Promissory Estoppel

What is a 'Promissory Estoppel'

Promissory estoppel is a legal principle that a promise is enforceable by law, even if made without formal consideration, when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment. Promissory estoppel is intended to stop the promisor from arguing that an underlying promise that was made should be not be legally upheld or enforced. The doctrine of promissory estoppel is part of the law in the United States and other countries, although the precise legal requirements for promissory estoppel vary not only between countries but also between different jurisdictions, such as states, within the same country.

BREAKING DOWN 'Promissory Estoppel'

Promissory estoppel serves to enable an injured party to recover on a promise. There are common legally required elements for a person to make a claim for promissory estoppel — a promisor, a promisee, and a detriment that the promisee has suffered. An additional requirement is that the person making the claim, the promisee, must have reasonably relied on the promise — in other words, that the promise was one that a reasonable person would ordinarily rely on. Another requirement is that the promisee must have suffered an actual substantial detriment in the form of an economic loss resulting from the promisor failing to deliver on their promise. Finally, promissory estoppel is usually only granted if a court determines that enforcing the promise is essentially the only means by which an injustice to the promisee can be avoided.

An example of an instance where promissory estoppel might be applied is a case where an employer makes an oral promise to an employee to pay the employee a specified monthly or annual amount of money during the full duration of the employee's retirement. If the employee then subsequently retires based on a reliance on the employer's promise, the employer could be legally estopped from not delivering on his promise to make the specified retirement payments.

Promissory Estoppel as a Part of Contract Law

Contract law generally requires that a person receive consideration for making a promise or agreement. Legal consideration is a valuable asset that is exchanged between two parties to a contract at the time of a promise or agreement. Ordinarily, some form of consideration, either an exchange of money or a promise to refrain from some action, is required in order for a contract to be legally enforceable. However, in attempting to ensure justice or fairness, a court may enforce a promise even in the absence of any consideration, provided that the promise was reasonably relied on and that reliance on the promise resulted in a detriment to the promise.