Promissory Estoppel and Quantum Meruit

QUASI CONTRACTUAL OBLIGATION

Quasi-contractual obligations, also known as implied-in-law contracts or contracts
implied by law, are legal obligations that arise in the absence of an express agreement
between parties. These obligations are not based on the parties' actual intentions or
consent, but rather on the principles of fairness and justice. Quasi-contractual
obligations are imposed by the law to prevent unjust enrichment or unfairness when
one party benefits at the expense of another without a valid contract in place.

Different types of quasi contractual obligation:

1Unjust Enrichment: If one party receives a benefit from another party under
circumstances that would make it unfair to retain that benefit without compensating
the other party, the law may impose an obligation to make restitution. This prevents
one party from profiting at the expense of another without justification.

2. Necessaries: In some cases, the law imposes an obligation on one party to pay
for necessary goods or services provided to another party, such as medical care or
essential living expenses. This ensures that individuals are not left without basic
necessities even in the absence of a formal contract.

3. Officious Intermeddler: If someone voluntarily provides goods or services to

another party without their request, the law may imply a contract to prevent unjust
enrichment. However, the person providing the goods or services must have acted in
good faith and with the reasonable belief that they were benefitting the other party.

However, we will only focus on Promissory Estoppel and Quantum Meruit

Introduction

Rule in Pinnel’s Case: Part Payment of a Debt is not Sufficient Consideration

The basic rule is that part-payment of a debt is not sufficient consideration as it does
not satisfy the whole debt. There are two basic exceptions where the agreement to pay
less than the full debt can be enforced and these are:

1. Accord and Satisfaction: There is an agreement to accept something other

than the money from the existing debt. This might take a number of forms:
• An agreement to accept an earlier payment of a smaller sum than the whole
debt. e.g. if A owes B K1000 which is due for payment by A on March 31, and B
agrees to accept a payment of K800 on March 10, then B will be unable to sue for the
remaining K200. In effect, the earlier payment reflects consideration for the changed
agreement.
• An agreement to accept something other than money instead of the debt. E.g. If
A owes B K1000 and B accepts a table worth K700, then the full debt is satisfied.
• An agreement to accept a part-payment together with something else, not to the
value of the balance of the debt. E.g. If A owes B K1000 and B agrees to accept K600
together with a law book worth K200. In cash value B has received is only K800 but
again the debt has been paid.

2. Doctrine of Promissory Estoppel:

The doctrine of estoppel acts as a defence to a claim by a creditor for the remainder of
the debt where part-payment has been accepted. The effect of the doctrine is to
prevent (estop) the claimant from going back on the promise because it would be
unfair and inequitable to do so.
This is so even when the other party has not made any consideration. This principle of
promissory estoppel may be seen to operate as a way in which the requirement of
consideration is removed altogether and instead as long as there in reliance on a
promise, the agreement can be binding.

In the case of
Galaunia Farms Ltd v National. Milling Corporation
The court stated that in order to succeed under the doctrine of estoppel there must be a
representation of facts intended to be acted upon by the person to whom it is made.
The person to whom it is made must act on the representation and by so acting, it must
be to his detriment.

Central London Property Trust Ltd v High Trees House Ltd

[1947] KB 130
is the leading authority on promissory estoppel and also provides a clear example of
the principle. The facts are as follows
1. Party A leased some properties from Party B, at the cost of £2,500 a year. This
lease was signed in September 1937
2. Following the outbreak of World War 2, Party B agreed to reduce the rental
cost to £1,250 due to the difficulty in letting all of the flats out.
3. Following the end of World War 2, Party B attempted to re-assert the £2,500 a
year cost, not only for the future payments, but for the rent in arrears.
Unsurprisingly, the £2,500 a year cost could now be re-asserted, as the difficulties of
the war were now over. The question of the arrears is where the promissory estoppel
becomes relevant. The £1,250 payments would have been considered as part-
payments of a debt, which as we identified in the previous section from Foakes v
Beer, would not be valid consideration, and therefore, the arrears in full for £2,500
would be able to be reclaimed.
In his judgment, Lord Denning explained that where a promise is made which is
intended to be binding, intending to be acted upon, and is also acted upon, it comes
binding, notwithstanding any limitations of consideration. Therefore, in the case, as
Party A had been paying £1,250 rent instead of £2,500, they had acted upon that
promise, and therefore Party B would be estopped from going back on the promise.

