Promissory Estoppel

Question 1

Elements of promissory estoppel:

Answer 1

(1) Promise

(2) Reasonably expected to induce reliance

(3) Reasonable reliance to detriment of the promisee,

(4) Injustice can only be avoided by enforcement

Question 2

Drennan v. Star Paving Co.

GC/Sub

Answer 2

While bidding on a school building – P solicited bids for subcontractors. Using D’s bid, P was awarded general contract. D then about-faced and said it needed $15,000. D refused to do work, P found substitute work that did it for $3,000 more than D original bid.

HOLD: Reasonable reliance on a promise binds the offeror even if there is no other consideration. Offeror bound if there is reasonable reliance to P’s detriment.

Because the P relied to his detriment on the D’s offer, and the D made P want to do this by offering the lowest bid, D was responsible for P’s reliance.
No consideration; however, relying in detriment triggers promissory estoppel.
If someone does something they know/should know that someone would have relied on, the offer will be treated as an option contract.
Who is the economic loss to be imposed on?

Offeree, if the offer was so obviously low that they should have known it was a mistake.

Offeror, if the offer was reasonable and offeree relied on it to his detriment.

Question 3

Distinguish

Drennan v. Star Paving Co.

&

Baird

Question 4

Goodman v. Dicker

(franchise agreement for radios)

Answer 4

This case created a new COA = eqit estop based on reliance

D promised to supply P with radios under franchise agreement with Emerson. P were told that franchise would be granted and were induced to incur expenses to doing business. No radios were delivered and notice was later given that the franchise would not be granted.

HOLD: Justice and fair dealing require that one who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted. However, just reliance damages, not expectation.

Question 5

One of the few instances where a court will use promissory estoppel is _______

Answer 5

Construction Bids

Question 6

EXAM NOTE: Before you can get to promissory estoppel, you must use what analysis?

Answer 6

Q1: What is the promise we are trying to enforce?

Q2: What is the consideration proffered in support of - either return promise or performance

Q3: Was consideration bargained for?

Question 7

Hoffman v. Red Owl

Answer 7

Hoffman v. Red Owl

P owned and operated a bakery; D said go get a franchise with D. P bought grocery store to gain experience. D advised P to sell store and bakery, assured that D would obtain larger store for him in another location. P placed deposit. P informed D that he only had $18K, D said that was enough. D said deal could be completed for $26K. FIL got involved, loaned in $13K for partnership interest; D said father-in-law had to sign proposal saying this was a gift. P declined.

HOLD: Purpose of promissory estoppel is to prevent injustice. Proper estoppel for selling bakery building in reliance of the D’s negotiations, and the rent that P paid upon relocation. Losses incurred by P’s on sale of grocery business should be limited to actual loss suffered.

Question 8

Hoffman v. Red Owl

fact pattern

Answer 8

1. promissory type representations - not committed like a promise. (No promise to enforce, so don’t worry about consideration)
2. representations made w/the expectation that the other party will rely on them
3. repeated representations/reliance
4. multiple reliances - repeated change of position based on reliance of representations
5. was the reliance reasonable? were the acts consistent with the nature of the representations?
6. do we need to compensate to avoid injustice

Question 9

Promissory Estoppel is

Answer 9

Equitable Doctrine that allows court to enforce contract / promise where there would otherwise be some issue

• PE is designed for gratuitous promises where no bargain is contemplated!
• If a bargain IS contemplated, but the agreement breaks down….. court can’t fix it with promissory estoppel.

Question 10

Rule (RST § 90): Promissory Estoppel

Answer 10

** A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.**

• The remedy granted for breach may be limited, as justice requires - usually reliance damages

Question 11

Development of PE

Answer 11

Originally, promissory estoppel was used as a substitute for consideration

As it develops, many courts use promissory estoppel as an independent cause of action for detrimental reliance

Question 12

PE as Substitute for Consideration

Comes to the rescue in the case of:

Answer 12

**A party’s reliance on the promise of another to their detriment is a substitute for the consideration lacking in an agreement. **

Comes to the rescue in the case of:

• A gift being promised (Ricketts v. Scothorn)
• Promises to convey land (Greiner)
• Promise of a pension (Feinberg)
• Construction Bids (Drennan): Detrimental reasonable reliance on a subcontractor’s bid by a general contractor makes the subcontractor’s bid irrevocable…in other words, detrimental reliance is the consideration for creating an option contract.

