What is Estoppel?

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Definition:

Estoppel is a legal concept that protects people from loss from actions that they took based on promises another party made but refused to follow through on.

🤔 Understanding estoppel

Estoppel protects you from loss when you take actions based on a promise that another person or organization has made. People make promises all the time, but they’re not always legally binding. If a person or business causes you significant financial loss by breaking a promise they made, estoppel protects you. Courts can use the concept to penalize the other party and force them to repay you. Estoppel applies to both legally binding agreements, such as those made in contracts, and reasonable verbal or otherwise non-written promises.

Example

One real-life example of estoppel comes from the world of trading cards. A famous trading card game developer, Wizards of the Coast, once promised never to reprint a specific set of cards, called the Reserved List. Some of those cards are now worth hundreds of thousands of dollars. Decades later, that company holds to the promise. One reason for the company sticking to this commitment may be that the holders of those cards could bring the company to court with a claim of promissory estoppel if a reprint were issued — arguing that reprinting those cards would cause significant financial losses to customers.

Takeaway

Estoppel is like penalizing a friend for offering to treat you to lunch and then ‘forgetting’ their wallet...

Once you finish your meal, your friend tells you that they didn’t bring their wallet. You didn’t plan on going out to lunch until they offered to treat you to a meal, so they’ve harmed you financially. You have to pay for your own meal, plus theirs unless you want to stiff the restaurant. Estoppel would protect you from this loss, forcing your friend to repay you after the fact because their broken promise financially injured you.

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What is estoppel?

Estoppel is a legal principle under which a court can prevent a person or business from going back on their word or denying something that a court of law has held to be true.

There are many different forms that estoppel can take, but all revolve around the concept that a person or business cannot renege on a reasonable promise. If someone acts based on another party’s reasonable statement of fact or promise, that person can hold the other party responsible for damages if its broken promise negatively impacts them.

What is estoppel in law?

In law, estoppel prevents someone from raising a point in one legal case if the court decided against them on that point in another case. It is part of the protection that Americans receive from double jeopardy in legal proceedings.

For example, if the paneling on the side of a building falls off during a storm and lands on a pedestrian, injuring them, that pedestrian may bring the builder to court. During the lawsuit, the pedestrian could accuse the builder of negligence, which led to their injury. If the individual cannot prove the negligence, the court finds in the builder’s favor.

Later, the business that contracted the builder brings it to court to force it to reconstruct the damaged portion of the building, free of charge. If the business argues that the builder’s negligence led to the damage, the builder’s lawyers could argue collateral estoppel (also called estoppel by record), saying that the court previously found the builder innocent of negligence.

What is estoppel in real estate?

In real estate, an estoppel certificate is a document that outlines the critical points of a lease for the tenant and landlord. This includes things such as the rent, term of the lease, and rights the tenants or the landlord have.

Estoppel certificates can help landlords show lenders that they have a source of income from their property. Real estate owners also use them when selling their properties, showing potential buyers the details of any outstanding leases. Similarly, tenants can use estoppel certificates as evidence of the lease’s terms if their landlord tries to break the terms or overcharge them.

What are the types of estoppel?

There are many different types of estoppel, each with its own unique features and arising in different situations.

Equitable estoppel

Equitable estoppel protects a person or business from harm caused by another’s conduct. The conduct can include action, inaction, or intentional concealment of essential facts.

For example, someone selling a piece of real estate at a high price may know nonpublic facts that will decrease the value of the property. By intentionally failing to disclose that information to a prospective buyer, the seller can earn a larger amount from the sale. Equitable estoppel allows the buyer to bring the seller to court. The buyer might be able to recover some of the money it overpaid for the now-less-valuable property.

Promissory estoppel

Promissory estoppel is a part of contract law that protects people from harm caused by acting on a reasonable promise made by another party.

Two parties do not need to have a written contract for promissory estoppel to apply. It can refer to any reasonable statement or promise made by a party. If a court finds that promissory estoppel applies, it makes that verbal promise binding in the same way as a written contract.

For example, if the owner of a strip mall told the owner of a business who wanted to rent a location that it planned to spend at least $1 million on advertising the mall, that could constitute a reasonable promise. If the business owner decided to rent a storefront based on that promise, they’ve taken action on that promise.

If the strip mall owner then fails to follow through on the promise to advertise, and the stores at the strip mall perform poorly, the business owner could bring the strip mall owner to court for promissory estoppel. The strip mall owner’s failure to follow through on its promise would have financially damaged the renters.

Estoppel by deed

Estoppel by deed applies to real estate. The person selling a piece of property cannot deny the accuracy of the facts stated in the deed he or she signed. An example of this occurred in a Pennsylvania Supreme Court case, Shedden v. Anadarko E&P Co. The Sheddens sold oil rights on a piece of property to Anadarko E&P and included terms for bonus payments based on the amount of oil extracted from the land.

After the sale, Anadarko discovered that the Sheddens only owned rights to half of the property’s oil with the previous owners, the Baxters, reserving the other half. Anadarko paid only half of the negotiated bonuses because the Sheddens could not sell rights they did not own.

The Sheddens later claimed title to the remaining half of the oil rights, and Anadarko proceeded to pay them the bonuses for the full amount of land because it now owned full oil rights. The Sheddens argued that they still owned half the oil rights because they weren’t included in the original sale.

The court found in favor of Anadarko because the original sale was for all oil rights on the property. Estoppel by deed prevented the Sheddens from going against the information in the deed.

Estoppel by silence

Estoppel by silence happens when one party had both the opportunity and the obligation to provide information to another but failed to do so. If the second party is damaged by the first’s failure to provide that information, it can seek damages through estoppel by silence.

Estoppel by silence might overlap with other types of estoppel. For example, both estoppel by silence and equitable estoppel can apply to the same situation if one person unfairly and knowingly fails to inform another party of relevant facts.

How is estoppel used?

Each form of estoppel has very similar conditions that must be met, though there are slight differences.

For example, for promissory estoppel to apply, the following conditions must exist:

  • The promisor must make a promise to another party either directly or through insinuation.
  • The promisee must have understood and acted on that promise in a rational manner.
  • It must be obvious that going back on the promise would be unfair after the second party acts on it.

In a case of estoppel by silence, on the other hand, the party at fault must have withheld information from the actor. The requirement that the wronged party acted rationally based on the facts that it knew — and that it be evident that failing to disclose the information was unfair — remains.

What is the doctrine of estoppel?

A legal doctrine is an accepted legal rule or process that arises from both legal code and precedent. When a judge applies a process or set of rules, they help to create a legal doctrine that future judges can use.

Estoppel is a legal doctrine because it comes from a combination of legal code and judicial precedent where courts have found against people acting unfairly or failing to uphold their word.

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