• Combe v. Combe [1951] 2 KB 215

Mr and Mrs. Combe were a married couple. Mr Combe promised Mrs Combe that he
would pay her an annual maintenance. Their marriage eventually fell apart and they
were divorced. Mr Combe refused to pay any of the maintenance he had promised.
Seven years later Ms Combe brought an action against Mr Combe to have the promise
enforced. There was no consideration in exchange for the promise and so no contract
was formed. Instead, she argued promissory estoppel as she had acted on the promise
to her own detriment. At first instance the Court agreed with Mrs Combe and enforced
the promise under promissory estoppel. However this decision was then appealed.
Judgment: Denning LJ reversed the lower court decision and found in favour of Mr
Combe. He elaborated on the doctrine from High Trees. Stating the legal principle,
Denning wrote, where one party has, by his words or conduct, made to the other a
promise or assurance which was intended to affect the legal relations between them
and to be acted on accordingly, then, once the other party has taken him at his word
and acted on it, the one who gave the promise or assurance cannot afterwards be
allowed to revert to the previous legal relations as if no such promise or assurance had
been made by him. He must accept their legal relations subject to the qualification
which he himself has so introduced, even though it is not supported in point of law by
any consideration but only by his word.
He stated the estoppel could only be used as a "shield" and not a "sword". This means
promissory estoppel can only be used as a defence in an action, not be the cause of an
action.
In the High Trees case, there was an underlying cause of action outside the promise.
Here, promissory estoppel created the cause of action where there was none. In this
case, the court could not find any consideration for the promise to pay maintenance.

So what this means that one cannot rely on the principle of promissory estoppel to sue
someone. They can only use it as a defense when someone sues them and going
against the promise he has made.

ESSENTIAL ELEMENTS FOR THE DOCTRINE OF

ESTOPPEL

1. There must be an existing legal relationship between the parties

Generally, promissory estoppel can only operate when there is a pre-existing legal
relationship, and will not create new ones.
This was confirmed in the case of Combe v Combe. In this case the court held that
the wife could only enforce her agreement for the payment which was promised by the
husband if she had given consideration. The court found that no consideration was
given by the wife as she had not agreed to apply for the maintenance that was
promised by the husband. The husband did not request the wife to refrain from taking
the maintenance payment and therefore the wife could not claim for the money.

So the case of Combe v Combe had a lot of principles as regards estoppel and these
include:
That for one to rely on promissory estoppel, there should have been an existing legal
relationship. So the plaintiffs could not rely on estoppel because there was no legal
relationship that existed prior to the cause of action.

Another one is that promissory estoppel can only be used as shield and not a sword. In
the above case the plaintiff wanted to sue relying on promissory estoppel which was
wrong. She can only rely on it as a defense if she was sued.

2. There must have been a detrimental reliance on the promise/ The promise or
representation must have been relied upon by the promisee

The promisee must rely on the promisor’s promise in order for promissory estoppel to
operate. In the High Trees case, this was by paying £1,250 rent instead of £2,500,
alongside this, they would have used the spare money to fund something else,
therefore relying on the promise that the rest of the £2,500 would not need to be paid,
meaning it would be unfair and unreasonable to force them to comply with the
original terms of the contract.
The test for reliance has an extremely low threshold, all one party must do it act
differently to what they would have otherwise done based on the promise.

3. It must be ‘inequitable’ for the promisor to go back upon his promise. Whether
the matter is inequitable is decided on a case by case basis

D & C Builders v Rees [1966] 2 QB 617

The builders sought payment from Rees for building work done and materials
supplied in respect of alterations and repairs completed on Rees’ shop. Rees did not
pay, but the work continued and a second bill was issued. Builders started to have
financial difficulties so requested the funds again. Rees offered Builders a reduced
lump sum in payment of the debt and stated that if it was not accepted, they would get
nothing. A cheque was issued after Builders feared they would receive no payment at
all and Rees provided a receipt stating the funds were in full payment of the account.
Builders brought action for the balance and Rees filed a defence stating that the work
was defective and that Builders had entered into a binding agreement.

In this case the court stated among other things that the defendant could not rely on
promissory estoppel. They can only rely on it in circumstances where it was
inequitable for the promisor( the plaintiffs in this case) to go back on their promise to
accept part payment of the money owed. In this case the plaintiff only accepted to
receive part payment because they were threatened that they would get nothing
therefore, it was equitable for them to go back on their promise…
 1. The effect of promissory estoppel is generally suspensory; it does not
extinguish the promisor’s rights.

The operation of this principle is clear in High Trees. Promissory estoppel suspended
the rights of Party B to claim £2,500 during the time of the war, but the right to charge
the full £2,500 was reintroduced following the end of the war.

