, promissory estoppel is generally an alternative to consideration as a basis for enforcing a promise. It is also sometimes referred to as detrimental reliance.
The American Law Institute included the principle of estoppel into § 90 of the 'Restatement of Contracts ', stating:
- A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
The distinction between promissory estoppel and equitable estoppel should be noted:
- Equitable estoppel is distinct from promissory estoppel. Promissory estoppel involves a clear and definite promise, while equitable estoppel involves only representations and inducements. The representations at issue in promissory estoppel go to future intent, while equitable estoppel involves statement of past or present fact. It is also said that equitable estoppel lies in tort, while promissory estoppel lies in contract. The major distinction between equitable estoppel and promissory estoppel is that the former is available only as a defense, while promissory estoppel can be used as the basis of a cause of action for damages. 28 Am Jur 2d ESTOPPEL AND WAIVER § 35
A simple example: you go to a store and see a sign that the price of one of store owner's products, a radio, is $10. You speak with the owner and tell him you will get the money and come back later that day to purchase it; there is no discussion of price. He says that when he returns he will be happy to deal with you as he deals with all his customers, but that if he sells all the radios (he has three) then he will not be able to help you. You go sell your watch for $10 (while it was really worth $15, but since you wanted the money right away you could not wait for the best price), and you sold it to someone who you knew would pay $10. When you return, the sign says $11, and the owner tells you he has changed the price. In equity, he may be estopped from his conduct. You relied upon his representation that he would sell you the radio when you came back the same day with the money; you had sold your watch at a price lower than the market price, and thus you have acted to your detriment. (Note that if your watch was worth $10, and you received fair price, there would not be any detriment on your part).
An example of promissory estoppel in the construction of a building: A construction company puts together the estimates of a number of subcontractors and quotes its client a price. The client accepts, and construction begins. However, thereafter one of the subcontractors drastically raises the price above its original estimate. Because of this change, the construction company cannot profit from the building. A court would be likely to give the construction company promissory estoppel, which would allow them to pay what the subcontractor originally estimated rather than the new, higher price.
Note that, in some common law jurisdictions, if when you had approached the owner and indicated that you wanted to purchase one of those radios and he had said "Sold," you may be able to argue that a contract had been created, even if you had to go get the money. But under the classical idea of consideration, until you paid him, the contract would not have concluded. (This is not necessarily true in any common law jurisdiction; a promise to pay the owner is good consideration if it is made in exchange for a promise to sell you the radio later on. This is called a bilateral contract: a promise in exchange for a promise. Both promises are enforceable.)
One contentious point during the drafting of the Restatement was how to calculate damages from promissory estoppel. During the deliberations, an example was created: a young man's uncle promised to give him $1,000 to buy a car, the young man bought a $500 car, and the uncle reneged. The reporter of the Restatement believed that the young man should be entitled to all $1,000 (the amount promised); many other legal scholars believed that the young man should only be entitled to $500 (the amount he actually lost). The language eventually adopted for the Second Restatement read: "The remedy granted for breach may be limited as justice requires."
Estoppel by acquiescence
The doctrine of estoppel by acquiescence may prevail when Party A makes legal notice to Party B of Party A's assertion of a fact or legal principle or claim, and Party B fails to refute, reply to, or to defend (within "a reasonable period of time") against said claim. In this circumstance, Party B is said to have acquiesced to the claim or position taken by Party A, and by acquiescence, generally is considered to have lost the legal right to make a counterclaim.
An example: Jack owns a property, on which Jill has stored a vehicle, with no contract between the two over the storage of Jill's car on Jack's property. Jack sends Jill a registered letter to her legal address, stating: "I am no longer willing to allow your car to stay here for free. Please come get your car, or make arrangements to pay me rent for storing it. If you do not do so, within 30 days, I will consider the car abandoned and will claim ownership of it. If you need more time to make arrangements, please contact me within 30 days, and we can work something out. … Jill does not respond. … In this case, Jill may be said to have relinquished her ownership of the car in question, by acquiescence and Jack's subsequent actions of registering the car in his name and exercising ownership of it, may be upheld by court under the doctrine of estoppel by acquiescence.
Other Estoppels
Estoppel in pais (literally “by act of notoriety", or "solemn formal act”) is the historical root of common law estoppel by representation and equitable estoppel. Estoppel in pais and equitable estoppel are used interchangably in American legal parlance.
Estoppel by convention as understood in English law (also known as estoppel by agreement) occurs where two parties negotiates or operates a contract based on a shared assumption or mutual understanding of an legal effect (or interpretation) of that contract, they are bound by that belief, assumption or understanding if (i) they both knew the other operated under the same, and (ii) they both regulated their subsequent dealings on the same. It has been said that estoppel by convention is not truly an estoppel but merely an instance of estoppel by representation, promissory estoppel or proprietary estoppel, though the first of the three is its most frequent manifestation.
Estoppel by deed is a rule of evidence. A statement in a deed, usually facts stated in the recital of a deed, is evidentially conclusive against the parties of the deed. The parties are estopped from asserting otherwise.
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