Promissory estoppel arises when one party makes an oral promise to another party who relies on that promise and suffers some damage as a result.
Under New York law, the elements of promissory estoppel are a clear and unambiguous promise, reasonable and foreseeable reliance by the party to whom the promise is made, and an injury sustained in reliance on that promise.
As in the case of waiver, the New York statute governing no oral modification clauses does not preclude a claim of promissory estoppel against a party seeking the benefit of a no oral modification clause.
So if one party to a written agreement makes an oral promise to the other party that effectively modifies the agreement, and the other party reasonably relies on that promise to his detriment, he may have a valid claim based on estoppel. This is true even if the written agreement contains a no oral modification clause.
However, when a claim of promissory estoppel is being used to overcome the requirement for a written agreement required by statute (such as the New York statute governing no oral modification clauses), the injury suffered by the party claiming estoppel must be extraordinary or, to use the word applied by the courts, “unconscionable.” Some courts have said that the injury or damage must be “beyond that which flows naturally from the non-performance of the unenforceable agreement.”
Even if all of these elements are satisfied, a claim of estoppel still may not succeed in the face of a no oral modification clause. Reliance on the oral promise by the party claiming estoppel must be reasonable. And it may be difficult to prove reasonable reliance on an oral promise in cases where the parties have agreed in advance that oral promises would not be sufficient to modify the contract.
In the 2011 case of Amalgamated Bank v. Fort Tryon Tower SPE LLC, the court found that the defendant’s reliance on the plaintiff’s oral promise was not reasonable because the document in question contained a no oral modification clause.
Therefore, the claim of estoppel, though not precluded by the statute governing no oral modification clauses, was defeated in the face of such a clause because the element of reasonable reliance could not be established.
Next week, we look at the doctrine of equitable estoppel.