Promissory Estoppel – Contracts

Cite this article as: Jason Mance Gordon, "Promissory Estoppel – Contracts," in The Business Professor, updated January 10, 2015, last accessed April 9, 2020, https://thebusinessprofessor.com/knowledge-base/promissory-estoppel/.
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Primissory Estoppel - Contract
This video explains the contract principle of primissory estoppel.

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Promissory Estoppel Exception to Consideration Requirement 

A doctrine known as “promissory estoppel” may serve as a substitute for consideration to make an agreement into a valid contract. Promissory estoppel is an equitable doctrine. If the offeree reasonably relies on the offeror’s promise to her detriment, the doctrine of promissory estoppel may make the contract valid despite the absence of consideration. The two key elements are:

  • that the reliance must be reasonable in light of the situation, and
  • the relying party must suffer a tangible detriment.

 

    • Note: The court may also consider whether performance causes a hardship on the promising party.
    • Example: You are having erosion problems in your hard. You cannot afford to pay to have it fixed, so I offer to give you the materials necessary to build a retaining wall. You spend your available money grading out the ground and digging the dirt where the wall will go. After all of this, I back out of my promise. You have now spent your available money and, without installing the wall, made the situation far worse than it was before. A court may deem my promise to be an enforceable contract because you relied to your detriment on my promise.

Discussion: How do you feel about the idea that a person’s reliance on another person’s promise can substitute for consideration? How much of a detriment must the relying party suffer before you think a court should enforce the agreement? Should the promise be enforced if it would result in a significant hardship for the promising party?

Practice Question: Tina says that she will give Sam her car to drive across the country from Georgia to California. Sam relies on Tina’s promise by not purchasing a plane ticket. Tina fails to follow through with her promised gift. Sam has to purchase a plane ticket that is dramatically more expensive that it would have been if he had purchased the ticket at the time that Tina made her promise. If Sam wants to sue Tina for breach of contract, what is the likely result?

Proposed Answer

The principle of promissory estoppel is based on the provisions of equity. This principle is an exception to the requirement of consideration for the contract to be enforceable. This means that where there is a promissory estoppel, consideration is not necessary to make the contract enforceable. However, for the principle of promissory estoppel to be legally binding, the following must be fulfilled:

    • The promisor should have expectations beyond reasonable doubt that the promise will do their part under the promisee.
    • That the action under the promise is induced.
    • That without the promisee carrying out the action promised, the promisor will suffer an injustice.
    • If the person suffers a great injustice due to the other party not delivering the promise then the aggrieved party should sue for damages. 

In this situation, it is difficult to see how Sam would be in a worse-off position than if Tina had never made the promise. As such, the element of Sam suffering an injustice may not be present.

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