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Promissory Estoppel Definition – Examples of Reliance on Promises

What Is Promissory Estoppel?

 Promissory estoppelPromissory estoppel is a legal doctrine. It states a promise is enforceable by law, even if made without formal consideration.  It can be invoked when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment. Promissory estoppel is intended to stop the promisor from arguing that an underlying promise should not be legally upheld or enforced. The doctrine of promissory estoppel is part of the law in the United States and other countries, although the precise legal requirements for promissory estoppel vary not only between countries but also between different jurisdictions, such as states, within the same country.

Estoppel is a legal principle that keeps people and businesses from, essentially, going back on their word or promise. Promissory estoppel helps injured parties to recover on promises made that have led to economic loss when not met.

(Source: investopedia.com)

Promissory Estoppel – A Deeper Look

There are many different forms that estoppel can take.  But, all revolve around the concept that a person or business cannot renege on a reasonable promise. If someone acts based on another party’s reasonable statement of fact or promise, that person can hold the other party responsible for damages if its broken promise negatively impacts them. Promissory estoppel serves to enable an injured party to recover on a promise.

Necessary Ingredients for Promissory Estoppel

There are common legally-required elements for a person to make a claim for promissory estoppel:

  • Promisor – A promisor can be an individual person, a corporation, business, or other forms of the entity.  On rare occasions, the state can also be considered to be a promisor when all other requirements are met (we will discuss the implications of the state as a promisor in a short while). For example, an employer who promises to pay a certain sum to an employee for his service is the promisor.
  • Promisee – The promisee can be a person or an organization who takes the promise to be binding and takes action based on it. The promisee is also the entity to suffer the negative consequences of breaking the promise which may or may not result in a detriment.
  • Detriment – The negative consequences that the promisee has suffered when the promise was broken. The promisee must have suffered an actual substantial detriment or loss.  For example, an economic loss that results from the promisor failing to deliver on his or her promise.
  • Reliance – An additional requirement is that the person making the claim — the promisee — must have reasonably relied on the promise. In other words, the promise was one that a reasonable person would ordinarily rely on.

Promissory estoppel is usually only granted if a court determines that enforcing the promise is essentially the only means by which injustice to the promisee can be rectified.

Promissory Estoppel Examples

An example of promissory estoppel might be applied in a case where an employer makes an oral promise.  Say he promises to pay an employee a specified monthly or annual amount of money.  This payment is promised to extend even throughout the full duration of the employee’s retirement. As a result, the employee then subsequently retires based on a reliance on the employer’s promise.  The employer could be legally estopped from not delivering on his promise to make the specified retirement payments.

One real-life example of estoppel comes from the world of trading cards. A famous trading card game developer, Wizards of the Coast, once promised never to reprint a specific set of cards, called the Reserved List. Some of those cards are now worth hundreds of thousands of dollars. Decades later, that company holds to the promise. One reason for the company sticking to this commitment may be that the holders of those cards could bring the company to court with a claim of promissory estoppel if a reprint were issued — arguing that reprinting those cards would cause significant financial losses to customers. (Source: robinhood.com)

What are the Types of Estoppel?

There are many different types of estoppel.  Each has its own unique features and arises in different situations.

Equitable Estoppel

Equitable estoppel protects a person or business from harm caused by another’s conduct. The conduct can include action, inaction, or intentional concealment of essential facts.

Promissory Estoppel

Promissory estoppel is a part of contract law that protects people from harm caused by acting on a reasonable promise made by another party. Two parties do not need to have a written contract for promissory estoppel to apply. It can refer to any reasonable statement or promise made by a party. If a court finds that promissory estoppel applies, it makes that verbal promise binding in the same way as a written contract.

Estoppel by Deed

Estoppel by deed applies to real estate. The person selling a piece of property cannot deny the accuracy of the facts stated in the deed he or she signed. In real estate, an estoppel certificate is a document that outlines the critical points of a lease for the tenant and landlord. This includes things such as the rent, term of the lease, and rights the tenants or the landlord have.

Estoppel by Silence

Estoppel by silence happens when one party had both the opportunity and the obligation to provide information to another but failed to do so. If the second party is damaged by the first’s failure to provide that information, it can seek damages through estoppel by silence.

(Source: ibid)

What is the Doctrine of Estoppel?

A legal doctrine is an accepted legal rule or process that arises from both legal code and precedent. When a judge applies a process or set of rules, they help to create a legal doctrine that future judges can use.  Estoppel is a legal doctrine because it comes from a combination of legal code and judicial precedent where courts have found against people acting unfairly or failing to uphold their word.

Promissory Estoppel as a Part of Contract Law

Contract law generally requires that a person receive consideration for making a promise or agreement. Legal consideration is a valuable asset that is exchanged between two parties at the time of a promise or agreement. Ordinarily, some form of consideration is required for a contract to be legally enforceable. Consideration is usually either an exchange of money or a promise to refrain from some action. However, to ensure justice or fairness, a court may enforce a promise even in the absence of any consideration.  This is provided that the promise was reasonably relied on.  Also, that reliance on the promise resulted in a detriment to the person who was promised.

Final Words

Promissory estoppel can be a lifesaver when you don’t have a written contract, and the promisor doesn’t fulfill his promise.  You will need to prove that you have faced negative consequences or detriments to win the case in your favor.  Promissory estoppel is usually only granted if a court determines that enforcing the promise is essentially the only means by which injustice to the promisee can be rectified.

Up Next: Day Trading For Beginners – What Is A Day Trader

Day trading can be summarized simply as buying security.  Then, quickly selling or closing out the position within a single trading day.  Ideally, a day trader wants to “cash-out” by the end of each day with no open positions to avoid the risk of losses by holding security overnight.  Day trading is not for everyone and carries significant risks. It requires an in-depth understanding of how the markets work and various strategies for profiting in the short term.  Short term profits require a very different approach compared to traditional long term, buy and hold investment strategies.

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