Question 13

PE as Independent Cause of Action/Alternative to BOK

Answer 13

As doctrine of promissory estoppel is used more and more, courts begin to allow promissory estoppel as an independent cause of action based on detrimental reliance to protect parties when there is a breakdown in a bargain.

• Courts typically allow reliance damages in this case, rather than default expectancy damages.
• **In these cases, we will look for a situation where parties are heading towards agreement but never get there, and one of the parties accrues expenses in reliance on the agreement being completed. **

Question 14

PE Analysis

Answer 14

Analysis Steps:

• *1.) Identify the Promise
  2. ) Promisor must reasonably expect to induce an action or forbearance of action**

(*must have a connection between the detriment and the promise*)

3). It does induce the action, which is reasonable

(1) zone of expectation and (2) strength of commitment

4.)If injustice can only be avoided by enforcing the promise.

Consider promisee’s position AND if promisor had a good reason to break the promise
Examples: Land is unique, so that would create an unjust situation.The lady who retired is now old and ill.

Remedy must be adjusted as necessary. Something less than complete enforcement may be sufficient to avoid injustice

Question 15

Promise giving rise to this cause of action has to be one that _____.

Answer 15

Promise giving rise to this cause of action has to be one that would reasonably be expected to induce action or forbearance on the part of the promise

Blatt v. USC: There was no promise that he would get in the Order of the Coif, just that he would be eligible…so there is no promise to enforce.

Spooner v. Reserve Life Insurance: There was no promise to be enforced because the company said the bonuses were a voluntary contribution that could be withheld if the company felt like it.

Alden v. Vernon Presley: It was not reasonable for her to rely on the promise because she filed for divorce after she knew the estate would not pay for it.

Question 16

Promise Expected to Induce Reliance

Rule: Promise has to be _______.

Answer 16

Rule: Promise has to be clear and definite, rather than simply statements of puffery/salesmanship

Ypsilanti v. General Motors: representations from the company that the plant would keep jobs there was not a promise because it was mere puffery/salesmanship…context matters if you are going to try and establish representations as promise.
Note: For a statement to be a promise under PE, it does not have to rise to the level of something that would be considered an offer (complete, selective, etc.)

Question 17

Blatt v. University of Southern California

(law school Order of the Coif)

Establishing the Promise of a Definite and Substantial Character:

Answer 17

P graduated from USC Law School; claimed that USC and the Order of the Coif – represented that upon achieving top 10%, P would be qualified for election into D. Not selected for membership because he declined Law Review. P sued claiming that D breached promise.

HOLD: The action or forbearance must be definite and substantial in character in order to invoke the doctrine of promissory estoppel. P argued that he detrimentally relied on D’s representation by spending additional time and effort. Behavior does not rise to the level of relief. Furthermore, promise was for eligibility, not admission; therefore, it was fulfilled.

Question 18

Spooner v. Reserve Life Ins. Co.

(bonuses for salesman)

Indefinite Promises

Answer 18

D issued a bulletin introducing implementation of a bonus renewal program; under the program, D represented that at the close of 12 month period, bonuses would be distributed on average amount of business generated by each employee; D reserved right to increase, decrease, withhold, or terminate program at any time. P filed suit to recover payments.

HOLD: Where a party extends a promise that is wholly illusory, and the promisee acts to his detriment based on that representation, no enforceable contract exists. Illusory promise one that is so vague as to its terms as to render the promise unenforceable. A genuine promise must first exist. Express reservation of withholding payments = illusory.

Question 19

Ypsilanti v. General Motors

(tax abatement for GM)

What is a promise?

Answer 19

D and P entered into agreements in 1984 and 1988 creating tax abatement. Promotion of employment and industry in the community. Abatement approval was made in conjunction with promise of projects that would create jobs. D decided to shift production to another city in 1992; wanted to cease operations in plant completely.

T.C. HOLD: Enforce the promise that the promisor should have expected would elicit action or forbearance on the part of the promisee, which actually produces such action or forbearance (granting the abatements). Detriment = forgone taxes, lost jobs.

App. Ct. HOLD: Injured party must rely on articulation of a definite promise. T.C. erred in that the promise was not definite; solicitation of a tax abatement and assurances made in respect thereof does not give rise to an enforceable promise. Representations are D’s efforts to portray operations in most favorable manner (advertising). Projections were merely hopes of future production.

Question 20

Alden v. Vernon Presley

Reasonable Reliance

Answer 20

The King had a relationship with P’s daughter; he gave many gifts to P’s family. Upon learning that P wanted to divorce husband, Elvis agreed to pay divorce expenses, including payment of mortgage on residence. P filed for divorce, paid her husband for share of house, and released him for further liability. The King died, P was informed that it would not pay the mortgage.

