Contracts are the backbone of almost every business transaction. They are legally binding agreements that outline the terms, conditions and obligations of all the parties involved.
However, there are times when one party may rely on a promise made by the other, only to find that the other party has abruptly decided to back out of the deal – claiming that the contract was unenforceable because it was never formally signed or proper consideration was never formally given.
In such situations, the doctrine of promissory estoppel can provide a lifeline for those who have been wronged.
Holding someone accountable to their word
Promissory estoppel is a legal doctrine that can be invoked when promises are made and it seems unfair that they shouldn’t be kept.
This doctrine essentially prevents the promisor from going back on their word even when a formal contract is absent. Promissory estoppel can be used to enforce a promise when the following conditions are present:
- The promise made by one of the parties to the other must be explicit and definite.
- The promisee must have reasonably relied on the other’s promise, resulting in some form of action or forbearance on their part.
- The reliance on that promise caused the promisee significant harm or detriment.
- Allowing the promisor to break the promise would lead to an unjust outcome.
For example, imagine that a general contractor for a construction company solicits bids from subcontractors to handle all the plumbing on an upcoming job. While talking with the subcontractor on a current job, the subcontractor gives them a written bid, albeit unsigned, for $50,000. The general contractor relies on that bid to set the price for the upcoming job, but the subcontractor pulls out. As a result, the general contractor ends up paying a different subcontractor $80,000 for the same job. They might then seek to hold the original subcontractor liable for their losses through promissory estoppel.
Experienced legal guidance can help you understand if promissory estoppel applies to your situation.