Contract – Estoppel Q3

R entered an oral agreement to take a ten year lease of C's villa, Singgahsana. Following the agreement, C has spent RM5,000 on internal redecorations in Singgahsana, entirely to the requirements of R. During the course of renovation, R made several visits to Singgahsana, to make sure that his taste was satisfied. C complied with all his suggestions as to wallpapers, paint etc. R has now written to C to say that he does not intend to take lease after all. Advice C.

(20 marks, 2012 Q3)


Promissory estoppel

The doctrine of promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise.
A promise made without consideration is generally not enforceable. It is known as a bare or gratuitous promise. Thus, if a car salesman promises a potential buyer not to sell a car over the weekend, but does so, the promise cannot be enforced. But should the car salesman accept even one penny in consideration for the promise, the promise will be binding and enforceable in court by the potential buyer. Estoppel extends the court's purview even to cases where there is no consideration, though it is generally not a 'sword': not a basis on which to initiate a lawsuit.
The doctrine of promissory estoppel was first developed in Hughes v. Metropolitan Railway Co [1877] but was lost for some time until it was resurrected by Denning J in the controversial case of Central London Property Trust Ltd v High Trees House Ltd.[21]
Promissory estoppel requires:
  1. an unequivocal promise by words or conduct
  2. evidence that there is a change in position of the promisee as a result of the promise (reliance but not necessarily to their detriment)
  3. inequity if the promisor were to go back on the promise
'Estoppel' Wikipedia

Brennan J

Equitable estoppel arises where:
(a) P assumed a particular legal relationship existed between the parties (or expected that it would);
(b) D has induced that assumption in P;
(c) P acts (or abstains from acting) in reliance on the assumption;
(d) D knew or intended him to so act;
(e) P’s action/inaction will case him/her detriment if the assumption is not fulfilled     
(f) D has failed to act to avoid that detriment (eg, by fulfilling expectation)
His Honour also made clear that the remedy for promissory estoppel should go no further than what is necessary to prevent the unconscionable conduct – in this respect, the object of the equity is not to compel D to fulfil the expectation/ assumption, but to avoid the detriment that P will suffer if the expectation is not fulfilled.
Australian Contract Law

Waltons Stores (Interstate) Ltd v Maher

Own account:
This case presents itself initially like 'promissory estoppel' but later on carries the element of 'equitable estoppel' as well.
As C had complied with R to renovate the house to R's liking, there already exist the intention of renting the premise to R. This part is sufficient to estoppel R from denying renting the house from C. 
And, C in fact went further to renovate with a significant sum of RM5,000, and R having made numerous visits to inspect the house, it supports further his agreement and intention to rent the house. There is the element of consideration in this process as C has incurred consideration (RM5,000) in this agreement. A written contract is mere formality.
When R refused to rent the house from C, there is detrimental effect suffered by C, which is loss of tenant and money used in renovation. This is compounded by the further loss of having to demolish if required by a new tenant in the future. Over and above, there is substantial expense in finding another tenant and loss of rental income during the period.
R has not offered to compensate C for causing the loss. Thus, C can proceed to claim damages:
1. The renovation cost incurred (RM5,000 and lost of rental during renovation period);
2. The cost of demolishing the renovation and return the house to its formal state;
3. Lost of tenancy, usually a period of three months or until a new tenant is found;
4. All cost incurred in defending this case.
It is clear in this case that a contract relationship had been established from the moment that C agreed to renovate for R to rent his house. Hence, eventual failure to performance the verbal contract without any compiling reason (force majeure) renders the party who suffers detriment to engage the doctrine of 'estoppel'.