HOLD: In order for promissory estoppel to apply, P must demonstrate that injury was substantial, l_oss was foreseeable to the promisor_, and P justifiably and reasonably relied to his detriment. P entered into the property settlement agreement after knowing that D’s estate would not pay. Therefore, promise did not induce her to assume liability.

Question 21

Injustice

Answer 21

Why the promise was broken is an important part of the injustice element. Was there a good reason to break it?
Cohen v. Cowles Media Co.: The reporters/editors had never broken a promise of anonymity before. It is considered immoral and wrong. They only did it because it made for a good/newsworthy store. More exciting
No good reason! It would be unjust not to enforce it.

Question 22

Promissory Estoppel is ______.

Answer 22

An offensive action of asking for compensation for detrimental reliance on a promise even if there was no consideration

Question 23

Promissory Estoppel is designed for

Answer 23

for gratuitous promises where no bargain is contemplated

NOTE: If a bargain IS contemplated, but the agreement breaks down….. court can’t fix it with promissory estoppel !!

Question 24

PE Analysis

Answer 24

(1) Identify the Promise

• *(2) Promisor must reasonably expect to induce an action or forbearance** (*must have a connection between the detriment and the promise*)
• *(3) Reliance to the detriment of one party**

(1) zone of expectation and (2) strength of commitment
(4) If injustice can only be avoided by enforcing the promise.

Consider promisee’s position AND if promisor had a good reason to break the promise
EX: Land is unique, so that would create an unjust situation. The lady who retired is now old and ill.

• Remedy must be adjusted as necessary
• Something less than complete enforcement may be sufficient to avoid injustice

Question 25

**Rickets v. Scothorn **

Grandfather gives $ so granddaughter doesn’t have to work

Answer 25

F: grandfather doesn’t want granddaughter P to work, promises her money. P quits job and relies on money. He dies, estate D refuses to pay rest of note.

I: was the promise a gift for want of consideration?

H: not exactly, because U should have known (indeed he intended) that his promise would induce P to act, which she did. Reasonable reliance on promise to her detriment and injustice can only be avoided by enforcing promise. No consideration but promissory estoppel

Question 26

Reasonable Reliance

Rule:

Answer 26

Rule: Promise has to reasonably induce reliance and that reliance must have occurred to the promisee’s detriment.

• To show reliance was reasonable, we have to show the causal relationship between the promise and the reliance…reliance has to match expectations.
• No injustice results in refusal to enforce a promise where the promisee’s action in reliance was unreasonable or unjustified by the promise.

Question 27

Ypsilanti v. General Motors,

tax abatement for keeping company in town

“Reasonable Reliance”

Answer 27

F: GM mfr pulls out of town of Ypsilanti after given tax abatement by town before it was expected to

I: Did GMs statements and conducts constitute a promise to maintain a plant in town if town continued to offer it tax abatements?

LC: lower court believed that there was a promise if town gave tax abatement, GM would maintain shop there, promise was relied on to their detriment by town and there would be injustice to Ypsilanti for giving up $$ and having GM desert them.

HC: **cannot invoke promissory estoppel because there was no promise. GMs statements were mere sales “puff” and expressed hopes and expectations not promises. Also, since there is proof of hesitancy on side of D, cannot say the reliance on alleged promise was reasonable. **

Question 28

Cohen v. Cowles Media Co.

reporters/editors had never broken a promise of anonymity before

Why the promise was broken

Answer 28

Why the promise was broken is an important part of the injustice element. Was there a good reason to break it?

The reporters/editors had never broken a promise of anonymity before. It is considered immoral and wrong. They only did it because it made for a good/newsworthy store. More exciting. No good reason! It would be unjust not to enforce it.

Question 29

PE as a COA when there is a breakdown in a bargain.

Basic Fact Pattern

Answer 29

1) You have a series of promissory representations: imprecise, somewhat vague
2) Promisor should expect the other party to rely on them
3) Reliance (tends to be a creeping of reliance – steps) (bit by bit, more and more reliance) Must be reasonable!
4) Is there injustice?
5) Damages = Reliance = compensate for change in position

Question 30

Equitable Estoppel

Answer 30

• A party may be precluded by his acts and conduct from asserting a right to the detriment of another part who, entitled to rely on such conduct, has acted upon it
• in other words, if you said it was true and this person relied on that, we’re not gonna allow you to claim something different in court.

