Business, Legal & Accounting Glossary
A legal principle that prevents a person from asserting or denying something in court that contradicts what has already been established as the truth.
common law A legal principle in the law of equity that prevents a party from asserting otherwise valid legal rights against another party because conduct by the first party, or circumstances to which the first party has knowingly contributed, make it unjust for those rights to be asserted.
n. a bar or impediment (obstruction) which precludes a person from asserting a fact or a right or prevents one from denying a fact. Such a hindrance is due to a person’s actions, conduct, statements, admissions, failure to act or judgment against the person in an identical legal case. Estoppel includes being barred by false representation or concealment (equitable estoppel), failure to take legal action until the other party is prejudiced by the delay (estoppel by laches), and a court ruling against the party on the same matter in a different case (collateral estoppel).
Estoppel is a legal doctrine recognised both at common law and in equity in various forms. It is meant to complement the requirement of consideration in contract law. In general, it protects a party who would suffer detriment if:
The defendant has done or said something to induce an expectation
The plaintiff relied (reasonably) on the expectation…
…and would suffer detriment if that expectation were false.
Unconscionability by the defendant has been accepted as another element by courts, in an attempt to unify the many individual rules of estoppel.
Estoppel is generally only a defence that prevents a representor from enforcing legal rights, or from relying on a set of facts that would give rise to enforceable rights (e.g. words said or actions performed) if that enforcement or reliance would be unfair to the representee. Because its effect is to defeat generally enforceable legal rights, the scope of the remedy is often limited. Note, however, that proprietary estoppel (applicable in English land law) can be both a sword and a shield and the scope of its remedy is wide.
For an example of estoppel, consider the case of a debtor and a creditor. The creditor might unofficially inform the debtor that the debt has been forgiven. Even if the original contract was not terminated, the creditor may be estopped from collecting the debt if he changes his mind later. It would be unfair to allow the creditor to change his mind in light of the unofficial agreement he made with the debtor beforehand. In the same way, a landlord might inform a tenant that rent has been reduced, for example, if there was construction or a lapse in utility services. If the tenant relies on this advice, the landlord could be estopped from collecting the full rent retroactively.
Estoppel is closely related to the doctrines of waiver, variation, and election and is applied in many areas of law, including insurance, banking, employment, international trade, etc. In English law, the concept of legitimate expectation in the realm of administrative law and judicial review is estoppel’s counterpart in public law, although subtle but important differences exist.
This term appears to come from the French estoupail or a variation, which meant “stopper plug”, referring to placing a halt on the imbalance of the situation. The term is related to the verb “estop” which comes from the Old French term estopper, meaning “stop up, impede”. Note the similarity between the English terms “estop” and “stop”.
See principle of venire contra factum proprium non valet in legal systems based on civil law.
The main species of estoppel under English, Australian, and American laws are:
Under English law, estoppel may be:
These are regarded as reliance-based estoppels by Halsbury’s Laws of England, Vol 16(2), 2003. Both Halsbury’s and Spencer Bower (see below) describe all three estoppels collectively as estoppels by representation. More simply, one party must say or do something and see the other party rely on what is said or done to change behavior. So, suppose that:
D is a bare promisee/representee. The original contract is still valid because D has not given any value or consideration to make the termination of liability legally binding. Under normal circumstances, a court will not enforce a bare promise but D may be given a remedy if, and only if, the judge decides that it would be “unconscionable” for the creditor to renege on the promise or representation knowing that D would be penalized. Estoppel is, therefore, an exception to the normal operation of the law and gains its power from equity. Only proprietary estoppel can create a cause of action in English law (and, then, only in very limited circumstances), while the other two can support defence and a counterclaim. Under Australian law, these estoppels can create both a cause of action and a defense. Under American law, equitable estoppel is available only as a defense, while promissory estoppel can be used as the basis of a cause of action.
To establish a reliance-based estoppel, the victimised party must be able to show both inducement and detrimental reliance, i.e.:
Estoppel by representation of fact and promissory estoppel are mutually exclusive: the former is based on a representation of existing fact (or of mixed fact and law), while the latter is based on a promise not to enforce some pre-existing right (i.e. it expresses an intention as to the future). A proprietary estoppel operates only between parties who, at the time of the representation, were in an existing relationship, while this is not a requirement for estoppel by representation of fact.
