#10995 - Alternatives To Contract - Contracts

Alternatives to Contract: Promissory Estoppel and Unjust Enrichment

A. Promissory Estoppel

1. The basis for enforcing a promise under the doctrine of promissory estoppel is simple enough: the plaintiff alleges that the defendant made and failed to keep a promise that she should have reasonably expected the plaintiff to rely upon, the plaintiff did indeed rely to her detriment, and she should recover back her lost reliance expenditures from the defendant.

2. As Restatement (second) 90 makes explicit, the doctrine of consideration is no longer the sole way of distinguishing enforcement-worthy promises from others. Courts have expanded the set of enforceable promises to include those that are based on reliance—that is, they have ruled that promises may be enforced if the promisee has incurred costs, or conferred benefits, on the reasonable expectation that the promise would be fulfilled. No need to identify a bargained-for exchange. It’s a more expansive theory of contract.

3. §90 - A promise which the promisor should reasonably expect to induce action or forbearance of definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

a. There was a promise

b. The promisor should have reasonably expected that the promise would cause reliance.

c. Reliance.

d. Prevention of injustice requires legal enforcement of the promise (formality of the promise, reasonableness of reliance)

4. No estoppel: Haase v. Cardoza (1958) – The defendant agreed to send the plaintiff $10,000 in monthly increments of $50, but stopped after eight months. The judge ruled that the P did not satisfy the doctrine of promissory estoppel because she could not demonstrate that she had relied on the promise. There was no change of financial position induced by the promise.

5. Estoppel: Ricketts v. Scothorn (1898) – D gave P, his granddaughter, a note for $2,000 w/6% interest and told her that none of his grandchildren should have to work. D died before he was able to pay this amount, and P sued his estate, claiming that she had quit her job in reliance on this promise. The court held that this was an enforceable promise because D should have realized that the promise would cause reliance (in fact, this was his intent), and the P could demonstrate reliance (lost wages).

B. Promissory Estoppel in the Employment Context

1. Estoppel: Feinberg v. Pfeiffer Co. (1959) – At an annual meeting of the Board of Directors, the D (Board) decided that as a reward for her lifetime of service, P’s salary would be increased, and upon retirement, she would receive a pension of $200 a month for the rest of her life. P worked for over a year after this announcement was made, but eventually retired. D initially paid the promised amount, but after a certain amount of time, it began to reduce its payments. P refused to accept this. The court held that D’s promise was enforceable because D should have expected that its promise would cause reliance and P’s decision to retire was indeed induced by D’s promise.

2. No Estoppel: Hayes v. Plantations Steel Co. (1982) – P announced his intention to retire well before he actually did. About a week or so before his retirement date, a representative of D met with him privately and said that the company would take care of him, though specifics were not given. D initially did pay P a pension, though this stopped after D underwent a change in management. A court held that D’s promise was not enforceable because P’s decision to retire was not induced by D’s promise. The promise was unspecific and not very formal, so relying on it was not reasonable. Hayes’s coming to the office every year to confirm that more money would be coming indicates that even he didn’t believe that the promise was reasonable.

C. Promissory Estoppel in Preliminary and Incomplete Negotiations

1. No Estoppel: Coley v. Lang (1976) – D and P had entered negotiations for D to buy P’s company. Negotiations broke down, and P claimed that he had lost $7,500 as a result of his reliance on D’s promise. The plaintiff was not able to show any definite reliance on the promise. He could show that he missed opportunities to bid on two contracts, but there was no evidence showing that he would have likely been the lowest bidder.

2. Estoppel: Hoffman v. Red Owl Stores, Inc (1965) – D told P that $18K would be sufficient to set up a Red Owl store. With the active encouragement of D, P sold his bakery, bought and sold a small grocery store to gain experience, bought land in a neighboring town, and moved to the town. All this took place over three years, during which D steadily maintained its promise that a franchise would be offered once all conditions were met. When D upped the price to 34K, P pulled out and sued. Court ruled in P’s favor, holding that D’s representations induced P to take the steps that he did. It did not matter that D’s offer was insufficiently detailed to be considered a true contract.

Note: Perhaps the disparity in sophistication also helps to distinguish this decision from that in Coley. There are a number of contexts in which judges take the sophistication of the bargaining parties into consideration, so it is not inconceivable that it was a factor in this case.

Counter: D told P what he needed to do to open a Red Owl, but never actually said that if he did it, he was guaranteed a Red Owl. He was just informing him of the requirements.

D. Promissory Estoppel and the Statute of Frauds

1. Original statute of frauds was intended to limit the enforceability of certain kinds of oral contracts, especially contracts for the sale of land and goods, suretyship contracts, and those obligations whose performance requires more than one year. The use of promissory estoppel to circumvent the statute of frauds is an important and relatively recent development. It’s also quite controversial.

2. Estoppel: McIntosh v. Murphy (1970) – D offered P a job at his car dealership in Honolulu. P accepted and made a number of financial commitments related to this acceptance, including leasing an apartment, moving his possessions, and foregoing any other employment opportunities. P was fired two months later on the grounds that he wasn’t a very good employee. After P sued, D claimed that the contract could not be performed within a year and therefore wasn’t enforceable due to the Statute of Frauds. The court disagreed, holding that when one party’s promise induces the other’s reasonable reliance, the contract can be enforced notwithstanding the Statute of Frauds if that is required to prevent injustice.

3. No Estoppel: Schwedes v. Romain (1978) – P verbally accepted D’s offer to sell a tract of land, then started to finalize the details with D’s attorney. D’s attorney gave them every indication that the deal had gone smoothly, but D ended up selling the land to a third party. The Statute of Frauds limits the enforceability of oral contracts for the sale of land. The P’s admitted that they had not invested any money into the land or paid D, but they had obtained financing and made studies of the property. The court held that this was not sufficient to overrule the Statute of Frauds. Obtaining financing and making studies are acts undertaken in contemplation of performance and not actually performance. Promissory estoppel can only suspend the...