Question 31

§ 90 A promise is binding if:

Answer 31

(a) there is an inducement by promisor reasonably expected to produce an action or reliance (reasonably foreseeable to the promisor that promisee would rely on the promise); and
(b) action or reliance actually takes place (actual reliance in a reasonable way); and
(c) that action leads to some detriment on the part of the promisee; and
(d) injustice cannot be avoided without enforcement of the promise.

Question 32

Factors that help to determine reasonableness:

Answer 32

1. credibility of promisor/promise
2. that the reliance was definite, substantial, and in relation for the remedy sought
3. formality with which the promise was made
4. (negotiations context - are there extraneous factors that could kill the deal?)

Question 33

PE Measure of damages

Answer 33

• Questions of damages is unclear with respect to PE – reliance or expectation?
• according to doctrine, court can only give reliance damages because PE is built around notion of reliance
• restitution may be available if he has conferred something of value to D
• modern trend towards awarding expectation damages unless lost profits involved are too speculative pr uncertain
• expectation damages more likely in cases where promisor acted in bad faith

Question 34

Feinberg v. Pfeiffer Co.

retirement pension for life promised

Answer 34

F: P worked for D for 37 years at which time D promised her a retirement annuity of $200/month for life. D worked for 2 more years then retired. D paid for 7 years then had a change in mgmt and cut payment down to $100, when P sued.

I: is D liable for the payments even if there is no consideration?

H: yes. D should have known that P would have relied on the promise and knew that in fact she did (and did not seek other employment). Other elements met.

Question 35

Allegheny College v. Nat’l Chautauqua Cty Bank

(endowment for fund in D’s name)

Answer 35

F: D stipulated money to school for creation of endowment in her name. P advertises that D gave money for use. D repudiates promise after making one payment and dies.

I: Whether a charitable subscription is enforceable

R: Not PE but actual consideration – D immortalized in endowment in exchange for $

Dissent: note was a gift, or a unilateral contract. P had not performed stipulations and D has not yet been unjustly enriched so no contract.

Question 36

James Baird v. Gimbel Bros.,

Commercial

subcontractor errs in estimate relied on by GC

Answer 36

F: SC mistaken in estimate, GC relied on SC in making its own bid, wins contract. SC balks prior to winning bid and GC forced to find substitute SC. Seeks difference in bid $.

I: Whether an unbargained for reliance should prevent the withdrawal of an offer

R: court cites ways to make a promise irrevocable:

1._ when someone relies on promise to their detriment_ (promissory estoppel) 2. a firm offer (given without consideration) 3. when offer has been accepted (contract formed) 4. _option contracts with consideration _5. option contracts under §45, p. 422

R: court cites three ways to look at SC’s offer:

1. offer revocable until post-award acceptance view taken by court
2. offer becomes irrevocable after GC submits bid
3. bilateral contract formed by the bid (promise/acceptance of promise)

H: court believes promissory estoppel does not come into effect in this case because reliance wasn’t reasonable and says offer’s language is explicit in that acceptance could only come after the contract was awarded. Since SC revoked prior to GC winning bid, there was no contract to enforce.

Note: parties could avoid the problem by negotiating an explicit option contract.

Question 37

Difference between

Baird and Drennan

Answer 37

Offer-acceptance theory in Baird offers greater protection to SubK, whereas PE in Drennan offers greater protection for the GC.

Question 38

Drennan v. Star Paving

misquoted SC estimate, GC wins bid on estimate

Answer 38

F: Subcontractor D quoted a price for paving to general contractor P, then realized after P had won the contract that the quote was off, and tried to revoke.

I: was there reliance by P on D to make the offer irrevocable?

H: yes, in a unilateral contract D should have foreseen that the quote would induce reliance by P in an expected and reasonable manner. It did, and it is only fair that P should have the chance to accept. Awards expectation damages under §87.

Question 39

Views on damage rewards

Williston v Corbin

Answer 39

Williston view: Usual contract remedies should be applied, doesn’t matter if it’s a breach or reliance kind of contract

Corbin view: Only reliance interests rewarded.

Question 40

Quantum meruit

Answer 40

An implied in law contract, or a quasi-contract

Acts of the parties must be voluntary. Requires:

1. no offer and acceptance (i.e. not a contract), no express promise
2. benefit conferred upon x by y,
3. appreciation by y of such benefit, and
4. retention by D of such benefit in a way that results in unjust enrichment

neither promise nor privity must exist, either real or imagined. Obligation arises from the “law of natural immutable justice and equity”, and not from the facts or consent.