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Dr.

RAM MANOHAR LOHIYA NATIONAL


LAW UNIVERSITY
2015-16

CONTRACTS LAW
PROJECT ON:

“Law Commission recommendation on promissory estoppel


(13th report)”
SUBMITTED TO: - SUBMITTED BY:-

Dr. Visalakshi Vegesna MONISH NAGAR

Associate Professor (Law)


ACKNOWLEDGEMENT
We, Mohit Kumar and Monish Nagar, the First Year Law student at Dr. Ram Manohar Lohiya
National Law University, Lucknow, are highly grateful towards our lecturer Dr. Visalakshi
Vegesna who gave us the opportunity to study this topic and because of her help and support,
this project has reached its completion. I would also like to thank the library staff of Dr. Ram
Manohar Lohiya National Law University, Lucknow, for their patient and diligent support in
the making of this project.

Last, we would like to acknowledge our friends who helped us in the research needed for this
project.

We have tried our best to include all the aspects discussed in the given case, yet, ignorance or
any mistake is deeply apologized.

Thanking you,

Yours sincerely,

Mohit Kumar and Monish Nagar


INTRODUCTION

Under The Indian Contract Act, 1872, the term 'contract' has been defined as an agreement
enforceable by law in section 2(h). Under section 2(e), every promise is an agreement. But,
unless the agreement is supported by 'consideration’ the agreement would be void except in
the three instances mentioned in s. 25. Therefore, unless a promise is supported by
'consideration' it will not, ordinarily, be enforceable by law. S. 2(d) defines 'consideration' as
follows:—

"When, at the desire of the promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do, or abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise."

Hence, when a person makes a promise, unless the promisee does, has done or promises to
something, at the desire of the promisor, the promise would be without consideration and the
promise cannot be enforced in a court of law.

Suppose a person promises a subscription to a charitable institution with the knowledge that a
building will be constructed with the money received, from the subscribers, but does not
desire the institution to do so; the institution however, on the faith of the promise, incurs
expenditure in putting up astructure. If the promisor does not honor his promise, the
institution may not be able to sue him successfully for the amount promised, because, the
promise is not supported by consideration. Take the case of the Government making an
announcement relating to some relief such as a sales-tax holiday if something is done by the
citizen such as opening a new factory in a specified area. On the faith of the announcement, a
citizen may do the necessary thing and thus change his .position. The Government thereafter
changes its policy. Even if it is assumed that the citizen acted at the desire of the Government
there cannot be a conduct enforceable against the Government, because, contracts, which can
been forced against the Government, should be in a particular form.1

1
Art 299 of the Constitution of India
In other words, an act shall not be a good consideration for a promise unless it is done at the
desire of the promisor. In Durga Prasad v Baldeo.2

The plaintiff, on the order of the Collector of the town, built at his own expense, certain shops
in a bazaar. The shops came to be occupied by the defendants who, in consideration to the
plaintiff having expended money on the construction, promised to pay him a commission on
articles sold through their agency in the bazaar. The plaintiff’s action to recover the commission
was rejected.

“The only ground for the making of the promise is the expense incurred by the plaintiff in
establishing the market but it is clear that anything done in that way was not ‘at the desire’ of
the defendants so as to constitute consideration.” The result was not the result of the promise
but of the collector’s order.

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 leading case of
Central London Property Trust Ltd v High Trees House Ltd.

In this case, the claimants let a block of flats to the defendants at an annual rent of £2500.
However, they agreed to accept a reduction in rent to £1250, because the defendants were
unable to find enough tenants due to the evacuation of London during World War II. This
promise to accept a lesser rent was unsupported by consideration. At the end of the war the
flats became fully let, and the claimants demanded the return to payment of full rent. Denning
J held that they were entitled to this from the last two quarters of 1945. Denning mentioned in
an obiter dictum that had the plaintiffs tried to be reimbursed for the full amount they would
have been estopped from doing so even though no consideration was present. This is because
the plaintiff represented that he would accept half the rent and the defendant acted upon this.

Promissory estoppel requires (1) an unequivocal promise by words or conduct, (2) a change
in position of the promisee as a result of the promise (not necessarily to their detriment), (3)
inequity if the promisor were to go back on the promise. Estoppel is "a shield not a sword" –

2
(1880) 3 All 221, OLDFIELD J at p. 228
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 (although estopped
back rent was lost) from early 1945, but would have been able to restore full rent at any time
after the initial promise provided a suitable period of notice had been given. initial promise
provided a suitable period of notice had been given.

Acts Done At Request

On the other hand , an act done at the promisor’s desire furnishes a good consideration for his
promise even though it is of no personal significance or benefit to him. The decision of
Calcutta High Court in Kedarnath Bhattacharya v Gorie Mohamed3 has become well known
in the connection.