The test for unconscionability in the English and Australian courts takes many factors into account, including the behaviour, state of mind and circumstances of the parties. Generally, the following eight factors are determinative (Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Oxford: 1999, pp60-66):
In English law, estoppel by representation of fact is a term coined by Spencer Bower. This species of estoppel is also referred to as “common law estoppel by representation” in Halsbury’s Laws of England, vol 16(2), 2003 reissue.
In The Law relating to Estoppel by Representation, 4th edition, 2004 at para I.2.2, Spencer Bower defines estoppel by representation of fact as follows:
A second definition can be found at Wilken and Villiers, The Law of Waiver, Variation and Estoppel, 2nd ed, Oxford: 2003, at para 9.02:
A representation can be made by words or conduct. Although the representation must be clear and unambiguous, a representation can be inferred from silence where there is a duty to speak or from negligence where a duty of care has arisen. Under English law, estoppel by representation of fact usually acts as a defence, though it may act in support of a cause of action or counterclaim.
Although there is some debate as to whether “unconscionability” is an element that English courts need to take into account when considering estoppel by representation of fact, the Australian courts clearly do (see Wilken and Villiers, para 9-03; The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 per Deane J.)
As noted above, although both English and Australian laws treat promissory and proprietary estoppels as species of equitable estoppel, the status of estoppel by representation of fact is less clear in Australia. The decisions of Waltons Stores (Interstate) v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394, both purport to fuse common law and equitable estoppels into a single unified doctrine, but the New South Wales Court of Appeal in Byron Shire Council v Vaughan  NSWCA 158 continues to treat estoppel by representation at common law as distinct from equitable estoppel. (See Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies, 4th edition, Butterworth: 2002, Chapter 17 and Pakinson, The Principles of Equity, 2nd edition, LBC: 2003, Chapter 7). This can be significant in deciding which court has jurisdiction to adjudicate on the issue.
The American doctrine of equitable estoppel is the same as the English estoppel by representation of fact:
The traditional version of proprietary estoppel arises in relation to rights to use the land of the owner, and may even be effective in connection with disputed transfers of ownership. So if:
an estoppel may arise. Thus, in Dillwyn v Llewellyn (1862) 4 De G.F.& J. 517 C.A. a father promised a house to his son who took possession and spent a large sum of money improving the property. The father never actually transferred the house to the son. When his father died, the son claimed to be the equitable owner and the court ordered the testamentary trustees to convey the land to him. See also Inwards v Baker  2 Q.B. 29, C.A.
In Wilmott v Barber (1880) 15 Ch D 96, Fry J considered that five elements had to be established before proprietary estoppel could operate:
Although proprietary estoppel was only traditionally available in disputes affecting title to real property, it has now gained limited acceptance in other areas of law. Proprietary estoppel is closely related to the doctrine of constructive trust.
The term “proprietary estoppel” is not used in American law, but is part and parcel of the general doctrine of promissory estoppel. In English law, proprietary estoppel is distinct from promissory estoppel.
The doctrine of promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise and acted upon it.
In English law, a promise made without consideration is generally not enforceable. It is known as a bare or gratuitous promise. Thus, if a car salesman promises not to sell a car over the weekend, but does so, the promise cannot be enforced. But should the car salesman accept even one penny in consideration for the promise, the promise will be binding and enforceable in court. Estoppel is not an exception to this rule.
The doctrine of promissory estoppel was first developed in Hughes v. Metropolitan Railway Co  but was lost for some time until it was resurrected by Lord Denning in the controversial case of Central London Property Trust Ltd v. High Trees House Ltd  K.B. 130.
In this case, the plaintiffs leased a block of flats to the defendants at an annual rent of £2500 – but, because the defendants were unable to find enough tenants while London was being bombed during WWII, they agreed to accept a reduction in rent to £1250. There was no consideration for this promise to accept a lower rent. At the end of the war, the flats were again fully let, and the plaintiffs claimed the full rent for the remainder of the contract beginning the final half of that year, 1945. Denning J held that, in good conscience, they were entitled to the full rent from the end of the war, but noted that they were estopped from going back on their promise had they claimed rents from the wartime period as well.
Promissory estoppel requires:
Estoppel is ‘a shield not a sword’ — it cannot be used as the basis of an action on its own. It also does not extinguish rights. In High Trees, the plaintiff company was able to restore payment of full rent from early 1945 and could have restored the full rent at any time after the initial promise was made provided a suitable period of notice had been given. In this case, the estoppel was applied to a ‘negative promise’, that is, one where a party promises not to enforce full rights.
