Promissory Estoppel

Madhubala Solanki

Editor’s Note: This paper will explain the equitable doctrine of promissory estoppels and its evolution. Ingredients and applicability of the doctrine and the legal liability which arises through the promissory estoppel will be explained. Law commission report on promissory estoppels is dealt in the project. The sphere of promissory estoppel in contract or stopped will be dealt. Remedies against breach of promissory estoppels and the scope of the plea of the doctrine of promissory estoppels against government will be dealt in this project.

INTRODUCTION
The purpose of this project is to study the concept of promissory estoppel and its evolution, which is a good relief for the suffered party which was not at fault at all. There is no provision as such which clears availability of relief under this principle but it is enforceable and based on equity, to protect the innocent party as a shield. Doctrine itself, its evolution and jurisprudence behind this principle is dealt in this project. Various cases in which this principal is followed and these are precedents to assure the availability of this principal in Indian law are mentioned in this project. The realm of this principle is ambiguous, the law commission suggested recommendation to make new section as 25A in the Indian contract act in 108th report. These recommendations are mentioned in the project.
DOCTRINE OF PROMISSORY ESTOPPEL
The doctrine of promissory estoppels is based on the principles of justice, fair play and good conscience. It was evolved by equity to prevent injustice. It neither comes under contract nor under estoppels proper.
The principle is that when one party with the intention of creating or affecting legal relationship makes a promise with another party and that party acts on it, that promise should be binding for the party who is making it. It will not be allowed to go back from its words. Because reverting from the words will be against equity.
In Motilal Padampat Sugar Mills vs State Of Uttar Pradesh And Ors , the chief secretary of Govt. made an assurance that in order to establish industries firmly the total tax exemption will be given to the new industrial units for next 3 years based on this assurance M.P. sugar mill started hydro generation plant taking huge amount of money as loan. Afterward govt. makes some changes in the tax policy saying that industries will be taxed at varying rate.
Applying the doctrine of promissory estoppels the SC held that appellant took huge loan relying on the assurance made by govt. so no tax should be imposed for the period of 3 years from the date of production as promise was made. And there is nothing like to make that promise enforceable one party should suffer harm or damages, in absence of detriment also the promise is binding.
JURISPRUDENCE BEHIND THE DOCTRINE
The doctrine of promissory estoppel is an equitable doctrine. Like all equitable remedies, it is discretionary, in contrast to the common law absolute right like right to damages for breach of contract. It is a principle evolved by equity to avoid injustice and though commonly named ‘promissory estoppel’, it is neither in the realm of contract nor in the realm of estoppel. In India, however, as the rule of estoppel is a rule of evidence, the ingredients of section 115 of the Indian Evidence Act, 1872, must be satisfied for the application of the doctrine. The doctrine of promissory estoppel does not fall within the scope of section 115 as the section talks about representations made as to existing facts whereas promissory estoppel deals with future promises. The application of the doctrine would negate the constitutional provision, as under Article 299, which affords exemption from personal liability of the person making the promise or assurance.

EVOLUTION OF THE DOCTRINE IN INDIA
The History of doctrine of promissory estoppels in India can be traced to the case of Ganges Mfg Co. v. Sourajmul , in this case C entered into a contract to purchase a particular number of gunny bags from the appellant for the respondent and 107,500 bags remain undelivered as R was unable to pay for them. When C represented that arrangements had been made for the payment for 87,500 bags, delivery orders were given to C for delivery against payment. C’s representative took a letter from C to the appellant requesting the appellant to direct delivery of bags to the representative of the R who went along with the representative of the C because the R had agreed to advance the necessary money to C. The officer in charge of the appellant did so. The A deliver 50.000 bags to the representative of R but refused to deliver the rest because C failed to pay. Thereupon the R sued the A for delivery of the remaining bags alleging that they had advanced the money to C on the A’s representation that the goods will be delivered. HC decreed that the appellant was stopped from denying and Calcutta High Court observed that “the doctrine of estoppels was not only limited to the law of evidence, but that a person may be prevented from doing any act or relying upon any particular argument or connection, which the rules of equity and good conscience prevent him from using as against the opponent.’’
In Municipal Corporation of the City of Bombay v. Secretary of State appellant surrendered its own land in favor of the Govt. in consideration of a lease of government lands in favor of the appellant on a nominal rent. After getting possession, the appellant spent enormous sums in making constructions. 27 years later, the respondent filed as suit claiming a large amount as arrears of rent. HC allowed the parties to redefine their rights, namely, the appellant’s right to leasehold and the R’s right to reasonable rent. It was observed by the Bombay High Court that even though there is no formal contract as required by the statute, the Govt. should be bound by a representation made by it.
The term ‘promissory estoppel was used for the first time by the Supreme Court in the case of Collector of Bombay v. Bombay Municipal Corporation . In this case the govt. of Bombay called upon the predecessor in the name of MC of Bombay to remove old markets from a certain site and vacate it on the application of MC in 1865. MC gave up that site and spent a sum of Rs. 17 lacks in erecting and maintaining markets on the new site. The collector of Bombay assessed the new site to land revenue in 1940 and the MC thereupon filed a suit for a declaration that it was entitled to hold the land even without payment of nay assessment. SC held that C has right to hold the land in perpetuity free of rent. Chandrasekhar Iyer J. while concurring with the majority rested his decision on promissory estoppels that the govt. could not be allowed to go back on its representation.
The doctrine found a complete and eloquent exposition in the cases of U.O.I v. Anglo Afghan Agencies the Government of India made announcement regarding certain concessions with regard to the import of certain raw materials in order to encourage export of woolen garments to Afghanistan. Subsequently, only partial concessions were allowed and not full concessions were extended as promised. The Supreme Court held that the Government was estopped by its promise. And after this case the courts have applied the doctrine of promissory estoppel and Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P .

