Doctrine of Estoppel

The Paper is written by Prakhar Mehrotra a student at National Law Institute University, Bhopal. This Paper highlights the Doctrine of Estoppel in Contract law.

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Introduction

Under s. 2(h) of the Indian contract act,1872[1], a ‘contract’ is an agreement enforceable by law, s.2(e)[2] talks about every promise being an agreement, but, unless supported by consideration it would be void in all circumstances other than those mentioned in s. 25[3]. S.2(d)[4] of the Indian contract act,1872 defines consideration as “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. Hence, when a person makes a promise and the promise has done in the past or promises to do something at the desire of promisor the promise would be void as it would be without consideration and could not be enforced by law.

Promissory Estoppel is a common law doctrine in the field of contract law, it is defined by a two-judge bench as “Where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect, a legal relationship to arise in the. future, knowing or intending that it would be acted upon by the-other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective whether there is any pre-existing relationship between the parties or not.”[5].

The concept of promissory estoppel is different from traditional theory of law of contract because estoppel protects reliance rather than bargains, promissory estoppel main objective is to prevent injustice to individual who has suffered any detriment on reliance of a promise from another individual (Promisor). [6] To trace the development of the Doctrine of Promissory Estoppel, one must look at several key English decisions that shaped its transition from a doctrine of “raising equity” to one of “estoppel.” Hughes v. Metropolitan Railway Company[7] dates back to 1877, when the lessor of the premises (Thomas Hughes) gave the lessee six months to perform certain repair work on the premises, but the lessor began certain sale negotiations with the lessee during that same time which did not work out and broke off. The lessor claimed that the lease had been forfeited at the end of the six-month period and attempted to evict the company.

The House of Lords held in this case that the lessees were misled to believe that the contract was intact because the negotiation were still on, and that they could not back out the of their agreement by saying it was forfeited. Lord Cairns delivered the leading judgement where he spoke about this equitable doctrine of Promissory Estoppel and said that – “if parties who have entered into definite and distinct terms involving certain legal results—certain penalties or legal forfeiture—afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.” This principle was used infrequently until lord Denning in the case of “Central London Property Trust Ltd. v. High Trees House[8]” stated: – “a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on. A party would not be allowed in equity to go back on such a promise.” This viewpoint of Denning J in this judgement through the obiter dictum had established the modern doctrine of promissory estoppel.

Statement of Problem

As there is no codification of the doctrine of estoppel it leaves more discretionary power to the courts to interpret it as they wish.

Hypotheses

An effective regulatory framework outlining and streamlining rules and regulations of estoppel can improve the condition of the contracting party, it may also provide them with the knowledge of the available remedies in case of breach regarding estoppel.

Research Questions

  1. What is Promissory Estoppel?
  2. What is the position of Promissory Estoppel in India and its limitations?
  3. Position in UK & USA?

Objectives of Study

  1. The primary objective of this object is to study and analyse estoppel in different contract laws around the globe.
  2. To study and understand the nature of terms and conditions formed with special reference to the scope and limitations of the same.
  3. To discuss status of estoppel with analysis of cases

Types of Estoppels: Doctrine of estoppel

In the case of “Amalgamated Investment Property Co. Ltd. v Texas Commerce International Bank[9].” Lord Denning MR talked about the various type of estoppels being under one main head shorn of any limitations. The types estoppels are:

  • Proprietary estoppel:

when a person acts in good faith and to his or her loss on the belief that he or she has or will acquire rights in or over another’s property in circumstances where the property owner’s denying of the rights is unconscionable.[10]

In the case of “Crabb v Arun District Council[11] it was held that “the promise could be enforced, and that a right of access over ADC’s land be made way for. it was also ruled it may have been appropriate for Crabb to pay some amount for the cost of the works in relation to the erection and removal of the fence, but in view of the fact that the land had been unusable for the five or six years the fence had been in place, Crabb had no financial liability in relation to the costs related to the fence being erected or removed.” i.e., it upheld the main rule of estoppel.

