In order to be enforceable, a contract must generally have a valid offer, acceptance, and consideration. Consideration is commonly referred to as mutual assent (agreement) to the contract – i.e., bargained for exchange. There are times, however, when contracts are enforceable even though there was no valid consideration. Promissory estoppel is a situation where a contract that lacks consideration can still be enforced according to an insurance bad faith lawyer who deals with contracts on a daily basis.
Promissory estoppel is defined as follows: a promise which induces action of forbearance on part of the promisee, which only enforcement of the promise can avoid an injustice. In simple terms, this is a promise by one party that induces another party to act, and following that act, the other party chooses not to fulfill their promise, causing the first party to suffer harm. For the party who acts and subsequently suffers harm, promissory estoppel purports to help. If the injured party can establish the following elements, the contract can be enforced: (1) a promise; (2) that could reasonably be expected to induce action or forbearance on another; (3) which does induce action or forbearance on another; (4) the induced action leads to detrimental reliance on the promisee; and (5) enforcing the contract is the only way to avoid injustice.
From the elements, it’s clear to see that there are three types of reliance involved with promissory estoppel: actual, foreseeable, and detrimental. Actual reliance means that the promisee must have actually relied on the promise by taking a definite and substantial action that was induced by the promise. Foreseeable reliance means that a reasonable, objective person also would have relied on the promisor’s promise at the time it was given. Finally, detrimental reliance refers to the requirement that as a result of the actual reliance, the promisee actually suffered an injury (i.e., lost investment, increased expenditures, etc.).
Promissory estoppel is not limited to the commercial context. It has been applied and accepted in other scenarios such as real property transactions, promises of pension benefits, and even in the charitable context. Essentially, if there is a contract involved in a situation, promissory estoppel may apply in order to uphold a contract. For example, a university museum made accommodations in preparation to receive certain precious artifacts through a private donation. At the last minute, the party that promised to deliver the artifacts decided to sell the artifacts to another museum at the last minute. In this example, the university would likely have a strong promissory estoppel argument given that it actually and detrimentally relied on the promised donation by making accommodations to receive the artifacts. As you can see, this can apply in many other situations too such as contractors promising to complete work but then saying they cannot.
If you are having issues with a contract and are unsure if it is enforceable or not, please reach out to an attorney near you to review your situation.
Thanks to Eglet Adams Eglet Ham Henriod for their insight on promissory estoppel.