It was thought advisable to erect a town hall at Howrah provided sufficient subscription could
be got together for the purpose. To this end the Commissioners of Howrah municipality set
out to work to obtain necessary funds by public subscription. The defendant was a subscriber
to this fund for Rs 100 having signed his name in the subscription book for that amount. On
the faith of the promised subscriptions the plaintiff entered nto a contract with the contractor
for the purpose of building the hall. But the defendant failed to pay the amount and contended
that there was no consideration for his promise.

He was, however, held liable:

Promissory estoppel is one strand in a broader equitable principle where by parties to a


transaction who have conducted their dealing in reliance on an underlying assumption as to a
present, past, or future state of affairs or a promise or presentation when it would be unfair or
unjust to do so .The court will do what is necessary, but not more to prevent a person who has
relied upon such an assumption, promise, or representation from suffering detriment.4

3
ILR (1886)14 Cal 64
4
Crabb v Arun D.C.[1976]Ch. 173,at p. 198, Commonwealth v. Verwayen (1990) 170 C.L.R. 394
PROMISSORY ESTOPPEL AND THE INDIAN CONTRACT ACT

Promissory estoppel bears striking similarity to the law of contract. It involves a detriment to
the representee which is analogous to the type of detriment which may furnish consideration
for a contract. It is trite law that merely of a detriment suffered by the promisee. Ther does
not need to be any benefit to the promisor. In the same way, there will be no equitable
subject, unless there is some detriment suffered by the representee in reliance upon the
promissory statement made to him.

However, the differences are more striking than this similarity. There is no intention to create
contractual relations –in fact there is always an intentional not to. More importantly, there is
no fixed result agreed upon by the parties which is enforced by the court, either specifically
or by way of damages. It is important to note, however, that the early fear that the doctrine of
promissory estoppel would result in an erosion of the necessity for a consideration in a
contract has not in any way been realized.

1. Inter-Relation of promissory estoppel and Consideration

In a true sense, promissory estoppel and consideration are an opposite of each other and cn
not go together. A promise which may be enforced on the ground of promissory estoppel
would definitely not require any consideration. The hostility of consideration to promissory
estoppel is born out by the following remarks of Stephen, J. in Alderson v. Maddison:

“if this view were adopted in its entirely, every promise on which a person acted, even if
there were no consideration would be binding by way of estoppel, and such a doctrine would
alter the present law by giving legal force to that class of representation which at present law
by giving legal force to that class of representation which at present are morally binding.”

In India Justice Bhanwati has considered the interplay of consideration and promissory
estoppel at length and observed how the former has thwarted he discussing the American law
on the subject, he observed the leading textbook writer’s view with disfavor the importance
given to “consideration.” The learned judge proceed that

“having regard to the general approbium to which the doctrine of consideration the
interplay of consideration has been subjected by eminent Jurists, we need not be induly
anxious to protect this doctrine against assault on crosion nor allow it to dwarf promissory
estoppel or inhibit or curtail its operational efficacy as a Juristic device for preventing
injustice.”

In Jit Ram v. State of Haryana Justice Kailasam took a conservative view with regard to the
inter-relation of consideration and promissory estoppel, by emphasizing more on the
provision of Indian Contract Act regulates the rights of parties and expressly on the necessity
for lawful consideration which cannot be dispensed with by invoking some equitable
doctrine. Section 10 of the contract act says that all agreements are contract, if they are made
by free consent of parties competent to contract for a lawful consideration and with a lawful
object, are not hereby expressly declared to be void. But with due regards to Justice Kailasam
should be reminded of the fact that promissory estoppel has come to play to avoid injustice
which may be caused by asking for the technical requirement of consideration in every
enforceable promise when the fact situation of it is such that it is inequitable to ask for it. It is
only under such circumstances that the promissory estoppel is required to be invoked to avoid
injustice by curtailing the rigorous of the statute. In Godfrey Philips India Ltd. V. Union of
India5, the supreme court of India set rest the controversy raised in Jit Ram case and now the
ruling of M.P. sugar Mill case is the standing law.

2. Promissory Estoppel and Section 63 Of India Contract Act

In the Joseph Valamanalam v. State of Kerala6 the court referred to the dictum of several
England cases including Combe v. Combe7 and observed: “In fact8 the doctrine goes further
than section 63 of the Indian Contract act and therefore, there is no occasion for us to borrow
it. Section 63 of Indian Contract Act says that:

“Every promise may dispensed with or remit wholly or in part, the performance of the
promise made to him, or may accept instead of it any satisfaction which he thinks fit.

