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Estoppel: Definition, Example and Related Terms

What is Estoppel ?

Estoppel is like a rule in a game that stops you from going back on your word. In a commercial setting, this rule becomes a bit more complicated but still follows the same principle. It is a legal principle that prevents someone from arguing something or stating a fact that contradicts what they previously said or agreed to. It's like saying you can't play both sides of the field. Once you've made a promise or statement, especially in a contract, you have to stick to it. That's what estoppel is all about.

For instance, if a business tells another business that they won't enforce a certain part of their agreement, and the second business relies on that promise and acts on it, the first business can't later turn around and decide to enforce that part of the agreement. That's estoppel in action.

There are different types of estoppel and each type can be used in different situations. Promissory estoppel, for example, is often used in contract law and can be particularly relevant for commercial contracts. This type of estoppel can stop a party from going back on their word when someone else has relied on their promise.

Estoppel is an important concept in managing commercial contracts as it helps to ensure that parties keep their promises and act in good faith. It provides a level of protection for businesses and can help to prevent disputes or legal issues from arising.

Example(s)

  • Scenario Description
    A company promises a supplier that they will buy a certain amount of goods from them for the next year. The supplier, relying on this promise, invests in more machinery and hires additional workers. However, the company later wants to back out of this promise. This is an example of promissory estoppel. The company made a promise to the supplier, and the supplier relied on this promise and acted on it. If the company tries to back out of their promise, the supplier could use the principle of estoppel to argue that the company should be stopped from breaking their promise.
    During negotiations, a business agrees to waive a certain fee in a contract. The other party, based on this agreement, decides to sign the contract. However, later on, the first business tries to enforce the fee. In this case, the business who waived the fee and then tried to enforce it could be stopped by estoppel. They made a statement that the fee would be waived and the other party relied on this when deciding to sign the contract. The business can't now contradict their earlier statement.