Critically analyse the extent to which the rules relating to promissory estoppel allow effect to be given to the ‘reasonable expectations of honest men’ rather than
the sanctity of contract.
In the Contract assessed essay, footnotes and bibliographic references may be in any appropriate style as long as used consistently.
One good referencing system is OSCOLA – for a short guide see https://www.law.ox.ac.uk/…/OSCOLA_Quick_Reference_Guide_001.pdf.
Also, see Section 3 of the Lecture handout 3 “Contract Terms Lectures and Tutorials 2014-15” for some very useful general information on Formatting, referencing, etc.
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Critically analyse the extent to which the rules relating to promissory estoppel allow effect to be given to the ‘reasonable expectations of honest men’ rather than
the sanctity of contract.
The rules relating to promissory estoppel seem at first glance to give effect to the ‘reasonable expectations of honest men’, rather than the sanctity of contract.
Upon further investigation however, the limits of promissory estoppel portray the Court’s underlying respect for sanctity of contract. Further to this, it can be
argued that both of the principles look for the same outcome: wealth maximization.
The question requires an assessment of the dichotomy and the countervailing purposes of the mechanisms of consideration and promissory estoppel within Contract law. An
adherence to sanctity of contract holds that only a contract with the requisite consideration can be upheld. Often, this draconian necessity leads to inequity, and it
is at this point where promissory estoppel steps in to relieve “the harshness of the common law”.
Promissory estoppel, by enforcing a ‘clear and unequivocal promise’ that it would be ‘inequitable’ to go back on given the promisee’s ‘reliance’ upon it, protects
the ‘reasonable expectations of honest men’. The very existence of promissory estoppel is due to Lord Denning’s understanding, in the case of Central London Property
Trust Ltd v High Trees House Ltd , that upholding the sanctity of contract did not at times give effect to the ‘reasonable expectations of honest men’, and was leading
to injustice. Until this point the court had traditionally looked no further than the original contract in deciding whether or not to enforce a further promise or
agreement that had been made. Lord Denning found precedent for there to exist a safety net to protect those who have relied on a promise that did not amount to
consideration in Hughes v Metropolitan Railway Company . These ideals reflect the opinion that the purpose of contract law is to safeguard “consumer protection…
fairness and reasonableness in contract.”: ‘Consumer-Welfarism’. It understands that the ‘reasonable expectations of honest men’ is supported by the ‘principle of
constancy’; a promise should be as binding as a contract. However, it would be an overstatement to say that promissory estoppel, in fact, holds that a promise is
equally as binding as a contract.
The limit the court has placed on the applicability of the doctrine of promissory estoppel, in that it is invoked as a defence and not as a cause of action per se,
illustrates a retained deference to the sanctity of contract and a desire to avoid completely undermining it. In Combe v Combe , a mere four years later than High
Trees , Denning LJ places an enourmous limit on promissory estoppel in that it can only be used as a ‘shield’, not a ‘sword’. Furthermore, he shows his loyalty to the
sanctity of contract through his support for consideration, “a cardinal necessity of the formation of a contract”. Thus, despite there being all of the normal
prerequisites for promissory estoppel, he did not allow the doctrine to be used as a cause of action. This decision is legitimized in the more recent decision of Baird
Textile Holdings Ltd v Marks & Spencer plc , where it was affirmed promissory estoppel could not be used as a cause of action. These decisions reflect the opinion that
contract law’s purpose is to “facilitate competitive exchange” , through multiple principles. Most relevant for us is the principle of sanctity of contract, and more
specifically how the courts will absolutely not review the adequacy of consideration. This line of argument shows that promissory estoppel does not completely give
effect to the ‘reasonable expectations of honest men’, but is more of a synthesis between such expectations and the sanctity of contract.
This is contrasted by the law in Australia, where promissory estoppel has been expanded. In Waltons Stores (Interstate) Ltd v Maher, the High Court decided that
promissory estoppel could be used as both a cause of action and a ‘shield’. Thus, one must ask why the same cannot be done in the United Kingdom’s jurisdiction if it
is but for a loyalty to sanctity of contract?
