Promissory estoppel prevents a party from denying a promise when another party has reasonably relied on it and suffered harm. Courts may enforce such promises even without formal consideration to ensure fairness and prevent financial injustice.
By Brad Nakase, Attorney
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When one party makes a promise to another and the other party later suffers harm because he or she relies on the promise, the law recognizes the promise as binding even though no formal consideration was exchanged. This principle is known as promissory estoppel. The objective of promissory estoppel is to prevent the promisor from challenging the validity or enforcement of a promise that is based on a prior agreement.
The law in the US and other countries includes the idea of promissory estoppel. However, the exact legal standards for promissory estoppel differ not only between countries but also inside the same country between different jurisdictions, like states.
The purpose of promissory estoppel is to allow a wronged party to seek redress based on a promise. To establish a claim for promissory estoppel, the following elements must be present: a promisor, a promisee, and the promisee must have suffered some kind of harm. The promisee, who is the party bringing the claim, must also have reasonably relied on the promise in order for the claim to be valid. Put simply, the promise was the kind of assurance that a rational individual would typically put their faith in.
The promisee must have incurred a real and substantial economic loss as a direct consequence of the promisor’s failure to fulfill the promise; this is an additional criterion for the necessary harm component.
Finally, a court will only grant promissory estoppel if it finds that the promisee can only be fairly and justly compensated by having the promise enforced.
An employer’s verbal agreement to pay a certain amount to an employee every month or year for the entire length of the employee’s retirement could be an instance of promissory estoppel in action. It is possible to legally prevent an employer from failing to make the promised retirement payments if a staff member retires after relying on that promise.
Promissor, promisee, and broken promise are the three main components of a promissory estoppel lawsuit. The plaintiff has the burden of proof in a promissory estoppel damage claim, which requires them to prove:
The promisor made a promise with the understanding that a reasonable person would follow through on it; the promisee trusted the promisor and acted in good faith; the promisor later broke the promise, harming the promisee financially; and the promise was so ambiguous that the only way to prevent injustice is to enforce it.
In order for a promise or agreement to be legally binding, the party making the promise or agreement must receive some kind of consideration. At the time of a promise or agreement, the parties to a contract exchange valuable assets known as legal consideration.
In most cases, for a contract to be valid in a court of law, there must be consideration, like money or a promise not to do something. In an effort to maintain equity or justice, however, a court can uphold a promise even if there was no consideration, so long as the promisee reasonably relied on it and suffered harm as a consequence of that reliance.
Take, for instance, a made-up case of a New York City worker looking for a new position. An employer in California offers them a high-paying position after they’ve gone through a specific number of interviews, along with relocation benefits. This potential employee wastes no time in resigning from their position, terminating their lease, and making preparations to move to California.
They find out when they get to California that the job is either not available anymore or pays much less than they were expecting. It is possible that the employee can seek judicial relief for the expenses they incurred as a result of the employer’s promise, since they relied on it. Because promissory estoppel is a state-specific component of contract law, the employee should seek the advice of a lawyer in California before taking legal action.
The doctrine of consideration of contract law lays out the requirements for the enforceability of a contract, including the presence of an exchange of consideration. In the event that one party to a contract does not fulfill their obligations, the other party has the right to terminate the contract.
The one rule that does not apply is promissory estoppel. As long as the other party has suffered harm because of the other party’s reliance on the promise, the promise itself may be enough to enforce the agreement under the theory of promissory estoppel.
A legal principle known as equitable estoppel forbids one party from acting in a way that harms another party if doing so would be harmful to their prior position. Anyone who makes a promise in a court of law cannot later change their mind, according to this rule.
Each jurisdiction has its own set of laws regarding promissory estoppel. It is common practice to award reliance damages or expectation damages in cases of promissory estoppel. The costs of restoring the promisee to their economic position prior to relying on the broken promise are known as reliance damages, while the costs of placing the injured party in the same position as if the promise had been fulfilled are known as expectation damages.
The legal theory of promissory estoppel states that parties may be held financially responsible for financial harm caused by unfulfilled promises. Because each case involving promissory estoppel is unique, it is wise to seek the advice of an attorney before taking legal action.
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