Promissory Estoppel Example: Everything You Need to Know
A promissory estoppel example involves a false statement that the court treats as a promise. 3 min read
Updated November 2, 2020:
A promissory estoppel example involves a false statement that the court treats as a promise. In this regard, the person who made the false statement will be unable to deny it, making their promise enforceable, or a promissory estoppel. When a person has relied upon someone else's statement in good faith, a judge will prevent the person who made the statement from denying it.
In many cases, a contract becomes enforceable when a set amount of money is either agreed upon or exchanged. To be truly fair, you may discover that a court will enforce the promise even if no exchange was made. Simply put, a promise must be made and, upon the reliance of said promise, a significant loss must have been suffered.
Promissory Estoppel Further Explained
Promissory estoppel is a formal legal principle. By law, a promise that was made becomes enforceable, even when it's made without any formal considerations. In essence, when someone makes a commitment to someone who goes on to rely on that promise, only to experience some sort of detriment, promissory estoppel may be enforced. This principle was created in order to prevent a promisor from arguing against the enforcement of their former promise.
Promissory Estoppel Example
Let's say Mr. Smith has a contract to create a movie. As such, he decides to hire an artist to paint the set and agrees to pay him a portion of the profits. If the artist goes on to paint the entire set and then Mr. Smith reveals he never even had a contract, and there are therefore no proceeds to share, the artist may decide to sue him. In this instance, a judge may find that Mr. Smith can't deny he had a contract with the painter, and the artist will likely receive a judgment providing compensation for his work.
Elements of a Promissory Estoppel
Certain legal requirements must be fulfilled in order to trigger a promissory estoppel. Of course, at its base, there must be someone making a promise, a promisee, and some type of detriment suffered by the promisee. Here are five legal elements of a promissory estoppel:
- Legal Relationship - A legal relationship must exist between two parties.
- Promise - The promisee must have relied on the promisor's guarantee, within reason.
- Reliance - It must be proven that the promisee took action based upon the promise that was made.
- Detriment - The promisee must also have suffered an economic loss due to the promisor's failure to abide by their promise.
- Unconscionability - The promisor's actions must be proven as unconscionable for failing to maintain his or her promise.
Here's another example of a promissory estoppel. Let's say an employer entered into a verbal agreement with an employee, whereby they would pay that employee an agreed-upon amount throughout the duration of their retirement. If that employee then proceeds to file for retirement, based on the promise made by the employer, the employer could be legally estopped from not delivering on the payments throughout the course of the former employee's retirement.
Promissory Estoppel in Contract Law
You will come across promissory estoppel most commonly in the field of contract law. The entire premise surrounding a contract involves two parties who negotiated an agreement based upon a promise.
Typically, contract law requires that a person receives a certain amount of consideration before entering into a promise. This makes legal consideration of value when two parties enter into an agreement or contract. A consideration such as this may include the exchange of money or a promise to avoid a certain action. These types of actions will make a contract legally enforceable.
When a court is attempting to deliver justice, you may find that it enforces a promise without any consideration. This will depend upon the promise, with evidence that it was reasonably relied upon and that dependence resulted in some sort of damage to the promisee.
While all fifty states enforce promissory estoppel, requirements will vary state by state. Generally speaking, you'll be looking at a case where an injured party is seeking to recover from a promise he or she relied upon, only to suffer a subsequent loss.
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