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Contracts II
Stetson University School of Law
Fitzgerald, Peter L.

Contracts II Outline- Fitzgerald – Spring 2010
Promissory Estoppel
1) An Overview of Promissory Estoppel
a. The Origins and Nature of Promissory Estoppel as a Theory of Recovery
i. Protects a promisee who has relied to his detriment on the promise, even though consideration or other elements of enforceability may not otherwise be present.
ii. When consideration is present, usually don’t need to resort to PE
iii. Largest application is in non-reciprocated promises
1. Usually consideration doctrine, policies favor the gratuitous promisor that rescinds their promise over the promisee
2. There may still be a legal detriment that the promisee suffered that was not bargained for, thus lacking consideration
a. Thus the promisor, may be held accountable, under the theory of PE when a promisee justifiably relies on his promise
iv. Equitable estoppel
1. A theory used by the courts that is used against defendants that deliberately misstate or conceal material facts to get the plaintiffs to take certain actions
a. If the plaintiffs proceed forward, relying on the misstatements, the courts do not allow the defendants to change their story
b. Front door v. back door theories
i. Front door (classic bargain theory)
1. Offer + acceptance + (fix the consideration problem with PE) = K
2. Allows reliance (PE) to be substituted for consideration as the basis for enforcing a promise
a. Restatement § 17 -Requirements of a bargain
i. ….the formation of a contract requires a bargain in which there is a manifestation of assent to the exchange and a consideration.
b. Restatement § 71 – Requirements of an Exchange
i. To constitute consideration, a performance or a return promise must be bargained for.
ii. A performance or a return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
iii. The performance may consist of
1. an act other than a promise, or
2. a forbearance, or
3. the creation, modification, or destruction of a legal relation.
ii. Back door (PE)
1. Different theory altogether
2. Drop out the offer + acceptance portion and bring in only PE
2) Restatement § 90 Promise Reasonably Inducing Action or Forbearance – PE
a. A promise which the promisor should 1reasonably expect to induce action or forbearance on the part of the promisee or a third person and 2which does induce such action or forbearance is 3binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires
b. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance
i. This is just an outlined approach
ii. It provides a framework that the courts follow, it is NOT exclusive
iii. 1st look to classic bargain theory when doing your analysis
1. Was there and offer + acceptance + consideration?
2. DON’T FORGET – Gratuitouspromises are generally unenforceable absent consideration (Congregation v. DeLeo)
iv. Then move onto PE
1. Run through the PE analysis
v. PE looks at what happened AFTER the bargain
1. Classic bargain theory does not provide for this
3) Promissory Estoppel and Non-Commercial Promises
a. Courts usually resist harsh application of the rule and allow enforcement of the promises
4) Promissory Estoppel in the Commercial Context
a. Earlier cases
i. Did not enforce PE doctrine because commercial promisors seldom intend to be bound unless exchanges are contemplated (and there is consideration)
ii. Promisees rely at their own risk
1. Therefore, given the commercial context, and money motivations, reliance is seen as unreasonable
iii. Promisees who want legal protection should have entered into a contract with consideration
b. Is very rare in the commercial context
c. Traditional bargain theory is most prevalent
d. The theory of PE in the commercial context changes on a case by case basis
e. Promissory Estoppel and Commercial Promises
f. Promissory Estoppel in Commercial Negotiations
i. Ay be entitled to reimbursement of the losses suffered
ii. Goes Hand in hand with agreements to bargain in good faith
iii. In the commercial context, the doctrine of PE is not that the plaintiff reasonably relied on the defendant’s promise, but that he reasonably relied on its BEING a promise in the sense of a legal commitment, not just a mere prediction or aspiration (Garwood Packaging, Inc v. Allen & Company, Inc)
1. Usually a question of fact for a jury to decide, and should not be resolved in a summary judgment proceeding
Agreements to Bargain in Good faith
1) Whether, during the course of negotiations, and before any contract was finalized, a party might have an agreement to continue contracting in good faith in an attempt to reach an agreement
a. GENERAL RULE
i. either party may terminate for any reason, and has NO legal obligation to offer an explanation
2) Divide amongst courts
a. An obligation may have arisen by implication during the course of negotiation, where circumstances strongly suggest such agreement
b. Other courts feel that parties should not be burdened by the risk that they could be bound to a commitment before they have actually entered into a contract
i. Contracts for sale do not arise to an agreement to bargain in good faith, just an agreement to agree
c. Merely signing a letter of intent does not bind parties to

courts to decide
ii. Look to these factors:
1. The availability and adequacy of other remedies, particularly cancellation and restitution;
2. The definite and substantial character of the action or forbearance in relation to the remedy sought
3. The extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence
4. The reasonableness of the action or forbearance; [and] 5. The extent to which the action or forbearance was foreseeable by the promisor

Options and Firm Offers
1. Option contract
a. Created when an offeror, in exchange of consideration, promises to limit his power to revoke the offer
b. Courts take a more lenient approach to consideration doctrine in option contracts
i. Will except sham considerations at time or just a recitation that there has been consideration even if there has not been
ii. Restatement § 87
1. An offer is binding as an option contract if:
a. It is in writing and is signed by the offeror
b. Recites a purported consideration for the making of the offer, and
c. Proposes an exchange on fair terms within a reasonable time, OR
d. Is made irrevocable by statute
2. An offer which the offeror should reasonably expect to induce action or forbearance or a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice
c. Purpose is to allow the offeree some time to decide whether to accept an offer
d. Firm offer
i. An offer that is insulated from the usual events that otherwise would terminate the power of acceptance
e. Offeror obligates himself to keep the offer open
f. Any attempted revocation during the term of the option will be ineffective
g. If the offeree rejects the offer, or makes a counter, the original offer will remain in effect
i. Even if the offeror dies or loses legal capacity
h. The offeree makes no legal promise to ultimately accept the offer, however
i. Offeree may speculate at the expense of the offeror
ii. This is why there is consideration