The second way in which promissory estoppel’s respect for the sanctity of contract is shown is that it only protects the reliance interest of the promisee. The
enforcement of the promise depends on whether the promise has “influenced the conduct of the party to whom it was made”. The very fact that it depends on a reliance
perhaps shows that what they are doing is not making a judgment that all promises should be enforced but only when the promisee has changed his conduct because of the
promise. If you breach a contract you get the expectation remedy whereby you are put in the same position you would have been had the contract been performed , whereas
promissory estoppel only protects your reliance interest, putting you in the same position you would have been before the contract . If a promise was viewed as being
as valid as a contract, one would submit that it would hold an expectation remedy. Instead, the promise is not fully enforced in that the promisee is merely brought
back to where they began. In giving effect to the reasonable expectations of honest men, promissory estoppel does not completely undermine the important of the
sanctity of contract. Ultimately, an agreement is better protected if it is contracted than if it is from a promise. The existence of this fact illustrates that the
sanctity of contract still prevails despite the doctrine of promissory estoppel.
Further to this, the rights of the promisor who breaches his promise are greater than the rights of a promisor who breaches his contract. A promisor who breaches his
contract has his rights extinguished, while if it is a promise that is breached, the rights are generally only suspended. The exception is shown by the case of Collier
v P & MJ Wright (Holdings) Ltd . Here, the creditor accepted the debtors payment of a third of the amount due and as a result of this acceptance, “promissory estoppel
has the effect of extinguishing the creditors right to the balance of the debt”. It was made clear by Arden LJ that promissory estoppel would only extinguish the
rights of the promisor where a mere postponement of their right would be sufficiently inequitable. Although it is feasible for there to be a situation where a promisor
who attempts to go back on a promise will have his rights extinguished in the same way as someone who breaches a contract will, this is only under narrow
circumstances. The fact this requires such circumstances and is only there to stop ‘sufficient inequity’, which from judging from Colliers is placed at a high
threshold, demonstrates a fundamental fidelity to sanctity of contract.
Therefore, it is clear that despite promissory estoppel ostensibly being about protecting the ‘reasonable expectations of reasonable men’, it cannot break away from
the institutional obsession with sanctity of contract. However, it is submitted that while it seems the two themes of promissory estoppel, protecting ‘reasonable
expectations’ and sanctity of contract, go in opposite directions, they are both concerned with giving effect to the same thing: the maximization of wealth in the
economy. The link between “market-individualism” and wealth-maximization is clear: it is concerned with minimizing inconvenience for the market and creating certainty
of contract (through freedom and sanctity), encouraging trade. The link between “consumer-welfarism” and wealth-maximisation is slightly less clear, but eloquently
put by Freidrich Kessler. “A highly elastic legal institution [is needed] to safeguard the exchange of goods and services” Contracts ought to be altered to suit the
interests of the parties, allowing the maximization of trade. If in the case of High Trees , the original contract was not altered, a block of flats would have stood
empty at great opportunity cost, standing in the way of the creation of wealth. Thus, it is presented that when looking at the macrocosm, promissory estoppel gives
effect to a synthesis of ‘reasonable expectations of honest men’ and sanctity of contract, and both of these principles give effect to wealth-maximisation.
In conclusion, it has been submitted that whilst the doctrine of promissory estoppel does indeed give effect to the ‘reasonable expectations of honest men’, it does
not necessarily detract from the principle of sanctity of contract. The qualifications that the court has imposed upon the applicability of promissory estoppel
illustrates that this is a restricted doctrine to be used in circumstances where the promisee has suffered such sufficient injustice that the court feels compelled to
act. Furthermore, it has been disputed whether the doctrine of promissory estoppel is indeed the antithesis to sanctity of contract in that they both look towards a
common aim: the creation of wealth. Thus, whether one is of the opinion that either ‘consumer-welfarism’ or ‘market-individualism’ underpins contract law, both are
ultimately concerned with allowing the economy to flourish.
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