Dated 10th September, 2020
The Doctrine of Estoppel in The Indian Contracts Act is presumed to be effective wherein a person is prohibited from non-performance of any act or obligation which he agreed upon in case a valid promise had been given despite if a legal contract does not exist.
Requirements of a Promissory Estoppel
The following elements must be present for the Doctrine of Promissory Estoppel to be enforceable:
- Promisor made a significant enough promise to cause the promisee to reasonably rely and act on it.
- Promisee relied on the promise and must have acted on the promise made; a promise could not be revoked, once the promisee entered performance.
- Promisee suffered damage by relying on the promise and performance of promise is the only way to compensate the damage caused.
- Promisor made a significant enough promise to cause the promisee to reasonably rely and act on it.
One of the essential prerequisite for applicability of the Doctrine is the existence of legal consideration or a legal agreement in order to compel the performance by the Promisor, the Doctrine of Promissory Estoppel allows, in such cases a promise to be enforced even though the requirements of a valid contract are not present. An act shall not be deemed to be a good consideration for a promise unless it is done at the express or implied desire of the promisor.
However, what is essential is that there must be a proximal and direct relationship between the acts undertaken by the person to whom the promise is given and the promise itself and that the Promisee should have done an act in lieu of the promise given creating a cause for promisor to Act.
Thus in Durga Prasad v Baldeo [(1880) 3 All 221], the plaintiff built a shopping complex on the order of the Collector. The shops came to be occupied by the defendants who, promised to pay him commission on articles sold by them. The plaintiff’s action to recover the commission from occupiers under Promissory Estoppel was rejected on the ground that plaintiff’s act was the result not of the promise but of the Collector’s order.
- Promisee relied on the promise and must have acted on the promise made; a promise could not be revoked, once the promisee entered performance.
The Doctrine also empowers the aggrieved party to recover any damages that it might have incurred as a result of breach of such promise, even if no contract was entered into by the Promisor and the receiver of such promise.
In the case of Kedar Nath Vs. Gorie Muhammed [(1886) ILR 14 Cal 64J], In this case, a town hall was to be constructed for which subscriptions were invited from the public, On the faith of the promised subscription by the defendants, the plaintiff entered into a contract with a contractor for the purpose of building the hall. The court observed that the persons were asked to subscribe knowing the purpose for which money was to be applied; they knew that on the faith of their subscription an obligation was to be incurred to pay the contractor for the work.
- Promisee suffered damage by relying on the promise and performance of promise is the only way to compensate the damage caused.
The rule of Promissory Estoppel was to impose liability on an Individual, where the promisee performs a task in lieu of the consideration paid, or believing that the promisor is true to the promise maid. The Doctrine acts on the concept of Justice and good conscience.
In Morrison Steamship Co. v The Crown [(1924) 20 LI LR 283], it was suggested that the mere commencement of performance does not convert the offer into a contract in the sense that the promisor is bound to stay with his promise, but that if he revokes it, he may be sued for damages or on a quantum merit.
- The promise can also be given by providing an initial consideration.
‘Doctrine of Constructive Consideration’ for Promissory Estoppel
Is the Doctrine applicable when the consideration had been paid by a third party?
In Samuel v Ananthanatha [(1883) 6 Mad 351], it was held that “The rule that consideration must move from the promisee only is somewhat technical, and in a developed system of contract law there seems to be good reason that why a person should not be able to pay a consideration for another so as to receive an effective promise for that other. Unquestionably he may in the form of a Promissory note, and the same result is generally reached in this country in the case of a simple contract.”
A promise is enforceable if there is some consideration for it and it is quite immaterial that it moves from the promisee or any other person. This is sometimes called as ‘Doctrine of Constructive Consideration’. Under English law, however, there is a privity of consideration i.e. consideration must move from the promisee and promisor only, a stranger or third person cannot furnish consideration.
Similarly in the case of Doraswamy Iyer Vs. Arunachala Iyer [AIR 1936 Mad 135] the court observed that “An act done at the promisor’s desire furnishes a good consideration for his promise even though it is of no personal significance or benefit to him.”
The definition of consideration in the Contract Act postulates that the promisee must have acted on something amounting to more than a bare promise. Where there is no such request for an act the promise will be a bare promise and without any consideration.
The court in the case of Venkata Chinnaya Rau Vs. Venkata Ramaya Guru [(1882) 4 Mad 137] ruled out that “plaintiff can only sue if the consideration moved indirectly from him wholly or partly”, Consideration In the case where the whole situation was that the defendant’s promise was given to the plaintiff, but consideration (gift of estate) was furnished by the plaintiff’s sister. The court could have easily allowed the plaintiff to recover the annuity, as consideration given by ‘”any other person” is equally effective.
CONCLUSION
The court abides by the while addressing the cases on applicability of Doctrine of Promissory Estoppel keep in mind that under no circumstance shall the mischief on part of one person, shall prejudice the other. In cases where a person performs any act by the reason of a promise or some amount of initial consideration provided to him, he shall be compelled to make good to the promise, or to the damages incurred due to non-performance.
“Article by Ms Damini Srestha under internship of Adv Shankarlal Raheja
The Views herein are personal and while careful attention has been given to ensure that the information is accurate and assume no liability or responsibility for any reliance thereon. This article is merely information and knowledge sharing activity and is not a substitute to legal advice. We shall not be liable for any loss or damage caused due to any reliance thereof”.
