Promissory Estoppel

Promissory Estoppel is a contract law concept devised to stop entities from going back on promises, even when they are not written down in a contract. If a promise is violated, the promissory estoppel enables the promisee to sue the promisor. The law enables the victim to take action even without a legal document backing up the promise.

Depending on the jurisdiction of the promissory estoppel case, the rules might vary. However, a successful case would deliver reliance and expectational damages to the complainant. Reliance damages are provided to refurbish economic damages before the agreement was broken and expectational damages are for fulfilling the amount if the agreement had been met.

• Promissory estoppel can be used when someone breaks a promise. This law is applicable even if there is no legal contract.
• The person suing for damages still needs to prove without a doubt that the promise was made once and that the promisor took back their word.
• Any promise needs to be significant, reasonable, and the victim should have suffered losses. Victims can sue an entity based on this law only after meeting those criteria.
• Specific legislation regarding promissory estoppel in contract law differs significantly between jurisdictions.

Promissory estoppel is a concept in contract law where parties involved cannot go back on their promises or not deliver on the agreed terms even without the presence of a written contract.

Promissory estoppel cases can be invoked when someone makes a promise and breaks it. It’s mostly used in business transaction in which one party was harmed due to someone going back on their word.

In short, it helps the victim sue for damages without having a legal document as a backup. Obviously, the victim needs to prove that a promise was made, so you may. Digital documents such as emails, messages via apps come in handy, so do witnesses.

Let us understand the requirements to present promissory estoppel cases in the court through the explanation below.

#1 - The Promise Was Significant and Reasonable

The first element that any judge will analyze relates to the promise itself. Is it significant and reasonable?

Significant means that the promisee acted in good faith, and in doing so, the losses had a significant impact. If the violation of promise did not cause significant losses to affect the life of the victim, the case would likely be dismissed.

Reasonability is related to how believable the promise actually is and whether a person would normally act on it or not in normal circumstances.

For example, receiving a bonus at the end of the year for closing a number of sales is a reasonable promise. On the other hand, the promiser promising something that does not belong to the company is not a reasonable promise.

#2 - Someone Relied on It and Suffered Losses

If the promise was both significant and reasonable, the promisee still needs to follow it through before they can sue for damages. After all, the deal has legal value only if the promisee holds his side of the bargain despite not receiving the promised reward.

Also, the losses must significantly hurt the victim. If the impact of a failed promise is too little, then the law does not apply. Victims cannot sue someone for a paltry $30 promise. But for example, if the amount was $3,000 and seriously hurting the victim, then the law applies.

#3 - There’s No Alternative Compensation

The final requirement to use the promissory estoppel concept is to determine whether there is an actual way to repair the injustice that the promisee suffered other than by paying that promise.

If this is the case, the defendant will have to pay up after losing in court. In certain cases, however, it will be possible to settle any issues without actually paying the promise. On these occasions, the law may determine another way to rectify the injustice created by not keeping the promise.

Let us understand the promissory estoppel elements in depth with the help of a couple of examples.

Example #1

Mary owns a company. During work, she promised her employee Susan that she would pay a certain amount of money to her retirement fund every month. For years, Susan worked believing that Mary was doing that, but she was not. When Mary finally retired, she had a very unpleasant surprise and suffered a major loss because she was expecting a valuable sum. Susan can sue Mary because she believed in that promise, and the owner of the company fooled her, which triggered a major financial loss.

In another example, a salesman named John hired Paul to paint his shop. Right from the start, they agreed on paying a certain amount of money for the job. However, John refused to pay it in full because there was no contract, and he does not believe that the man did a good job. Unless John can prove that Paul did not do a good job, Paul could sue him.

In both cases, Susan and Paul can sue their employers if they manage to prove that there were tricked.

Example #2

Media Logic USA, LLC is a marketing agency based out of Albany. They entered into a contract with Prinova to carry out their marketing campaigns in 2018. The deal was to spend at least $500,000 in Media Logic years towards promotional campaigns and the sum was majorly towards the fees for doing the same.

In 2019, after spending $360,000 and being satisfied with the work from Media Logic, Prinova abruptly ended their contract with the former over a phone call. To this Media Logic’s team sued Prinova for breaching the Letter of Understanding and proceeded with a promissory estoppel case.

Promissory estoppel elements exist in contract law, a branch legal system that oversees the exchange relationships between two or more parties.

By definition, a contract requires a "consideration for making a promise or agreement." The sentence states that the first party needs to offer something to a second party in exchange for a specific action or for that individual or business to refrain from doing an action during a determined timeframe.

In some cases, the judge may decide that a case is legal even if there’s no direct proof of foul play. Judges’ ruling stands even if the evidence to determine that someone has gone back on their word is lacking. The main reason for the existence of promissory estoppel in contract law is to enforce oral contracts.

It is important to note that despite the concept being generally well-regarded in the United States and across the globe, the specific legislation varies. Different jurisdictions, such as different states, may deal with the concept differently. Therefore, individuals are recommended to consult local legislation before going to court. What is an example of promissory estoppel?

This has been a guide to what is Promissory Estoppel. Here we explain Promissory Estoppel's examples, requirements, and contract law implications. You may learn more about financing from the following articles –

• Unilateral Contract
• Quasi-Contract
• Forbearance