Promissory Estoppel and Detrimental Reliance

Promissory estoppel serves as a “consideration substitute” in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisee’s reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promissor from denying the existence of a contract for lack of consideration.

Legal Principles

Restatement (Second) of Contracts §90 – Promise Reasonably Inducing Action or Forbearance

(1) 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.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Elements

In general, the elements of promissory estoppel are:
1) a promise reasonably expected by the promissor to induce action or forbearance,
2) action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”), and
3) injustice can be avoided only through enforcement of the promise.

Remedy

The available remedy is usually limited to only that which is necessary to avoid injustice.

Charitable Subscriptions

Allegheny College v. National Chautauqua County Bank: Johnston promised to pay the college $5,000 if it would use the money to establish a memorial in her name. She later withdrew the promise. The court held that the promise to create the memorial created a binding and enforceable contract.

Congregation Kadimah Toras-Moshe v. DeLeo: DeLeo died before fulfilling his oral promise to donate $25,000 to the Congregation. The court held that the promise was not enforceable because DeLeo did not ask or expect to receive anything in return. The mere expectation of using the funds to create a library did not amount to detrimental reliance. While charitable subscriptions may be enforced despite a lack of consideration or reliance it is not an absolute requirement.

Salsbury v. Northwestern Bell Telephone Co.: Defendant promised to give $15,000 to the college. The college was later closed and the trustees sought to recover the pledge. The court held that the promise was binding. Pledges to charity are enforceable via promissory estoppel without a showing of detrimental reliance.

Employment

Alaska Democratic Party v. Rice: Rice made an oral agreement to accept a position as executive director of the Alaska Democratic Party. After she moved to Alaska she was informed that she did not get the position. The court applied promissory estoppel to remove the contract from the Statute of Frauds, not as a consideration substitute. See McIntosh v. Murphy.

Feinberg v. Pfeiffer Co.: An employee retired in reliance upon her employer’s promise to pay her a pension. The employer later sought to reduce the amount of the pension. The promise was held to be enforceable based on promissory estoppel but would not have been enforceable under plaintiff’s alternate past consideration argument.

Hayes v. Plantations Steel Co.: An employee discussed a pension with his employer after announcing his retirement. The employer stopped paying the pension after three years. The court held that the promise was not enforceable because the plaintiff did not retire in reliance on the contract.

McIntosh v. Murphy: Plaintiff made an oral agreement with defendant to work at his auto dealership in Hawaii for one year. He was fired after two months. The court held that where a party has relied on an oral promise and rendered part performance the other party is estopped from asserting the Statute of Frauds. In this case promissory estoppel is used to remove a contract from the Statute of Frauds rather than as a consideration substitute. There was valid consideration to support the contract in this case. See Alaska Democratic Party v. Rice.

Franchises

Goodman v. Dicker: The defendant encouraged the plaintiff to apply for a franchise and induced him to incur expenses in hiring salespersons etc. Plaintiff ultimately did not get a franchise. The court held that promissory estoppel rendered the contract enforceable and the plaintiff was entitled to reliance damages. If a party has detrimental reliance on the affirmative assurances of another, the promissor is estopped from alleging anything contrary to the natural consequences of his own conduct.

Hoffman v. Red Owl Stores, Inc.: Plaintiff sold his bakery and invested significant time and expense in reliance upon Red Owl’s assurances that he would be granted a franchise. He never received the franchise and sued to recover for his expenses. The court ruled for plaintiff on the basis of promissory estoppel. Damages were only as necessary to avoid injustice and could not exceed actual loss.

Gratuitous Promises

Alden v. Presley: Presley promised to pay for his girlfriend’s divorce including the property settlement and to pay off her mortgage. Presley died soon thereafter and the plaintiff sued when his estate refused to pay. The court found for the estate. The estate had refused to pay before the settlement agreement had been approved by the court. Plaintiff’s reliance was not reasonable because the amount of the property settlement was not binding until approved by the court.

Devecmon v. Shaw: The plaintiff took a trip to Europe in reliance upon his uncle’s promise to reimburse him. Evidence of the uncle’s promise to pay for the trip was admissible and it was irrelevant that the trip benefited plaintiff. The court entered judgment for the plaintiff, finding that the plaintiff had detrimental reliance on the promise and that promissory estoppel rendered the promise enforceable.

Greiner v. Greiner: The facts are similar to Kirksey v. Kirksey with the opposite outcome. Greiner left his homestead in reliance on his mother’s promise to give him 80 acres of land near her. She later tried to have him ejected. The court ruled that promissory estoppel rendered the promise enforceable.

Kirksey v. Kirksey: The plaintiff left her home in reliance on a promise made by the brother of her deceased husband to provide her with a place to live. He later demanded that she leave. The court did not apply the doctrine of promissory estoppel and held that the promise was not enforceable. The dissent stated that her loss and inconvenience constituted sufficient consideration to render the promise enforceable.

Ricketts v. Scothorn: A grandfather’s promise to give his granddaughter $2,000 to enable her to stop working was held enforceable. A promise can be enforced without consideration if there has been detrimental reliance on the part of the promisee.

Option Contracts

Berryman v. Kmoch: Berryman gave Kmoch an option contract for real estate in exchange for ten dollars which was never paid. Berryman sold the property before the option expired. The court held that the contract was valid. Option contracts must be supported by consideration, but promissory estoppel applies to such contracts.

Subcontractor Bids/Construction Projects

Drennan v. Star Paving Co.: This decision by the Supreme Court of California is the majority rule. The facts are similar to Baird v. Gimbel Bros. with the opposite outcome. Acting in justifiable reliance on a subcontractor’s bid is sufficient to render the bid irrevocable for a reasonable period of time. The contractor must not have reason to believe that the subcontractor’s bid was made in error.

James Baird Co. v. Gimbel Bros. Inc.: This case is the minority rule. Defendant submitted a subcontractor bid which the plaintiff relied upon in calculating the general contract bid. Defendant realized that it had miscalculated the bid and attempted to withdraw it. Plaintiff was awarded the general contract and sued for damages when defendant refused to perform. The court found for the subcontractor. Promissory estoppel does not render a subcontractor’s bid irrevocable even where the contractor has relied upon it in submitting a bid for a general contract.

Miscellaneous

Pop’s Cones, Inc. v. Resorts Intern. Hotel, Inc.: Defendant gave assurances that it would lease space for a yogurt shop to the plaintiff. Plaintiff terminated its lease in another location and sued when defendant withdrew its offer. The court held for plaintiff under promissory estoppel, applying a relaxed standard regarding the requirement that there be a “clear and definite promise”.

Wright v. Newman: Wright was listed as the father on Newman’s child’s birth certificate, gave the child his last name, and established a parent-child relationship. DNA tests subsequently demonstrated that he was not the father. The court held that he was obliged to pay child support via promissory estoppel.

Ypsilanti v. General Motors Corp.: General Motors sought and received tax abatements to induce it to continue operations in Ypsilanti. Ypsilanti sued when General Motors later decided to relocate its production. The court found for General Motors. The law of promissory estoppel requires that a party’s actions be induced by a clear and definite promise. There is no promise where a corporation solicits a tax abatement and persuades a municipality with assurances of jobs.

Note

This term is occasionally misspelled as “promisory estoppel”.


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