Use of Promissory Estoppel in Business Contracts Essay

Use of Promissory Estoppel in Business Contracts - Essay Example Promissory Estoppels are great ways to avoid injustices in the cases were normal considerations cannot be provided. However Promissory Estoppel has been full of contradictions since they were first mentioned in Section 90 of Restatement of Contracts. They have invoked varied emotions such as they marked the death of contracts or that contract cases will now be decided simply as torts. Promissory Estoppel is still a work in progress. Although Section 90 and 139 which are the basis of promissory Estoppel are brief but the various court cases and judgements have given new meanings to these two sections. Promissory Estoppels is a way to enforce a contract without any consideration (Farber & Matheson, 1985). A normal contract consists of three main components – an offer being made, the offer being accepted and a consideration being given for the offer (Klass, 2010). As an example let us suppose that company A signs a contract with company B to supply 50 tons of rice per month for $50/ton for 5 years. However if the grain prices fall during the contract period and B wants to renegotiate the price to $40/ton then under the normal contract law this can be done in 2 ways – either by giving a consideration such as agreeing to pay for the transportation costs or agreeing to buy more quantity and by annulling the contract and signing a new contract with new terms. However Promissory Estoppels provides an alternate way of doing it without any consideration or annulment. Promissory Estoppels comes into effect when one of the parties has made a promise, the other party has relied on it substantially and when not enforcing a promise will lead to gross injustice to one of the parties. Thus the three main concepts of Promissory Estoppel are a clear and definite promise, substantial reliance on that promise and miscarriage of justice if promise is broken. The origin of the modern concept of Promissory Estoppels can be found in the case of Central London Property Trust Ltd vs. High Tree House Ltd (Farber & Matheson, 1985). The case was regarding raising the rent of a group of flats after the end of the Second World War. The landlord had made a promise that he would take reduced rent from the tenants during the course of the war. However when the war ended in 1945, he wanted the original rent to be restores. In this case the Judge Denning laid down the principals of promissory estoppels by saying that a promise which is intended to be binding is binding as far as it terms apply correctly. This paper discusses the concept of promissory estoppels as applied in USA; the cases of business contracts where relief can be accepted under promissory estoppels and where the claim for relief is likely to be rejected by courts. Bargain Theory of Consideration A contract is a binding agreement between two parties and is the basis for any business transaction between the two parties. Contracts are the heart and soul of all businesses. Some of the contracts are written whereas other may be simply oral or trust based. Before the concept of promissory estoppels was discovered, contracts were based solely on the bargain theory of consideration (Feinman, 1984).According to this theory; a promise is enforceable only if it is supported by a consideration which has been sought for or bargained for by the promisor in exchange for the promise made by him . The Bargain theory also requires mutual consent of the offer which means that a clear offer must be made and accepted by the other party for a contract to be enforceable. In the case of New Zealand Shipping co. Ltd vs. AM Satterthwaite & co Ltd; Lord Wilberforce has clearly stated that offer, acceptance and consideration are requirements for a contract to be valid. These three factors must also be accompanied with no mistake, misrepresentation and duress which can affect the