Usually, the cases of proprietary estoppel are of improvement of property, in which the improver would be given ownership with the owner positively giving detrimental reliance. But it is not only the improvement of property but sometimes also the rendering of services on the belief of transfer of ownership of property.

  • Estoppel by convention:

Estoppel by convention is the standard embraced in England and other common law, under which parties who have followed up on a typical supposition, identifying with an agreement between them or in any case, that a given condition of realities or law is valid, might be forestalled (estopped) from resiling from that presumption and from the state, as against the other party, the confirmed realities or position in law.

The UK Supreme Court in “Tinkler v Commissioners”[12] for Her Majesty’s Revenue and Customs has explained the conditions for such estoppel to emerge. The issue for the situation was whether the citizen, Mr Tinkler, was estopped from testing the legitimacy of the enquiry into his duty undertakings by the Revenue, in conditions where the two players had continued for almost 10 years on the mixed-up suspicion that the enquiry had been truly started by the Revenue. The Court of Appeal had held that Mr Tinkler was not really estopped. The Supreme Court turned around that decision.

Doctrine of Estoppel in India

The History of promissory estoppel in the Indian legal system can be traced to the case of “Ganges Mfg. Co. v. Sourajmul[13]”. In this particular case, High Court in Calcutta Observed “the doctrine of estoppels was not only limited to the law of evidence but that a person may be prevented from doing any act or relying upon any particular argument or connection, which the rules of equity and good conscience prevent him from using as against the opponent.’’ This marked a beginning to the development of the doctrine of estoppel in India.

The term promissory estoppel was first used by SC in the case of “Collector of Bombay vs Municipal Corporation of The City”[14] In this case, on the application of MC in 1865, the govt of Bombay sought that the predecessor in the name of MC of Bombay remove older markets from a specific site and vacate it. MC abandoned the place in favour of erecting and managing markets on the current one, which cost Rs. 17 lacks. In 1940, the Bombay collector assessed the new site to land revenue, prompting the MC to launch a suit seeking a ruling that it was allowed to keep the land even though no assessment had been paid. The Supreme Court decided that C had to have the right to rent-free ownership of the land in perpetuity. While concurring with the majority, Chandrasekhar Iyer J. based his judgement on promissory estoppels, stating that the government could not be permitted to go back on their representation.

Another important case regarding estoppel was the case of “Union of India & Ors vs M/S. Indo-Afghan Agencies Ltd”[15], In this case the Government of India had announced regarding providing certain subsidy with regard to the import of certain raw material in consequence to encourage trade of export of woollen garments to Afghanistan. But the government of India provided only partial subsidy and not full subsidies were given as promised.  The Supreme Court of India, held that the government was estopped by its promise.

In the case of “Century Spinning and Mfg. Co. Ltd. v. Ulhasnagar Municipal Council[16]” after taking into consideration s.115 of “The Indian Evidence Act[17]” which deals with disputes between the parties, the Supreme Court held that the doctrine of promissory estoppel applies to individuals and entities.

In the following cases the competent authority states, how the doctrine of estoppel cannot be made against statutes: 

  1. In the case of “Jatindra Prasad Das Vs. State of Orissa & others[18]” the High Court in Orissa held “There can be no estoppel against statutes and the Statutory Provisions and therefore, the said statutory provisions cannot be ignored on the grounds of an earlier administrative decision or precedent.”
  2.  In the case of “State of Bihar and others v. Project Uchcha Vidya, Sikshak Sangh and others[19] in which it was laid that “We do not find any merit in the contention raised by the learned counsel appearing on behalf of the respondents that the principle of equitable estoppel would apply against the State of Bihar. It is now well known; the rule of estoppels has no application where contention as regards a constitutional provision or a statute is raised.”
  3. In the case of “Olga Tellis v. Bombay Municipal Corporation (1985.07.10) (Right to Life and Livelihood for Homeless)[20] it was held that there can be no estoppels against the constitution of India or against the fundamental rights.

