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Review Your SQE 1 Practice Records

Examination Timing: 00H00M01S

In January, a restaurant owner enters into a contract for a five-year loan with a bank. The repayments are £3,000 a month. In June, he is unable to keep up with the payments and is worried that the restaurant will have to close. He informs the bank of his financial problems and promises the bank that if it agrees, he will pay £1,000 per month for the next 24 months. The bank agrees and he starts to make the new payments. In July, the restaurant owner pays a decorator to repaint the restaurant to make it more attractive to potential customers. In August, the bank demands an immediate return to the earlier agreement under which monthly payments of £3,000 are due.

Which of the following statements best describes whether the bank’s demand is enforceable?

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The principle of promissory estoppel prevents a party from going back on a promise that the other party has relied upon to their detriment. In this case, the restaurant owner relied on the bank's promise to accept lower payments and acted accordingly, such as by redecorating the restaurant. Therefore, the bank cannot demand an immediate return to the original terms without giving reasonable notice. 

Key Point: Promissory estoppel can prevent a party from reneging on a promise if the other party has relied on it to their detriment, thus requiring reasonable notice before changing the terms.

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