Legal Principles and Key Points
- In the case of Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd  2 All ER 657, the House of Lords ruled reasonable notice can overturn a legally binding promise.
- This contract case concerned penalty clauses, promissory estoppel and consideration.
Facts of the Case
- C gave a licence to D to produce metal alloys. D had to pay extra when the production increased.
- C did not request for the payment of 30% due to the war but asked for it when the war ended. D failed to claim that there was fraud.
- In the lower courts, C claimed for the payment but it was held that this price could not be recovered since intention of legal relations wasn’t properly stated to D.
- Has sufficient notice been given to enforce the payments?
- Does promissory estoppel apply?
Held by House of Lords
- Appeal allowed – C did give reasonable notice that he intended for the original contract terms to stand hence D owed the 30% payment.
- A continuing promise regarding contractual obligations ends a variation through sufficient notice. The judge relied on Canadian Railway Co v The King  A.C. 414 as authority to support this conclusion.
- “After the lapse of a reasonable time to enable TECO to make the necessary adjustments in the conduct of their business compensation would be payable without the necessity for further action by T.M.M.C. But our observations on that point must be regard as obiter since once we came to the conclusion that (1) some positive action by TECO determining the temporary arrangement was required, and that a reasonable time must be allowed to enable TECO to adjust their position after that action had been taken before T.M.M.C. could enforce their strict legal rights, and (2) as no such positive action had been taken before the delivery of the counterclaim, the counterclaim so far as compensation was claimed must necessarily fail.”
Viscount Simonds (dissenting)
- “Equity demands that all the circumstances of the case should be regarded, and I think that the fair and reasonable view is that TECO could not, after they had received the counterclaim, regard themselves as entitled to further indulgence.”
- “Equity is not held in a strait-jacket. There is no universal rule that an equitable arrangement must always be determined in one way. It may, in some cases, be right and fair that a dated notice should be given.”
- Contractual rights can be temporarily halted by the principle of promissory estoppel but these rights exist and should be fulfilled following Hughes v Metropolitan Railway Co  2 App. Cas. 439.
- This case shows the scope of promissory estoppel and how it seeks to both suspend and extinguish rights when it comes to continuing contracts with no fixed dates regarding fulfilling certain obligations.