1. Promissory estoppel cannot act as a cause of action; it acts as a shield but not as
a sword.

COMBE V COMBE
In the above case the plaintiff wanted to sue relying on promissory estoppel which
was wrong. She can only rely on it as a defense if she was sued.

What then is Estoppel?

Estoppel is a common law rule of evidence which prevents a person denying a fact
which he had previously asserted to be true if such assertion would be unfair or unjust
in the circumstances.

Types of Equitable Estoppel

1. Estoppel by Conduct: This type of estoppel arises when one party makes a
representation or behaves in a certain way, leading another party to believe that certain
facts are true or certain rights exist. If the second party relies on this representation or
conduct to their detriment, the first party may be estopped from denying the truth of
the representation or asserting rights inconsistent with it. In other words, their conduct
has created a legal barrier (estoppel) preventing them from going back on what they
previously indicated or implied.

• Maclaine v. Gatty [1921] 1 AC 376, p.386

As arising “where A has by his words or conduct justified B in believing that a certain
state of facts exists, and B has acted upon such belief to his prejudice, A is not
permitted to affirm against B that a different state of facts existed at the same time”. It
is notable that B must have acted on the words in question.

2. Estoppel by Representation: If a person makes a clear and unambiguous

representation of fact, he may be prevented from denying the truth of the
statement if the person to whom it was made acted upon the statement to their
detriment, as was the intention of the representor.
3. Estoppel by Convention: Estoppel by convention applies when both parties to a
transaction act on a shared assumption that certain facts are true. They are estopped
from denying this later if it would be unconscionable for them to do so.

•In Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas

Commercial Bank Ltd ([1982] Q.B. 84) T (a bank) agreed to lend money to ANPP ( a
subsidiary of A). In the end, the loan was provided through P (T’s subsidiary). This
was part of a much broader set of arrangements under which T provided finance to A
secured by mortgages over properties owned by A. A gave a guarantee to secure all
monies it owed to T. The parties both believed that the guarantee extended to cover
the loan by P to ANPP (ie from the bank’s subsidiary to the guarantor’s subsidiary)
though on a strict interpretation of the guarantee it arguably did not cover the
indebtedness to P. T and A conducted their negotiations for the overall financing of A
from time to time on the basis that the guarantee covered the loan by P to ANPP.
A went into liquidation and the question was whether the cash realised from the sale
of A’s assets had to be applied partly to pay off the indebtedness to P. The English
Court of Appeal found in favour of T on the basis of estoppel by convention.
Lord Denning M.R. put it this way:
‘So I come to this conclusion: when the parties to a contract are both under a
common mistake as to the meaning or effect of it – and thereafter embark on a
course of dealing on the footing of that mistake – thereby replacing the original
terms of the contract by a conventional basis on which they both conduct their
affairs, then the original contract is replaced by the conventional basis. Either party
can sue or be sued upon it just as if it had been expressly agreed between them.’

4. Proprietary Estoppel: Proprietary estoppel typically arises in the context of

property rights. It occurs when someone relies on a promise or assurance regarding
property made by another party to their detriment. If the person who made the promise
later seeks to act inconsistently with it, the doctrine of proprietary estoppel may
prevent them from doing so. The court may enforce the promise or assurance to
prevent unconscionable conduct or injustice.

The principle of Quantum Meruit

Quantum meruit" is a Latin term meaning "as much as he deserves" or "as much as is
earned." It refers to a legal principle where a party is entitled to recover the reasonable
value of goods or services provided to another party, even in the absence of a formal
contract. Quantum meruit is a form of quasi-contract, which is a legal obligation
imposed by a court to prevent unjust enrichment when no formal contract exists
between the parties.
In cases where one party has conferred a benefit upon another with the reasonable
expectation of being compensated, but no contract exists, the court may imply a
contract to prevent unjust enrichment and award damages based on the value of the
benefit conferred.

The following are circumstances in which the courts will allow a quantum meruit
claim even though a price has been fixed.

Incapacity
Where necessaries are sold and delivered to a minor, they need only pay a reasonable
price for them, even though there may have been an agreement to pay more

Wrongful prevention of performance

If one party begins performance but is prevented from finishing by the other party’s
breach, the innocent party can claim a quantum meruit at the agreed rate for the work
done
Planche v Colburn [1831]
The claimant agreed to write a book on costume and armour for the defendant as part
of a series called ‘the Juvenile Library’. The agreed contract price was £100 to be
payable on completion. The claimant commenced writing and had completed a great
deal of it when the defendant cancelled the series. The defendant refused to pay the
claimant despite his undertaking and the fact that the claimant was still willing to
complete. The claimant brought an action to enforce payment.
Held:
The claimant was entitled to recover £50 because the defendant had prevented the
performance.