5
AIR 1986 Sc 806
6
AIR 1358, Ker. 290 at 297.
7
(1951) 2 KB 215 (CA)
8
Keshav lal v. Bhai T. Mills (1958) A.S.C. 512. Also Jit Ram Shiv Kumar v. State of Haryana, AIR 1980 SC 1305,
Kailasam, J. made similar statement and held there is no need of development of promissory estoppel in India
Recommendations of Law commission of India

the law commission after going detail discussion on doctrine of consideration in England and
USA reach on conclusion that in recent years the doctrine of considerations were given bad
names and it was criticized by the hands of eminent jurists, writers and courts itself because
in number of cases this doctrine prevent the enforcement of many contracts which ought to be
enforced, if the law really wishes to give effect to lawful intentions of the parties to them, if
the judge had not used their ingenuity to invent it.9 In America Dean Pound observes: “it is
significant, although we have been theorizing about consideration for four centuries, our texts
have not agreed upon a formula of consideration much less our courts upon any consistent
scheme of what is consideration and what is not. It means one thing in law in simple
contracts, another in the law of simple contracts, another in the of negotiable instrument,
another in conveyancing under the statute of uses and still another thing no one knows
exactly what in many cases in equity. According to him, promises as a social and economic
institution become of the first importance in a commercial and industrial society. A men’s
word should be “as good as his bond” and his fellowmen must be able to rely on the one
equally with the other if our economic order is to function efficiently. This is the expression
of the moral sentiments of the civilized society.

In England, law revision committee10 advocated that contract should exist if there was an
intention to create legal and if either the contract was reduced to writing or consideration was
present. In USA, too, the New York revision commission reached on conclusion which in
many respect were similar to those of English Committee.

The Law Commission in India submitted that we are unable to recommend an abolition of the
doctrine of consideration. It has become so, firmly rooted in our concept, that a wholesale
rejection of it would have the result of overthrowing the very structure on which our law of
contract is based. We reach on conclusion that instead of abolishing the doctrine of
abolishing or introducing an alternative to t, we should make suitable changes in the existin
law which will have the effect of preventing the equitable and anomalous consequence result
from a rigid adherence the doctrine of consideration. We proposes to achieve this end by

9
Holdsworth, history of English law, Vol. 8, at p. 47, lord wright has suggested for abolition of this doctrine in an
article “ought to doctrine of consideration to be abolished from the common law”49 Harward Law Review at pp.
1225 in 1936.
10 th
6 interim report of the law revision committee, 1937
adding some clause to Section 25 of the Indian Contract Act which now enumerates the
exception cases where a contract without consideration is valid. So in order to prevent
injustice caused by adherence to doctrine of consideration, law commission recommended to
amend section 25 of the Indian Contract Act so as to adopt promissory estoppel as a part of
contractual jurisprudence vide this recommendation an agreement though without
consideration would be valid. It states:

“A promise which the promisor knows or reasonably should knows or reasonably should
know, will be relied upon by the promisee, shall be enforceable if the promise has altered his
position to his detriment in relying on his promise.11

For the purpose of this exception, a promise need not be an express promise but may be
implied from conduct, i.e. from acts or omissions. The words “express” or “implied” should
therefore be added after the word promise in adopting the above recommendation of the Law
revision Committee. Accordingly, the Law Revision Committee recommended that an
agreement to keep an offer open for a definite period of time until the occurrence of some
specific event should be enforceable even where there is no consideration to support.

Thus, it is evident that Law Commission has recommended the adoption of promissory
estoppel.

The essential requirements which must be present are:

(i) Express or implied promise, whether oral or in writing;


(ii) The promisor know or ought to have known that his promise would induce an action
on the part of the promise; and
(iii) A detrimental action by the promise.

By recommending an exception under section 25, the commission has established that
promissory estoppel is antithesis of consideration.

Dr. I.C. Saxena observed following defects in this suggestions-

11
6th interim report, para 50, recommendation no. 8, p-31
(1) It creates a binding contract, under certain conditions, but obviously for the benefit of
both the parties. It would enable the promisor also in that case to take advantage of his
own wrong and use the new estoppel as a sword. Perhaps this result was not foreseen
(2) It is not clear whether the promise has to report (either the commencement or
termination of) his prejudicial action to the promisor. The existing exception require
communication.
(3) To avoid perjured evidence and unnecessary litigation, it would be most
desirable to restrict the proposed exception, which is bound to engulf vast
situations, to written promises, at least because of innovation. It is to be borne
in mind that knowledge of actual words and the circumstances of the case
would be quite essential to determine the scope of implied promise as
suggested by the Law Commission. Since this may be difficult to be proved in
many instances, the innocent promise will get no remedy even if he has acted
in reliance.
(4) The detriment should be substantial (as suggested by the American
Restatement) and not merely nominal or insignificant.
BIBLIOGRAPHY
1. ANSON’S LAW OF CONTRACT BY J. BEATSON
2. CONTRACT AND SPECIFIC RELIEF BY AVTAR SINGH
3. GOVERNMENT CONTRACT BY V. VISALAKSHI
4. DOCTRINE OF PROMISORY ESTOPPEL BY L. K. SHARMA
5. SCC ONLINE
6. MANUPATRA