Estoppel is an equitable (as opposed to common law) construct and its application is therefore discretionary. In the case of D & C Builders v. Rees the courts refused to recognise a promise to accept a part payment of £300 on a debt of £482 on the basis that it was extracted by duress. In Combe v. Combe Denning elaborated on the equitable nature of estoppel by refusing to allow its use as a “sword” by an ex-wife to extract funds from the destitute husband.
Promissory estoppel is not available when one party promises to accept a lesser sum in full payment of a debt, unless the debtor offers payment at an earlier date than was previously agreed. This is the rule formulated in Pinnel’s Case (1602) 5 Co Rep 117a, and affirmed in Foakes v. Beer (1884) 9 App Cas 605.
The doctrine of promissory estoppel was adopted into Australian law in Legione v. Hateley (1983) 152 CLR 406; however, the plaintiffs were unsuccessful in that case because the reliance was unreasonable and the promise not unequivocal.
In fact, now Australian law has gone beyond the position espoused in the High Trees case; it has been extended successfully to cases where there is no pre-existing legal relationship between the two parties, and promissory estoppel can be wielded as a “sword”, not just as a “shield”. Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387 held that if estoppel is proven, it gives rise to equity in favour of the plaintiff, and the court will do the minimum equity that is just in the circumstances. From this case, it is also possible for the promise to come from silence or inaction.
As noted above, in Australian law, there is an element of unconscionability, which is satisfied if one party encourages the other party to create assumptions that lead to reliance. Today, the principle of estoppel may give birth to an enforceable obligation even without consideration under the following conditions:
In the many jurisdictions of the United States, promissory estoppel is generally an alternative to consideration as a basis for enforcing a promise. It is also sometimes referred to as detrimental reliance.
The American Law Institute in 1932 included the principle of estoppel into § 90 of the Restatement of Contracts, stating:
The distinction between promissory estoppel and equitable estoppel should be noted:
Suppose that B goes to a store and sees a sign that the price of a radio is $10. B tells the shopkeeper that he will get the money and come back later that day to purchase it; there is no discussion of price. The shopkeeper says that when B returns, he will be happy to deal with B as he deals with all his customers but that, if he sells all the radios (he has three), he will not be able to help B. Hearing this, B goes and sells his watch for $10 (it was really worth $15, but since B wanted the money right away, he chose not to wait for the best price). When B returns, the sign says $11, and the owner tells B that he has raised the price. In Equity, can you argue that the shopkeeper is estopped by conduct? B relied upon the implied representation that a radio would be sold for $10 when he returned with the money; B has sold his watch at a price lower than the market price, and thus he has acted to his detriment. (Note that if B’s watch was worth $10, and he received a fair price, there would be no detriment.) But the problem is that the shopkeeper did not guarantee to hold one of the radios against the possibility of B’s return nor did they agree a fixed price. The shopkeeper’s conscience might have been affected if he had known that B was going home to collect the money and would definitely return to buy one of the three radios. Indeed, in some common law jurisdictions, a promise by the shopkeeper to hold a specific radio would create a binding contract, even if B had to go for the money. A promise to pay the owner in the future is good consideration if it is made in exchange for a promise to sell a specific radio (one from three is probably sufficiently specific): one promise in exchange for a second promise creates equal value. So the shopkeeper’s actual words and knowledge are critical to deciding whether either a contract or an estoppel arises.
For an example of promissory estoppel in the construction industry, suppose that B Ltd consolidates estimates from a number of subcontractors and quotes a single price on a competitive tender. The client accepts B Ltd’s quote and construction begins. But one of the subcontractors then claims reimbursement above its original estimate and, because of this change, B Ltd cannot profit from the works. If both parties knew that the accuracy of the individual estimates was critical to the success of the tender and the profitability of the contract as a whole, a court might apply promissory estoppel and allow B Ltd to pay only what the subcontractor originally estimated rather than the new, higher price. But, if both parties hoped that there would be an opportunity to increase the contract prices to reflect additional expenditure, the subcontractor’s conscience would not be as limited in seeking a higher payment and B Ltd might be penalised for not building an adequate contingency sum into the tendered price.
One contentious point during the drafting of the Restatement was how to calculate the amount of damages flowing from a promissory estoppel. During the deliberations, the following example was considered: a young man’s uncle promises to give him $1,000 to buy a car. The young man buys a car for $500, but the uncle refuses to pay any money. One view was that the young man should be entitled to $1,000 (the amount promised), but many believed that the young man should only be entitled to $500 (the amount he actually lost). The language eventually adopted for the Second Restatement reads: “The remedy granted for breach may be limited as justice requires.” — a formula which leaves quantification to the discretion of the court.
