Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Contract; formation; failure to complete transaction; promissory estoppel.
Facts: Maher owned a commercial property in Nowra which Waltons Stores (Waltons) was interested in leasing, provided that the current building was demolished and reconstructed to their specifications. Maher and Waltons agreed on the new specifications, the term of the lease and the rental, but made this contract subject to the exchange of signed documents. Maher signed the contract and sent it to Waltons for counter signature and return but received nothing back. Waltons knew that Maher did not wish to demolish the existing building until the lease was settled. When Maher enquired, Waltons gave assurances that everything was agreed, and that the exchange of signed documents was only a formality that would be attended to. Maher began the demolition, and then the construction. When it was 40% complete, Waltons informed Maher that they did not intend to complete the lease. Maher claimed that it was too late, in the circumstances, for Waltons to deny the existence of the contract of lease.
Issue: Although no contract had in fact been completed, was Waltons estopped (prevented) from denying the existence of the lease?
Decision: Waltons was estopped from denying the existence of the lease and was accordingly liable to pay damages to Maher for breach of this contract.
Reason: The court held that Maher had relied on a non-contractual promise to his detriment. He did this because Waltons encouraged Maher's belief that the contract would be completed and because Waltons knew that Maher was acting on that belief. It would be unconscionable in these circumstances to allow Waltons to rely on the true facts of the case (ie that no contract had been completed). In these circumstances, Waltons was estopped from denying the existence of the lease.
Brennan J said (at [26], [27]):
"A non-contractual promise can give rise to an equitable estoppel only when [1] the promisor induces the promisee to assume or expect that the promise is intended to affect their legal relations and [2] he knows or intends that the promisee will act or abstain from acting in reliance on the promise, and [3] when the promisee does so act or abstain from acting and [4] the promisee would suffer detriment by his action or inaction if the promisor were not to fulfil the promise. When these [four] elements are present, equitable estoppel almost wears the appearance of contract, for the action or inaction of the promisee looks like consideration for the promise..."
But there are differences between a contract and an equity created by estoppel. A contractual obligation is created by the agreement of the parties; an equity created by estoppel may be imposed irrespective of any agreement by the party bound. A contractual obligation must be supported by consideration; an equity created by estoppel need not be supported by what is, strictly speaking, consideration. The measure of a contractual obligation depends on the terms of the contract and the circumstances to which it applies; the measure of an equity created by estoppel varies according to what is necessary to prevent detriment resulting from unconscionable conduct."