Legal Definitions - Promissory estoppel

Promissory estoppel is a legal principle that allows a court to enforce a promise, even if a formal contract was never created. It applies when one person makes a clear promise to another, and the second person reasonably relies on that promise, taking actions that result in a significant disadvantage or harm if the promise isn't kept. In such situations, the law can step in to prevent unfairness, treating the promise as if it were a binding agreement.

For promissory estoppel to apply, generally three conditions must be met:

• A clear and unambiguous promise was made.
• The person to whom the promise was made reasonably relied on it.
• The person suffered a significant detriment or harm as a result of their reliance if the promise is not fulfilled.

Here are some examples illustrating how promissory estoppel might apply:

• Example 1: Small Business Expansion

  A landlord promises a tenant, who owns a small boutique, that they will renew their lease for another five years at the current rate if the tenant invests in significant renovations to the property. Relying on this promise, the tenant spends $75,000 on modernizing the storefront and interior, substantially improving the landlord's property. After the renovations are complete, the landlord decides not to renew the lease or demands a much higher rent, causing the tenant to lose their investment and potentially their business location.

  How it illustrates promissory estoppel: The landlord made a clear promise of lease renewal. The tenant reasonably relied on this promise by investing a substantial sum in renovations. The tenant suffered a significant financial detriment when the landlord reneged on the promise. A court might use promissory estoppel to compel the landlord to honor the lease renewal or compensate the tenant for their losses.

• Example 2: Job Offer and Relocation

  A technology company extends a firm job offer to a candidate for a senior engineering position, stating the start date and salary, and explicitly encourages the candidate to relocate from another state for the role. Trusting this offer, the candidate resigns from their current stable job, sells their home, and moves their family across the country, incurring significant moving expenses and temporary housing costs. A week before the promised start date, the company rescinds the job offer, leaving the candidate unemployed, without their previous job, and with substantial relocation debts.

  How it illustrates promissory estoppel: The company made a clear promise of employment. The candidate reasonably relied on this promise by resigning from their job and incurring significant relocation expenses. The candidate suffered substantial financial and personal detriment when the offer was withdrawn. Promissory estoppel could be invoked to seek compensation for the losses incurred due to the broken promise.

• Example 3: Supplier Agreement for a Project Bid

  A construction materials supplier verbally assures a general contractor that they can provide a large quantity of specialized concrete at a fixed price for an upcoming municipal infrastructure project bid. Based on this assurance, the contractor submits a highly competitive bid for the project, incorporating the promised concrete price into their cost calculations. After the contractor wins the bid, the supplier informs them that the price of the concrete has increased significantly due to raw material shortages and they cannot honor the original quote, forcing the contractor to either absorb the higher cost (losing profit) or potentially breach their contract with the municipality.

  How it illustrates promissory estoppel: The supplier made a clear promise regarding the price of materials. The contractor reasonably relied on this promise when formulating and submitting their project bid. The supplier's subsequent refusal to honor the price caused the contractor significant financial detriment. Promissory estoppel could be used to hold the supplier accountable for their initial promise.