Estoppel in pais (literally “by act of notoriety”, or “solemn formal act”) is the historical root of common law estoppel by representation and equitable estoppel. The terms Estoppel in pais and equitable estoppel are used interchangeably in American law.
Estoppel by convention in English law (also known as estoppel by agreement) occurs where two parties negotiate or operate a contract but make a mistake. If they share an assumption, belief or understanding of how the contract will be interpreted or what the legal effect will be, they are bound by that belief, assumption or understanding if:
Some say that estoppel by convention is not truly an estoppel in its own right, but merely an instance of reliance-based estoppel (estoppel by representation would be its most frequent form). Others see it as no more than an application of the rule of interpretation that, where words in a contract are ambiguous, you always interpret those words so as to give effect to the actual intentions of the parties even though that would not be the usual legal outcome.
Estoppel by acquiescence may arise when one person gives a legal warning to another based on some clearly asserted facts or legal principle, and the other does not respond within “a reasonable period of time”. By acquiescing, the other person is generally considered to have lost the legal right to assert the contrary.
As an example, suppose that Jill has been storing her car on Jack’s land with no contract between them. Jack sends a registered letter to Jill’s legal address, stating: “I am no longer willing to allow your car to stay here for free. Please come get your car, or make arrangements to pay me rent for storing it. If you do not do so, within 30 days, I will consider the car abandoned and will claim ownership of it. If you need more time to make arrangements, please contact me within 30 days, and we can work something out.” If Jill does not respond, she may be said to have relinquished her ownership of the car, and estoppel by acquiescence may prevent any court from invalidating Jack’s actions of registering the car in his name and using it as his own.
Estoppel by deed is a rule of evidence arising from the status of a contract signed under seal — such agreements, called deeds, are more strictly enforced than ordinary contracts and the parties are expected to take greater care to verify the contents before signing them. Hence, once signed, all statements of fact (usually found in the opening recital which sets out the reason(s) for making the deed) are conclusive evidence against the parties who are estopped from asserting otherwise.
Issue estoppel (issue preclusion) prevents, in some cases, an issue that has already been litigated and decided on from being re-litigated, even when the parties are different. In the world of crime, some cases have achieved notoriety, e.g. in the Birmingham Six saga, the House of Lords ruled in Hunter v. Chief Constable of the West Midlands Police (1982) that issue estoppel applied. Lord Diplock said:
The inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.
A type of estoppel that bars a person from adopting a position in court that contradicts his or her past statements or actions when that contradictory stance would be unfair to another person who relied on the original position. For example, if a landlord agrees to allow a tenant to pay the rent ten days late for six months, it would be unfair to allow the landlord to bring a court action in the fourth month to evict the tenant for being a week late with the rent. The landlord would be estopped from asserting his right to evict the tenant for late payment of rent. Also known as estoppel in paid.
A type of estoppel that prevents a person from denying the truth of anything that he or she stated in a deed, especially regarding who has valid ownership of the property. For example, someone who grants a deed to real estate before he actually owns the property can’t later go back and undo the sale for that reason if, say, the new owner strikes oil in the backyard.
A type of estoppel that prevents a person from asserting something when she had both the duty and the opportunity to speak up earlier and her silence put another person at a disadvantage. For example, Edwards’ Roofing Company has the wrong address and begins ripping the roof from Betty’s house by mistake. If Betty sees this but remains silent, she cannot wait until the new roof is installed and then refuse to pay, asserting that the work was done without her agreement.
See equitable estoppel.
A type of estoppel that prevents a person who made a promise from reneging when someone else has reasonably relied on the promise and will suffer a loss if the promise is broken. For example, Forrest tells Antonio to go ahead and buy a boat without a motor, because he will sell Antonio an old boat motor at a very reasonable price. If Antonio relies on Forrest’s promise and buys the motorless boat, Forrest cannot then deny his promise to sell John the motor at the agreed-upon price.
(2) A legal doctrine that prevents the relitigation of facts or issues that were previously resolved in court. For example, Alvin loses control of his car and accidentally sideswipes several parked cars. When the first car owner sues Alvin for damages, the court determines that Alvin was legally drunk at the time of the accident. Alvin will not be able to deny this fact in subsequent lawsuits against him. This type of estoppel is most commonly called collateral estoppel.
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This glossary post was last updated: 28th April, 2020 | 51 Views.