Estoppel

What Is Estoppel?

The term estoppel refers to a legal principle that prevents someone from arguing something or asserting a right that contradicts what they previously said or agreed to by law. Put simply, estoppel prevents one person from contradicting an action or statement from the past. It is part of common law and is meant to prevent people from being unjustly wronged by the inconsistencies of another person’s words or actions. Some of the most common forms of estoppel include collateral estoppel and promissory estoppel.

How Estoppel Works

Common law is a form of law that is derived from judicial decisions and precedent. This means that the laws aren’t established or based on legislation or statutes. Most of the legal system in the United States was based on English common law. That was until the country’s legal system became developed enough to set precedent to shape its own form of common law.

Almost all countries with a judicial system based on common law, including the United Kingdom, Canada, and the United States, have incorporated multiple forms of the doctrine of estoppel in their laws. While the names of the principles differ from country to country, the concept is essentially the same: consistency, in both words and actions, matters.

As noted above, estoppel legally prevents people from making contradictory claims or actions as opposed to something they may have said or done in the past. In simpler terms, estoppel ensures that a person stays true to their word and doesn’t unfairly damage someone else. So if Person A must adhere to their word if they make a promise to Person B and later rescind it. Estoppel can take many different forms, the most common of which are listed below.

Types of Estoppel

There are different types of estoppel. The following are some of the most common ones found in the legal arena.

• Collateral Estoppel: A collateral estoppel can prevent a person from going back to court as a plaintiff with the same grievance. This prevents legal harassment and abuse of legal resources.
• Estoppel by Deed: This type of estoppel prevents a person from denying the truth of any fact stated in a deed they have executed.
• Equitable Estoppel: This form of estoppel prevents someone from taking a legal position that is contrary or inconsistent with their previous stance if doing so harms the other party.
• Promissory Estoppel: This is commonly found in contract law. Promissory estoppel protects a person who has acted based on another person’s reasonable promise, whether in a formal contract or not, and then suffers significant economic loss because the other party did not fulfill that promise.

Other lesser-known forms of estoppel are estoppel by record, estoppel by deed, laches, estoppel by silence, and reliance-based estoppel.

Estoppel Certificate Components

An estoppel certificate is common in the mortgage and commercial real estate industries. It is a document that is often required by lenders and third parties if and when property owners either try to sell their properties (that are tenanted) or refinance a loan.

This document, which is also called an estoppel letter, is generally prepared by the landlord and is signed by the lessee or tenant. In essence, it verifies and asserts claims made to the third party (either a lender or a buyer) by the landlord. Some of the most common details included in the certificate or letter are:

• Lease terms, including the start and end dates of the lease
• The date of the last rent payment
• Confirmation that the lease is up to date or highlights what any defaults were made by either party
• A statement verifying that no modifications were made to the lease or details of any changes made and when

Example of Estoppel

Promissory estoppel was the heart of a case pitting two neighbors against one another in Iowa. A farmer leased property from his neighbor, who he said promised to sell him his farm at some point in the future for $3,000 an acre.

The farmer then made substantial improvements to the property during the term of the lease, with the expectation that he would become its eventual owner. But the owner sold the property to a third partyprompting his neighbor to file a lawsuit, saying he had the right to purchase the farm.

At the trial, the jury awarded the farmer $52,000 in damages to cover the improvements made to the property. Eventually, the case found its way to the Iowa Court of Appeals, which ruled that the option for the farmer to purchase the farm did not need to be included in the written lease agreement to be valid. The court stated that there was a clear and definite promise along with the neighbor’s understanding that the farmer was relying on that promise. As such, the property owner was ordered to pay the farmer damages.

The Bottom Line

Common law is a legal system that is based on judicial precedents rather than statutes. One of the principles of common law is estoppel. Although it may seem complicated, estoppel ensures that one party doesn’t unfairly damage another by going back on their word. That means that someone can’t legally take back something that they’ve promised to another party. This is especially true if one person’s actions do harm to another.