In commercial negotiations, one party may say something or make a promise outside of a contract. For example, a landlord might tell a tenant during negotiations that rent will not increase. Even though this promise is not included in the contract, the lease allows the landlord to increase the rent. If the landlord then raises the rent, the tenant may not be able to enforce the landlord’s oral promise, as there is no written contract to that effect. Can this be enforceable? The answer may be yes, but only if certain requirements are met according to the rules of promissory estoppel. This article will outline the requirements and remedies for promissory estoppel.
What is Promissory Estoppel?
Promissory Estoppel is a legal principle that courts of Equity will grant a remedy to prevent unfair conduct by a party who makes a clear and definite promise to another party who then relies on that promise to their detriment. This can occur even if there is no binding contract.
You may invoke this legal doctrine when the written terms of a legal agreement do not match the pre-contractual assurances given. If successful, you may enforce non-contractual promises. It is often difficult to establish promissory estoppel, and you must satisfy the requirements to do so.
What Are the Requirements of Promissory Estoppel?
We will explain the three key elements below to satisfy these requirements.
1. Representation
First, you must show that the other party made a representation to you. This representation does not have to be part of a contract. It can merely be a promise that the other party will undertake.
2. Reliance
Second, you must show that you relied on the representation and the expectation it created. You must be able to point to steps you took that were influenced by the other party’s representation. This means that you would not have acted any differently, even with the other party’s representation. You must also show that you acted in reliance on the representation in a reasonable way.
3. Loss
Thirdly, you must show that you suffered a loss as a result of your reliance on the representation. Loss includes financial expenses that you have incurred. You can also show loss by highlighting any opportunities you missed by relying on the other party’s representations.
Continue reading this article below the formRemedies for Promissory Estoppel
If you successfully establish a claim of promissory estoppel, a court may grant you a remedy. Remedies are flexible, but the common result is that the promise is enforced as if it were a contract. You may also be awarded damages. A court may adjust any remedies proportionately and to the extent necessary to prevent unfairness resulting from the other party breaking the promise on the expectation or assumption.
Is an ‘Entire Agreement’ Clause Sufficient to Prohibit a Successful Promissory Estoppel Claim?
An ‘Entire Agreement’ clause states that the written contract represents the complete and final agreement between the parties. However, this clause is not always enforceable. Promissory estoppel may override the Entire Agreement clause in some circumstances. Additionally, an Entire Agreement clause may be considered an ‘unfair contract term’ under Australian Consumer Law, which could result in penalties.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
When considering promissory estoppel, a court will always take into account all the circumstances of your case, including the:
- context of the other party’s representation;
- actions you took based on it; and
- nature of the loss you suffered.
Promissory estoppel may be difficult to prove, and it is important that any contract accurately reflects the commercial arrangement and negotiations between the parties. A party should avoid relying on an Entire Agreement clause to negate the effect of promissory estoppel and, instead, be cautious of the types of representations made.
If you need help understanding promissory estoppel, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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