WEEK 3- Waiver, Promissory

Estoppel and Privity

These doctrines (Waiver and Promissory Estoppel)are ways of making some kinds of promise binding
even where there is no consideration. Waiver has traditionally applied where one party agrees not to
enforce their strict rights under the contract by, for example, accepting delivery later than agreed.
Subject to the usual principles of equity, that promise can be held binding, even without consideration.
WAIVER

 An example of waiver in action is Hickman v Haynes (1875). A buyer asked the seller to
deliver goods later than originally agreed, and then, when the delivery was made, refused
to accept it. The seller sued for breach of contract, and the buyer responded by arguing that
in fact the seller was in breach, for delivering later than specified in the original contract.
The court rejected this argument on the grounds that the late delivery was made at the
buyer’s request.
 PROMISSORY ESTOPPEL
Overview

 Given the strictness of the requirement of consideration, there has been a gradual movement by the courts
to a greater protection of the weaker party to the agreement. The courts have begun to place more emphasis
on the circumstances (generally detrimental) of reliance on a promise. The key feature of the estoppel is
unconscionability. In other words, a promisor is estopped from denying a promise if it is unconscionable to
depart from the assumption that the promisee has made in reliance on the promise.

 Promissory estoppel operates to ensure a party does not go back on their promise when another
party has relied upon that promise. Promissory estoppel will have the effect of stopping the party who
attempted to go back on their promise to do so.
 PROMISSORY ESTOPPEL
 How does Promissory Estoppel operate?

The decision in 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
Party A leased some properties from Party B, at the cost of £2,500 a year. This lease was signed in September
1937
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.
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.
 PROMISSORY ESTOPPEL
 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 its judgement the Court 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.
 PROMISSORY ESTOPPEL
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.
However, there are restrictions to promissory estoppel; again, each will be explained in turn:
 Need for an existing legal relationship between the parties
 There must have been a detrimental reliance on the promise
 Promissory estoppel can only be used as a defence
 It must be inequitable to allow the promisor to go back on the promise
 The doctrine is generally suspensory and does not extinguish rights
 PROMISSORY ESTOPPEL
There must have been 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. Lord Denning, in the case of Combe v Combe [1951] 2 KB, confirmed this. During the
divorce process, a husband promised to pay his wife a tax-free sum of £100 each year to represent a
permanent maintenance payment. The wife was aware that the husband was not in a good financial state and
made no claim to this payment. Several years later, she brought an action to claim the arrears that were owed
under their agreement. 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.
 PROMISSORY ESTOPPEL
There must have been a reliance on the promise
 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. It has also been suggested the reliance must be
detrimental, but there is clearly no detriment in High Trees and Denning also maintained this view in C.
 PROMISSORY ESTOPPEL
Promissory estoppel can only be used as a defence
 Recall that in Combe v Combe, a wife attempted to sue her former husband for a promise to pay her
maintenance, although she had provided no consideration for the promise. She tried to rely upon promissory
estoppel, arguing that she had relied on the promise. Her cause of action was grounded in and the Court
noted that promissory estoppel could not be relied upon.
 PROMISSORY ESTOPPEL
 It must be inequitable to allow the promisor to go back on the promise
The courts of equity are remedies which attempt to ‘fill the gap’ where the common law produces unfair results.
As an equitable doctrine, promissory estoppel will only be applied where it would be inequitable for the promisor
to go back on what was promised, and insist on their strict legal rights.
In The Post Chaser [1982], The sellers agreed to sell a quantity of palm-oil to the buyers who had contracted to
sell this onto sub-buyers. A clause in the contract required the sellers to send a declaration of shipment to the
buyers in writing as soon as possible after the ship set sail. The sellers gave the declaration a month after the ship
had set sail and the buyers did not protest the time delay. The sellers also handed the documents directly to the
sub-buyer at the request of the first buyer. It was then the sub-buyers that rejected the documents. The buyers
followed this and the sellers sold the oil, less money, elsewhere. The sellers then brought an action claiming the
difference in the money that was lost as damages. In subsequent litigation, The seller’s claim for damages was
rejected. The court found that the declaration of the shipment was an essential step in this sale process,
particularly with a view to the timings requested by the buyer. However, the court found that they had waived
their rights to claim against error/delay by requesting that the documents are submitted directly to the
sub-buyers. On this basis, the buyers were not found to be inequitable in their actions in rejecting the
documents.
 PROMISSORY ESTOPPEL
The doctrine is generally suspensory and does not extinguish rights
 A contractual modification supported by consideration will create the effect of a permanent set of obligations
for the duration of the contract. Promissory estoppel operates slightly differently, only suspending the rights
where relevant.
 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.
 PRIVITY OF CONTRACT
General Rule
 The general rule at common law states that a contract creates rights and obligations only as between the
parties to such contract. As a corollary, a third party neither acquires a right nor any liabilities under such
contract. This is what the proclaimed doctrine of “privity of contract” enunciates and establishes as the
overarching rule underlying any contractual relation.
 PRIVITY OF CONTRACT

 Tweddle v Atkinson (1861) 1 B&S 393 concerning an agreement between Guy and John to pay certain
sums to William Tweddle where the contract allowed the latter to sue either of them upon non-payment,
the court disallowed such right of action as William Tweddle was not a party to the contract. Recall also
the case of in Dunlop Pneumatic Tyre Co, where a manufacturer sought to sue a subsequent dealer for sale
of tyres on terms in breach of the original contract between the manufacturer and the intermediary
wholesaler. The court held that only a person who is a party to the contract can sue on it or be sued, and
thus, no right accrued to the manufacturer to sue the dealer (a third party). in Dunlop Pneumatic Tyre Co,
where a manufacturer sought to sue a subsequent dealer for sale of tyres on terms in breach of the original
contract between the manufacturer and the intermediary wholesaler. The court held that only a person who
is a party to the contract can sue on it or be sued, and thus, no right accrued to the manufacturer to sue the
dealer (a third party).
THE END