Doctrine of Estoppel in Real Estate Agency Practice Q7

In brief, the meaning of 'estoppel' is in fact:

Estoppel is essentially a rule of evidence[5] whereby a person is barred from denying a fact that has already been settled.

The plea of estoppel is closely connected with the plea of waiver, the object of both being to ensure bona fides in day-to-day transactions.[6] It is also related to the doctrines of variation and election. It is applied in many areas of contract law, including insurance, banking, and employment. In English law, the concept of legitimate expectation in the realm of administrative law and judicial review is estoppel's counterpart in public law.

Promissory estoppel is often applied where there is an agreement without a consideration, or the consideration is future based (as a promise). When applied in defense by a defendant it may be called a "shield", and where applied by a plaintiff it may be called a "sword".[7][8]It is most commonly used as a shield,[9] with some commentators stating that it can only be used as a shield, although this varies with jurisdictions.[10]

Examples

Estoppel can be understood by considering examples such as the following:

1. A city entered into a contract with another party. The contract stated that it had been reviewed by the city's counsel and that the contract was proper. Estoppel applied to estop the city from claiming the contract was invalid.[11]
2. A creditor unofficially informs a debtor that the creditor forgives the debt between them. Even if such forgiveness is not formally documented, the creditor may be estopped from changing its mind and seeking to collect the debt, because that change would be unfair.
3. A landlord informs a tenant that rent has been reduced, for example, because there was construction or a lapse in utility services. If the tenant relies on this statement in choosing to remain in the premises, the landlord could be estopped from collecting the full rent.

Major types

The main types of estoppel under English, Australian, and American laws are:

• Reliance-based estoppels: These involve one party relying on something the other party has done or said. The party who performed/spoke is the one who is estopped. This category is discussed below.
• Estoppel by record: This frequently arises as issue/cause of action estoppel or judicial estoppel where the orders or judgments made in previous legal proceedings prevent the parties from relitigating the same issues or causes of action.
• Estoppel by deed: Situations where rules of evidence prevent a litigant from denying the truth of what was said or done.
• Estoppel by silence or acquiescence: Estoppel that prevents a person from asserting something when he had the right and opportunity to do so earlier, and such silence put another person at a disadvantage.
• Laches: Estoppel after a litigant deliberately and avoidably delays an action so as to disadvantage an adversary.

Equitable estoppel (English law)

Under English and Australian legal systems, estoppels in equity include promissory and proprietary estoppels, described below. (Contrast with estoppel by representation, which is a claim (under the English system) at law.)

Proprietary Estoppel

In English law, proprietary estoppel is distinct from promissory estoppel. Proprietary estoppel is not a concept in American law, but a similar result is often reached under the general doctrine of promissory estoppel.

Traditionally, proprietary estoppel arose in relation to rights to use the land of the owner, and possibly in connection with disputed transfers of ownership. Although proprietary estoppel was only traditionally available in disputes affecting title to real property, it has now gained limited acceptance in other areas of law. Proprietary estoppel is closely related to the doctrine of constructive trust.[14]

J. Fry summarized the five elements for proprietary estoppel as:[20]

• the claimant

1. made a mistake as to his legal rights (typically because the actual owner attempted to convey the property, but the transfer is invalid or ineffective for some reason);
2. did some act of reliance;

• the defendant

1. knows of the existence of a legal right which he (the defendant) possesses, and which is inconsistent with the right claimed by the claimant;
2. knows of the claimant's mistaken belief; and
3. encouraged the claimant in his act of reliance.

Example: A father promised a house to his son who took possession and spent a large sum of money improving the property, but the father never actually transferred the house to the son. Upon the father's death, the son claimed to be the equitable owner. The court found the testamentary trustees (as representatives of the deceased father's estate) were estopped from denying the son's proprietary interest, and ordered them to convey the land to the son.[21]

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 certain specific 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.[22]

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

In general, estoppel is "a shield not a sword"—it cannot be used as the basis of an action on its own.[23] It also does not extinguish rights. In High Trees House the plaintiff company was able to restore payment of full rent from early 1945, and could have restored the full rent at any time after the initial promise was made provided a suitable period of notice had been given. In this case, the estoppel was applied to a "negative promise", that is, one where a party promises not to enforce full rights.

Estoppel is an equitable (as opposed to common law) construct and its application is therefore discretionary. In the case of D & C Builders v. Rees the courts refused to recognise a promise to accept a part payment of £300 on a debt of £482 on the basis that it was extracted by duress. In Combe v. Combe Denning elaborated on the equitable nature of estoppel by refusing to allow its use as a "sword" by an ex-wife to extract funds from the destitute husband.

The general rule is that when one party agrees to accept a lesser sum in full payment of a debt, the debtor has given no consideration, and so the creditor is still entitled to claim the debt in its entirety. This is not the case if the debtor offers payment at an earlier date than was previously agreed, because the benefit to the creditor of receiving payment early can be thought of as consideration for the promise to waive the rest of the debt. This is the rule formulated in Pinnel's Case,[24] and affirmed in Foakes v Beer.[25]

The decision of the Court of Appeal in Collier v P & MJ Wright (Holdings) Ltd suggests that the doctrine of promissory estoppel can now operate to mitigate the harshness of this common law rule.[26] Moreover, Arden LJ held that allowing a creditor to renege on his promise to forebear seeking the balance of a debt in return for part payment would be, in and of itself, inequitable. Therefore, the only reliance that the promisee must demonstrate is the actual making of the part payment. This approach has been criticised as doing violence to the principle set down in Hughes and the extent to which the other members of the Court, namely Longmore LJ, agreed with it is uncertain.

Ref:
Wikipedia search 'Promissory Estoppel', available at
https://en.m.wikipedia.org/wiki/Promissory_estoppel
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