APPLICABILITY OF THE DOCTRINE OF PROMISSORY ESTOPPEL
For the application of the doctrine of promissory estoppel the requirement is that the party asserting the estoppels must have “changed or altered the position’’ by relying on that representation.
In maxey Charan v. Rohilkhand Uni, Baeilly the petitioner appeared in examination conducted by university and declared to have passed. Subsequently she got the admission for next year on the basis of defected mark sheet. Later the mistake was found out and her admission got cancelled. Court held that there was no mistake of petitioner and hence she is not responsible for such mistake. In view of the conduct of the University it was a fit case in which the principles of promissory estoppel should be applied to the respondent university.
Areas where doctrine of promissory estoppels is not applicable:
1. There is no estoppels against settled principle of law.
2. It is not applicable in case of concluded commercial contract.
3. Doctrine of promissory estoppels cannot be invoked if the assurance is held out but not incorporated in the agreement between parties.
4. For applying the principles of promissory estoppels, alteration of the position by the plaintiff is only requirement.

INGREDIENTS OF THE DOCTRINE OF PROMISSORY ESTOPPEL
In Union Of India & Anr vs Wing Commander R.R. Hingorani , where a Govt. Servant retained accommodation 2 months after the concessional period. The liability to pay damages equivalent to the market rent for the period of such unauthorized occupation was claimed in the court of law. The Government having failed to serve the respondent with a notice that he would be liable to pay market rent for the period of such unauthorized occupation, the doctrine of promissory estoppel precluded the Government from claiming damages equivalent to the market rent. Principle was laid down that to invoke the doctrine of estoppels, there are three conditions which must be satisfied;
1. Representation by a person to another
2. The other should have acted upon the said representation and
3. Such action should have been detrimental to the interests of the person to whom the representation has been made.
In the case of Central London Property Trust v High-trees House , High-trees leased a block of flats from CLP at a fixed amount of rent later at the time of war it was not getting tenants other flats were unoccupied because The defendant had difficulty in getting tenants for all the flats during war time. CLP agreed to reduce the rent amount till the war prevails. Then war was over, all the flats got occupied on the normal rent amount. The defendant asked high trees for the normal rent for the present time and for the earlier time also. High trees went to court; court held that high-trees acted upon the words of CLP that during the war time rent will be reduced, after the end of war amount cannot be claimed after the war they should continue with the normal rent only. In this case, Denning J established the doctrine of promissory estoppel. Here all the three ingredients are fulfilled.
In S Ramabhadran v State of TN the petitioner appeared in the test for the post of stenographer in Raj. Secretariat Services, but could not get appointment as vacancies did not exist. The petitioners were given option to join the subordinate services with clear understanding that if vacancies were available before the expiry of the selection list, they would be absorbed in secretariat services and the petitioners did join the subordinate services. After the expiry of selection list, fresh vacancies were available and fresh posts were advertised. It was held that the govt. was not bound to appoint the petitioners after the expiry of the period of selection list; the principle of promissory estoppels did not apply in this case. There is no promise as such denial of which causes detriment.

