CONTRACTS 2
Spring 2016
Professor Frost
Promissory Estoppel
Does promissory estoppel require a promise? à Technically no (Hoffman v. Red Owl), but it is HIGHLY unlikely you will win without one; courts today mostly use as a substitution for consideration.
Promissory Estoppel as a Substitute for Consideration
Construction Bids
Restatement:
87 v 90 = offer v promise = Traynor v Hand
§87. Option Contract
(2) An offer which the offeror should reasonably expect to induce action or forbearance of 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
Drennan v. Star Paving Co. (Traynor)
P is bidding to get a k and accepting bids from subcontractors; D, a subcontractor, offers to do the work for 7k; P is awarded k and goes to notify D when D attempts to revoke offer; P is forced to use other subcontractor as cover
R – It is only fair that P should have at leas an opportunity to accept D’s bid after the general K has been awarded to him (*Prom Estop applies here Rest. §90*)
This bidding process is analogous to a unilateral K; Option in bidding process is implied; §87
Ct willing to find implied promise
§90. Prom Estop.
A promise which the promisor should reasonably expect to induce action or forbearance of a 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.
James Baird Co. v. Gimbel Bros., Inc. (Hand)
D sent employee to philly contractor who computed the amount of linoleum and offered to supply all the linoleum should the contractor receive the bid; P sues when D refuses to supply linoleum as previously discussed terms
R – An offer for an exchange is not meant to become a promise until a consideration has been received (There was no K) Hand – An offer is not a promise until it has been accepted §90*
H – No Prom Estop. Ct unwilling to find implied promise
Charitable Subscriptions
Restatement:
§90. Promise Reasonably Inducing Action or Forbearance
(2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance
Allegheny College v. National Chautauqua County Bank of Jamestown
This case’s importance:
A review of bargained for consideration
To note that according to RESTATEMENT § 90, charitable subscriptions are enforceable notwithstanding the absence of detrimental reliance by a charity
P promises to make donation to commemorate name; P gives $1k; College doesn’t commemorate name; P refuses to pay rest
Majority – Prom estop doesn’t work here so Cardozo finds consideration through implied promise
This won’t work as a prom estop case because it lacks reliance
Cardozo – willing to say that acceptance of $1k carries implied promise to commemorate name
Dissent – If P’s letter is viewed as an offer then it is an offer that limits acceptance by acts to be done “setting up fund in her name” and because the acceptance was not carried out in the prescribed manner, their was no acceptance and thus no K, which means power of revocation is still applicable
Promissory Estoppel as an Alternative to Breach of K
Strict Promissory Estoppel – just plug in to replace consideration; still need a lot of the stuff for a K
Hoffman – Promissory Estoppel is not limited to breach of K, it may be more broadly applied, it is its own thing, but the remedy may be limited as justice requires
Restatement (1st):
§90. Promise Reasonably Inducing Action or Forbearance
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.
A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.
Goodman v. Dicker
Dicker was led to believe by Goodman, that his application for a “dealer franchise” would be awarded; Dicker took detrimental action in reliance of this belief; in fact Dicker’s application was denied
Issue – Did Goodman give Dicker reason to take action in preparation to do business?
R – He who by his conduct or language leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations on which he acted (equitable estoppel)
H – Justice and fair dealing require that one who acts to his detriment on the faith of conduct of the kind revealed here should be protected by estopping the party who has brought about the situation from alleging anything in opposition to the natural consequences of his own course of conduct
This is a tort case rather than a K case (Reliance Case)
Restatement (2nd):
§90. Promise Reasonably inducing action or Forbearance
Promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee OR a 3rd party
Which does induce such action or forbearance
Can injustice only be avoided by enforcement?
If yea then promise is binding BUT:
The remedy granted for breach may be limited as justice requires
Part II – A charitable subscription, or a marriage settlement is binding under the above provisions WITHOUT PROOF that the promise induced such action
Hoffman v. Red Owl Stores, Inc.
Hoffman kept taking detrimental actions in reliance of his belief that he would get a Red Owl store out of it; He didn’t get the store
Issue – whether the promise necessary to sustain a cause of action for promissory estoppel must embrace all essential details of a proposed transaction between promisor and promisee so as to be the equivalent of an offer that would result in a binding k between the parties if the promisee were to accept the same
The ct finds that it does not
H – injustice would result if Hoffman were not granted some relief because of the failure of D to keep their promises which induced P to act to his detriment
R §90 –
(1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee?
Did the promise induce such action/forbearance?
Can injustice be avoided only by enforcement of the promise?
Policy decision that must be made by the Ct and NOT by the jury
If prom estop were to be limited to only those situations where the promise giving rise to the COA must be so definite with respect to all details that a K would result were the promise supported by consideration then the D’s instant promises to Hoffman would not meet the test… however THIS IS NOT THE TEST
Appropriate damages for prom est = reliance
This case is about negligent promising, not fraud (lies somewhere between fraud and breach of k)
This case using prom estop to carve out a middle ground between tort and k
Restatement (Torts):
§526. Conditions under which misrepr
you have the ability to unwind reliance before detriment you may not enforce prom estop
Injustice of Nonenforcement
Cohen v. Cowles Media Co.
Cohen went to D with documents about a political candidate; Cohen offered to supply the documents in exchange for anonymity; D agreed and cohen delivered documents; editors of D newspaper forced reporters to disclose Cohen’s identity; Cohen was fired from his job and attacked/ridiculed by media
H – No fraud because the reporters at the time of making the promise were not misrepresenting any facts and intended to uphold their promise
No breach of K, Parties did not intend to be bound
No Prom estop – enforcement of the promise under a prom estop theory would violate D’s first amendment rights
Failure to meet “injustice” requirement
Promissory estoppel requires an inquiry into the reasoning behind promisor’s actions to determine if enforcement of promise would be just
Ct was worried that this inquiry would violate 1st amendment press protections
Cohen SCOTUS Squib
SCOTUS rules that applying the doctrine of promissory estoppel to enforce the promise by newspaper reporters to maintain the confidentiality of a source DOES NOT violate the 1st amendment Reverse and Remand
Cohen v. Cowles Media Co. 2: Resurrection
This case, having been remanded from the SCOTUS, this ct now applies the doctrine of prom estop and finds that injustice may only be avoided by enforcing the promise.
D basically conceded that what they did was wrong and therefore inaction by the ct would be unjust
Ct weigh’s harm of unenforcement and reasons for breach and “puts them on the scales of justice” to see where the case comes out
Hillman CN – Promise is as important as reliance in prom estop; “injustice” requirement is relatively unimportant
Delong CN – Two types of reliance:
Performance Reliance – Not relying on expectation of enforcement
Enforcement Reliance – Relying on your belief that the promise will be legally enforceable
PERFORMANCE & BREACH
Performance
The Implied Duty of Good Faith Performance
UCC – Every K or duty within this act imposes an obligation of good faith in its performance or enforcement
Restatement – Every K imposes on each party a duty of good faith and fair dealing in its performance and its enforcement
Keep in mind what the parties were bargaining for in the creation of the k; if they deliberately undermining what was bargained for then there is a serious good faith question.
Goldberg 168-05 Corp. v. Levy
Levy brought in another business and intentionally diverted business in order to ensure that the business on the P’s lease would fail and thereby he could get out of his K
Levy’s conduct was a direct violation of the covenant of good faith and fair dealing which exists in every K.
He had an implied obligation to try and make money at the leased business