The law commission in its 108th report on estoppel suggested section 25-A which read: – “25A.

(1) Where

  • (a) a person has, by his words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship to arise in the future; and
  • (b) such person knows or intends that the promise would be acted upon by the person to whom it is made: and
  • (c) the promise is, in fact, so acted upon by the other person, by altering his position, then, notwithstanding that the promise is without consideration, it shall be binding on the person making it. if, having regard to the dealings which have taken place between the parties, it would be unjust not to hold him to be so bound.

(2) The provisions of this section apply whether or not there is a preexisting relationship between the parties.

(3) The provisions of this section shall not apply: –

  • (a) Where the events that have subsequently happened show that it would be unjust to hold the promisor to be bound by the promise; or,
  • (b) Where the promisor is the Government and the public interest would suffer if the Government is held to be bound by the promise; or,
  • (c) Where the promisor is the Government, and enforcing the promise would be inconsistent with an obligation or liability imposed on the Government by law.

Explanation (1). -Where a question arises whether public interest could suffer within the meaning of Clause (b), the court shall have regard to the amount of harm likely to be caused to the promise if the promise is not enforced and the extent of injury to be caused to the public interest if the promise is enforced, and shall decide the matter on a balance of the two considerations.

Explanation (2).-In this section Government’ includes all public bodies.”[21]

Estoppel in UK and USA: doctrine of estoppel

The law of Estoppel in the UK reads as:

SNELL: Promissory estoppel: “Where by his words or conduct one party to a transaction makes to the other a promise or assurance which is intended to affect the legal relations between idem, and the other party acts upon it, altering his position to his detriment, the party making the promise or assurance will not be permitted to act inconsistently with it-Like estoppel at common law, promissory estoppel may provide a defense, but it can create no cause of action.”

The difference between promissory and proprietary estoppel is that the former’s impact may only be temporary, but proprietary estoppel’s effect is not only permanent, but also capable of operating positively to give a right of action.

HANBURY: Promissory estoppel: “Where, by words or conduct a person makes an unambiguous representation as to his future conduct, intending the representation to be relied on and to affect the legal relations between the parties, and the representee alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by so doing the representee would be prejudiced.”

Promissory estoppel contains various provisions that recognize it from estoppel by the portrayal of reality. To start with, in that the portrayal might be one of aim and not one of truth; which brings up the issue of whether it is conflicting with the House of Lord’s choice in Jordan v. Money[22]. In any case, the principle is presently grounded. Furthermore, the necessity of impairment to the representee is less tough on account of promissory estoppel. Monetary misfortune or other impairment is obviously adequate; however, it appears to be that it isn’t important to show more than that the representee serious himself to a specific strategy because of the portrayal.

In The United States of America Estoppel reads as:

“A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise.”[23]

American Jurisprudence: “There is considerable dispute as to the application of estoppel with respect to the State. While it is said that equitable estoppel will be invoked against the State when justified by the facts, clearly the doctrine of estoppel should not be lightly invoked against the State. Generally, State is not subject to an estoppel to. the same extent as is an individual, or a private corporation. Otherwise, it might be rendered helpless to assert its powers in. government. Therefore, as a general rule the doctrine of estoppel will not be applied against the State in it govern-mental, public or sovereign capacity”

Hence, after looking at the reading of estoppel we can say that in the American sense estoppel is a doctrine by which it is guaranteed that if any work is done on the dependency of any promise the promisor is bound to renumerate the party to whom any exhaustion of resources has been caused due to his dependency on the promise of the promisor is bound to be refurbished with the same by enforcement of law so as to avoid any kind of injustice from happening.

The position of estoppel in the UK & USA is intertwined as it is a common law doctrine and common law has evolved in the colonies of the British such as India, USA. Hence, the doctrine of estoppel being a common law doctrine has been of the same position in these countries. We have seen that in the American sense it means a doctrine of getting back the individual back to their original position while avoiding any injustice done.

