Contracts II Outline

Contracts II Outline—Frost Spring 2010
I. The Doctrine of Promissory Estoppel

A. Reliance (Promissory Estoppel)
i. A promise may be enforced under promissory estoppel when:
1. The offeror made a promise,
2. The offeror should have expected that the offeree would rely upon this promise to his detriment,
3. The offeree in fact did rely upon the promise, and
4. Injusticecan be avoided only by enforcement of the promise.
ii.Generally speaking, you still need consideration for a binding contract.
iii. Restatement § 90:
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.”
iv. Be wary of illusory promises when using promissory estoppel—illusory promises still are not enforceable because reliance upon them is unreasonable.

B. Promissory Estoppel vs. Equitable Estoppel
i. The Court has many reasons to enforce the contract, but consideration is lacking.
ii.The distinction of promissory estoppel is that:
1. Promisor’s intention to be bound is weak—no consideration.
2. Promisee’s reliance on promise/actions is strong.

C. Charitable Subscriptions
i. Problem with charitable subscriptions—in any given charitable subscription, it’s hard to find reliance, BUT in the aggregate, reliance is easily found.
ii.Restatement § 90(2):
1. “A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.”
a. Basically, proof of reliance is not required to enforce charitable subscriptions under the doctrine of promissory estoppel.

D. Construction Bids
i. Promissory estoppel only operates on a PROMISE. The biggest reason for failure of promissory estoppel claims is that there is no ACTUAL promise. Be WARY of ILLUSORY PROMISES.
1. Drennan v. Star-Paving case:
a. This is the applicable rule to contract/sub-contractor cases where promissory estoppel is sought by a party.
b. When a sub-contractor submits a bid to the general contractor—that is in effect an implied promise to keep their offer open.
c. Because of this implied promise, the elements of promissory estoppel may be applied.

E. Promissory Estoppel as an Alternative to Breach of Contract
i. Most courts follow the rule that promissory estoppel is not a contract doctrine, but more of tort law.
1. Where one causes harm, they should be liable for that harm—and under this view, the appropriate measure of damages is almost always reliance, not the traditional contract damages of expectation.
a. These damages will also be limited as justice requires.
ii.Red Owl Stores case:
1. The store negligently misrepresented something to Hoffman and it caused harm—more tort than contract.
2. Remember that contract is VOLUNTARY.
a. Parties should have control of the deal at all times.
iii. Two functions of promissory estoppel:
1. The enforcement of some promises intended as legally binding, AND
2. The imposition of liability to compensate for harm caused by some misrepresentations.
a. Compares second function to Tort law
i. However, the misrepresentation made in Tort law must be a lie when it is made.
ii.“Detrimental reliance”—closer to Tort law.
iv. The doctrine of promissory estoppel rarely leads to victory in the court system.
1. Plays a limited role in the courts.

F. Reasonable Reliance
i. Reliance is not a singular act, it’s a CONTINUAL process.
ii.Reliance must be REASONABLE in order for promissory estoppel to be applicable.

G. Injustice of Nonenforcement
i. The “injustice” prong of promissory estoppel causes us to look at MORAL claims.
1. In some instances, the court is going to look at set of promises that looks like a contract, and they’re not going to enforce it.
2. If you’re looking at the Restatement, you can’t blindly ignore the issue of injustice being avoided.
a. Court must look at promise, reliance, and moral ambiguities.

H. Present State of Promissory Estoppel
i. Promissory estoppel still exists, but sophisticated parties carefully avoid promissory estoppel type qualities to agreement—and the law respects this.
ii.You can limit effect of promissory estoppel by disclaimers, at-will employment, and knowledge of legal rules.
iii. Permitting enforcement where there isn’t a voluntary