Agreed partial performance

Where a party performs only part of their contractual obligation, but this part-
performance is voluntarily accepted by the other party, a quantum meruit can be used
to secure a reasonable payment for the work done.
In Miles v Wakefield Metropolitan District Council (1987)
the House of Lords held that a worker on industrial action, in the form of a ‘go slow’,
could not claim his wages under his contract of employment because he was
deliberately working in a manner designed to harm the employer. He was, however,
entitled to be paid on a quantum meruit basis for the value of the reduced work per-
formed and accepted by the employers.

Contract void
Remuneration on the basis of a quantum meruit may be recoverable where
performance is rendered under a contract which, unknown to both parties, is void.
In Craven-Ellis v Canons Ltd (1936)
the plaintiff had been appointed and carried out work as a manag- ing director of the
defendant company, but it turned out that his contract of employ- ment was void. The
Court of Appeal held that he could recover the reasonable value of his work on a
quantum meruit. This principle would also apply where a contract with a company is
void because when the contract was made the company was not yet legally in
existence or had been dissolved, and where goods have been supplied under a con-
tract of sale which is void for a mistake as to the purchaser’s identity.

Contract frustrated
Where work is done under a contract before it is frustrated, a quantum meruit is not
avail- able at common law, but the party can make a claim in respect of a valuable
benefit con- ferred by the work under the Law Reform (Frustrated Contracts) Act
1943. Work done after the frustrating event can be claimed for on a quantum meruit,
on the principle of

Craven-Ellis v Canons Ltd.

the company accepted the services rendered by the plaintiff. It was found that if the
plaintiff did not perform the services, the company certainly would have hired some
agent to perform those services. Hence, the plaintiff, on the basis of quantum meruit,
succeeded in claiming the remuneration from the company for the work done
regardless of the fact that he failed to obtain his qualification share within two months.

Here are a few case law examples illustrating quantum meruit:

1. Lambert v. Heath [1911] 1 Ch 352: In this English case, the court applied the
principle of quantum meruit when a builder constructed a house for a landowner
without a formal contract. The court awarded the builder the reasonable value of his
services based on quantum meruit.
2. Cobbe v. Yeoman's Row Management Ltd [2008] UKHL 55: In this case,
the House of Lords (UK) held that a property developer was entitled to quantum
meruit for his work in negotiating a property deal, even though the negotiations
ultimately failed and no formal contract was signed. The court found that the
defendant had been unjustly enriched by the developer's efforts.
3. Merrick v. Linden Gardens Trust Ltd [2002] UKHL 38: In this English
case, the House of Lords recognised quantum meruit as a basis for awarding
compensation to a party who had conferred a benefit on another in reliance on an
expectation of payment, even though no formal contract existed.
These cases illustrate how quantum meruit operates as a quasi-contractual remedy to
prevent unjust enrichment and ensure fairness between parties when there is no
express contract governing their relationship.

Quantum Meruit does not apply where :

The contract requires complete performance as a condition of payment. For example
contracts to do with one piece of work in its entirety in consideration for a lump sum
payment.
SUMPTER V. HEDGES

A builder contracted to build two houses and stables for the lump sum of £565. The
builder only completed part of the work, after which he abandoned the contract. The
completed works amounted to a value of £333. A summary judgement found that the
builder abandoned the contract. The builder brought an action against the land owner
for the full payment of the £333 for his partial performance of the contract.
Issues
The question arose as to whether
(1) the partial performance of the contractual works entitled the employee for payment
of the value of the work done; or, alternatively,
(2) there was a right to recover for value of the work separately.

Firstly, the Court held that, under a contract of work for a lump sum payment, the
contractual price cannot be recovered, neither in whole nor in part, until the
contractual work is complete. If the work was completed, yet with certain omissions
or defects, then the employer would take the benefit of the completed works and the
employee would be entitled to payment of the contract price with deductions.

However, on the facts, the employee abandoned the contract without completion.
This partial performance of the contract works does not entitle the employee to
recover any payment of the contract price under a lump sum contract. Secondly, the
Court held that, alternatively, quantum meruit payment would require the inference
of a new contract for the partial work, independent from the lump sum contract.
Yet, on the facts, there is no inference of a new contract for partial works. As the
only applicable contract is the lump sum contract, the employee was not entitled to
recover the contract price for his partial performance of the contractual works.