In our previous article on the main components of a legally binding common law contract, we looked at three out of four elements:
- Intention to create a legal relationship.
In this article, we will consider the fourth important element - consideration. It is impossible to conclude an agreement under English law without this component, since it is legally binding. Also in this material we will draw your attention to the fundamentals of the principle of promissory estoppel - when a party does not have the right to object to a previous promise. This principle is an exception to the general rule that states that promises are binding only if it has received a reciprocal consideration.
What is Promissory Estoppel?
One of the principles of private law, on which the legal regulation of international commercial contracts is based, is the principle of good faith, which is honesty, openness and respect for the contracting party to the contract. Estoppel is directly related to this principle. In general, the essence of estoppel is that a party is deprived of the right to invoke any facts, to dispute or deny them in view of its earlier statement to the contrary to the detriment of the opposite side.
Initially, this institution arose in English common law and was the result of the law-making activities of the English courts, which used it as a means of presenting evidence during the trial.
According to the principles of common law, contracts that are free of charge are not legally binding. So, if someone promised to clean your apartment, you can only force him to do this if you promised this person something in return. It may be a payout or other response as a fee. In other words, the person promised to do something in return so that the agreement between the parties would be valid.
Give in Return
If you need assistance in drafting English law contracts, pay attention to a specific procedure based on case law when the reimbursement is considered valid, namely:
- Refunds must come from the recipient. The recipient of the promise may refer to him in the event that he takes any response action. Third party refunds are not applicable here.
- Compensation is not provided for work performed earlier. This rule is a little difficult to understand, so to clarify, consider options for reimbursement:
- A promise will be fulfilled for an action that will be fulfilled in the future. For example, if you are promised to deliver food from a restaurant, and in return you promise to pay for delivery. This is a bilateral agreement (promise in return for a promise) to be fulfilled: therefore, if a person delivers food to you and you refuse to pay, the deliveryman may file a lawsuit against you for breaching the agreement;
- One side performs an action to fulfill a promise made by the other side. Usually, this is inherent in compensation or remuneration contracts. So, if a person offers to pay someone 100 pounds in return for returning a lost document, and you find this document and return it to the owner, then he must pay you 100 pounds;
- The main rule of reimbursement is that the reward for the promise must be fulfilled precisely for the given promise. For example, someone is cleaning your house, and you promise to pay 100 pounds, then the cleaner will not be able to demand to fulfill your promise, because it was made after the action was completed.
However, if the action was performed upon request, and both parties understood that payment would be made, then in this case it is possible to demand the fulfillment of a promise, even if a refund occurs for the action in the past.
Pay Only Part
A partial payment of a debt can pay off all debt in the event that there is an additional refund / reward, and the following points have been taken into account:
- Payment of part of the debt is premature;
- Payment was made in another way, for example, when the lender agrees to accept the property instead of cash, even if the value of the property is less than the price of the debt);
- Payment is made on conditions other than previously agreed.
These conditions are sufficient to talk about adequate compensation for the lender.
The principle of estoppel is based on justice. This tool provides binding legal force for a promise, even if there is no refund.
What is needed to apply the Promissory estoppel principle in contracts?
- An unambiguous promise;
- Impact on legal relations between the parties;
- The provider has no requirements regarding its legal rights against the recipient of the offer;
- The bidder must act in accordance with his promise;
- It is used only to protect against unreasonable claims and does not create an independent right to claim, and only at the discretion of the court.
You can order legal advice on applying for reimbursement in a contract under English law. IQ Decision UK specialists are ready to assist you in drawing up a commercial contract, as well as provide assistance in concluding transactions based on English law. Find out more about us at one of the following contacts.