Conclusion and Suggestions

After all the research and analysis on the topic of Estoppel as a doctrine and keeping in mind its various types and position it holds around the globe while looking at the evolution of it as a doctrine of common law. I can conclude that the doctrine of estoppel around the globe is intertwined, interpreted the same, having the same motive of not letting one individual suffer on his reliance to the promise of another. Regarding the position of estoppel in India we have in this project analyzed various cases so as to understand the position of estoppel in India, which makes it unequivocal of its position as a common law doctrine that is yet to be codified in “Indian Contract act of 1872[24]” as it is the governing authority in regard of contracts in the land. As also recommended by the “108th report of law commission of India[25]” a section 25-A should be added which would codify the doctrine of estoppel. The doctrine of estoppel is not one of recent time as can be seen with cases being filed in India as early as 1865 and has ever since developed in the country on basis of precedents.

In regard with the comparison of the doctrine of estoppel between the UK, USA and Indian one cannot help but notice that the underlying principle of all is the same based on the principal equity helping safeguard the rights of the individual who suffered any kind of detriment due to reliance on any promise. While the position of the doctrine of estoppel in UK & USA is intertwined as it is a common law doctrine and common law has evolved in the colonies of the British such as India, USA. Hence, the doctrine of estoppel being a common law doctrine has been of the same position in these countries. We have seen that in the American sense it means a doctrine of getting back the individual back to their original position while avoiding any injustice done.

Hence, a codification of the doctrine of estoppel is required as it has become a court governed doctrine without having any prior set limitations and reach.

Also Read: ESSENTIAL ELEMENTS OF A VALID CONTRACT


[1] The Indian Contract Act of 1872, s.2(h)

[2] The Indian Contract Act of 1872, s.2(e)

[3] The Indian Contract Act of 1872, s.25

[4] The Indian Contract Act of 1872, s.2(d)

[5] M.P. Sugar Mills v. State of U.P., A.I.R. 1979 SC. 621, P. 631.

[6] Priyanka Dhange “The rise of doctrine of equity and estoppel” https://blog.ipleaders.in/promissory-estoppel/ accessed on 21/10/2021

[7] Hughes v Metropolitan Railway co. [1877] UKHL 1, [1877] 2 AC 439

[8] Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

[9] Amalgamated Investment Property Co. Ltd. v Texas Commerce International Bank [1982] QB 84

[10] ‘Anson’s Law of Contract’ By Sir William Reynell Anson, J. Beatson, Andrew S. Burrows, John Cartwright

[11] Crabb v Arun District Council [1975] EWCA Civ 7

[12] Tinkler v Commissioners [2019] EWCA Civ 1392

[13] Sourujmull And Ors. vs The Ganges Manufacturing Co. on 3 February, 1880 ILR 5 Cal 669

[14] Collector Of Bombay vs Municipal Corporation of The City 1951 AIR 469, 1952 SCR 43

[15] Union of India & Ors vs M/S. Indo-Afghan Agencies Ltd, 1968 AIR 718, 1968 SCR (2) 366

[16]Century Spinning and Mfg. Co. Ltd. v. Ulhasnagar Municipal Council, 1971 AIR 1021, 1970 SCR (2) 854

[17] THE INDIAN EVIDENCE ACT, 1872

[18] Jatindra Prasad Das Vs. State of Orissa & others, MANU/OR/0225/2011

[19]State of Bihar and others v. Project Uchcha Vidya, Sikshak Sangh and others, MANU/SC/0054/2006: (2006) 2 SCC 545

[20] Olga Tellis v. Bombay Municipal Corporation, 1986 AIR 180, 1985 SCR Supl. (2) 51

[21]Law Commission, Report on Promissory Estoppel (108th,1984)

[22] Jordan v Money (1854) LR 5 HL 185

[23] Article 90, American law institute restatement of the law of contract

[24]The Indian Contract Act of 1872

[25]Law Commission, Report on Promissory Estoppel (108th,1984)

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