as promised, promissory estoppel:
in canadian law, if, in the duration of an ongoing contract, party A, through its conduct or language, leads party B to believe that it won’t stick strictly to the terms of the original contract, then courts expect that the parties will stay truer to the informal agreement than the strict wording of the contract.
to illustrate:
reena, a landlord, makes a legal agreement on 15 january 2004 to rent space to bobby for the operation of a tea shop. the contract/lease is for five years and requires bobby to notify reena by 15 january 2008 for a further three-year lease extension.
bobby makes killer chai, and naturally, reena and bobby become friends. reena drops by the tea shop for free tea every morning before going off to work. on more than one occasion and in front of bobby’s customers, reena says to bobby, “girl, i don’t know how i’d start my day without you. i’m gonna keep you here forever.”
three years and ten months into the rental contract (i.e., november 2007), and on the success of her business, bobby talks to reena about a possible redesign for the tea shop. reena not only agrees that a redesign would be a great change, but proposes a renovation to both the exterior and the interior of the building. bobby says, “dude, that’s crazy. you know i can’t afford all that.”
reena thinks about the issue for a couple of days before offering bobby a $20, 000 loan. bobby is ecstatic and quickly begins making arrangements for the renovation. reena gives the money to bobby in december 2007. the construction company, a.b. construction, agrees to begin the project in march 2008 and complete it within a month.
a rich man named ronald frump moves into town in january 2008. he canvasses the city for its most valuable property and finds bobby’s tea shop to be of special interest because of its proximity to the transit system and local restaurants. frump contacts reena on 5 feburary 2008 and informs her that he is interested in buying the property and turning it into a night club. reena refuses the offer, but frump is persistent. on 15 feburary 2008, reena receives a letter from frump, titled “final offer,” with an offer unlike reena could ever imagine. so reena finds herself unable to reject the offer and agrees to sell the property to to frump on the 31 january 2009.
even though she is too embarrassed to meet bobby in person and inform her of the sale, reena sends a notice to bobby reminding her that she must vacate the property on or before 15 january 2009 upon the termination of the rental agreement because the property has been sold. bobby does not respond to the letter and the two women have minimal contact with each other in february 2008. in early march, reena resumes her visits to bobby’s tea shop. the two don’t bring up the sale of property, but are otherwise able to resume their friendship as it once was.
it’s 20 january 2009 and bobby’s still operating her tea shop on reena’s property.
reena sues bobby for breach of contract. the terms of the lease explicitly required bobby to notify reena for an extension. reena can argue that the notice of termination she sent to bobby was a significant piece of communication between the two women. in addition, in the absence of a renewal request made by bobby, reena can say that she assumed bobby would not be renewing the lease.
bobby can use the defense of promissory estoppel, however, and say that reena’s conduct and language had led her to believe that a formal notice for lease extension was unnecessary. specifically, the friendship between the two women, the loan transaction, and the conversations in the tea shop, amounted to the assumption that bobby would continue leasing the property after 15 january 2009 and reena would not evict her. furthermore, reena’s failure to bring up the sale of the property in conversations subsequent to the february 2008 notice of lease termination had led bobby to believe that the purchase hadn’t gone through.
if reena has a good lawyer, she’ll have the court agree to uphold the original contract, and decide that bobby breached the contract; if bobby’s got the better lawyer, she’ll be allowed to remain on the property on the basis of promissory estoppel and the lawsuit will be thrown out.
and that, folks, is promissory estoppel.