GOOD FAITH AND BAD FAITH
In this journal good faith is defined as “good faith requires the discretion-exercising party to act fairly, in order to protect justifiable expectations arising from their agreement. Good faith has also been associated with the legal rules related to honesty, fairness and reasonableness. GF in contract is just and honest conduct, which should be expected of both parties in their dealings.
Bad faith when the discretion exercising party refuses to pay expected cost of performance.
Good faith is required according to natural principles. Where the party is guilty of fraud, there can no equity in favor for applying the principle of estoppels. In Karnal Singh v State the petitioner got admission to an educational institution by producing a false certificate that he was a harijan, and subsequently on inquiry it is found that h is not a harijan, the govt. was not stopped from cancelling the petitioner’s admission.
PROMISSORY ESTOPPEL-ONLY A SHIELD, NOT A SWORD
Promissory estoppel is used as a defense only not as a course of action so in general it is available as shield. Defense of promissory estoppel can be used by promise only against the promiser to enforce the promise, not by promise. For using promissory estoppel as a sword the doctrine of consideration should be followed. In Combe v Combe earlier maintenance was given Denning LJ overruled the decision stating that the estoppel could only be used as a “shield” and not a “sword”. In the Motilal Padamat case justice Bhagwati said if the doctrine of promissory estoppel can be used as a sword the floodgates will be opened.
In Waltons Stores (Interstate) Ltd v Maher , Maher owes a property, WS wanted that to take on lease and demolish the building and erect new one. WS acted on the negotiation and constructed new building, Maher acted that it consented for the negotiation. When WS’s solicitor prepared lease paper according to the negotiation Maher denied. Court Held that Maher is bound by the contract. Promissory estoppel, it has been said, is a defensive equity and the traditional notion has been that estoppel could only be relied upon defensively as a shield and not as a sword High Trees’ case itself was an instance of the defensive use of promissory estoppel.
LAW COMMISSION RECOMMENDATIONS
In 108th report of law commission submitted in 1984 suggested Section 25 A in ICA.As follows:
25A. (1) where
(a) A person has, by his words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship in arise in the future; and
(b) Such person knows or intends that the promise would be acted upon by the person to whom it is made; and
(c) The promise is, in fact, so acted upon by the other person, by altering his position. When notwithstanding that the promise is without consideration, if shall be binding to the person making it. If, having regard to the dealings which have taken place between the parties, it would be unjust not to hold him to be so bound.
(2) The provision of this section shall not apply:-
(a) Where the events that have subsequently happened show that it would be unjust to hold the promisor to be bound by the promise; or,
(b) Where the promisor is the Govt. and enforcing the promise would be inconsistent with an obligation or liability imposed on the Govt. by law,

LEGAL PROVISIONS
There is no provision of promissory estoppel in Indian law. Section 25 of ICA talks about contracts made without consideration (in other words the enforceability of promises) and sec. 115 of IEA deals with estoppels only.
CONCLUSION
A man cannot live in isolation, when we are living in a society; everyone is dependent on each other. It brought contractual and commercial relationship. Promise of a person, when becomes important for another and cause for profit and loss, if it is denied it may cause harm to other one, for their protection the doctrine of promissory estoppels is available as a shield. Promissory estoppel is a good defense and good principle to avoid injustice. The judiciary in India has played a very significant role in making the promise responsible and acountable and made it abide by its promise.

BIBLIOGRAPHY
Books:
1. Dr V Keshava Rao, Law of Evidence, Vol. IV (18th ed, Lexis Nexis. 2009, Nagpur)
2. M.L. Singhal and Chitaley, Evidence Act, vol. IV (1st ed, All India Reporter Pvt. Ltd.,2000, Nagpur)
3. S.C. Sarkar, Commentary on law of evidence, Vol III (3rd ed, Dwivedi law agncy, 2010 Allahbad
Articles
1. TETLEY, William “Good Faith in Contract: Particularly in the Contracts of Arbitration and Chartering” Vol. 35, Issue 4 (October 2004), Journal of Maritime Law and Commerce, pp. 561
2. E. K. TEH “Promissory estopple as a sword” Vol.13 Issue 2, 1984 Anglo American law review
3. SHREYA DAVE “The Doctrine of Promissory Estoppel”, Manupatra.
Websites:
1. www.westlawindia.com
2. www.indiakanoon.com
3. www.manupatra.com
4. www.heinonline.org

Statutes Referred:
1. The Indian Evidence Act,1872
2. The Indian Contracts Act, 1872
3. 108th Report of Law Commission of India

[1] S.C. Sarkar, Commentary on law of evidence, Dwivedi law agncy, Allahbad, 2010, p.2831.

[1] 1979 AIR SC 621

[1] (1880) ilr 5 cal 669

[1]  (1904) ILR 29 Bom 580 the

[1] [1952] SCR 43

[1] AIR 1968 SC 718

[1] [1979] 2 SCR 641

[1] AIR 1992 All 122 at. P. 126

[1] 1987 AIR 808

[1]  [1947] KB 130

[1] AIR 1991 Mad 371

[1] TETLEY, William “Good Faith in Contract: Particularly in the Contracts of Arbitration and Chartering” Vol. 35, Issue 4 (October 2004), Journal of Maritime Law and Commerce, pp. 561

[1]Availableat:https://heinonline.org/HOL/Page?handle=hein.journals/jmlc35&div=33&collection=journals&set_as_cursor=5&men_tab=srchresults&terms=PROMISS|Y|ESTOPPEL|in|india&type=matchall#577

[1] Dr V Keshava Rao, Law of Evidence, Vol. IV (18th ed, Lexis Nexis. 2009, Nagpur)  page 5284

[1] Air 1981

[1] [1951] 2 KB 215

[1] Available at: http://lawcommissionofindia.nic.in/101-169/report108.pdf last visited:8am 13th march 2015

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