Contracts. An exception to the general rule of contracts law that in order for a contract/promise to be enforceable, it must be supported by consideration. Under the promissory estoppel doctrine, a promise may be enforced to prevent injustice, even if that promise was made without consideration, if the promisor should have reasonably expected the promisee to rely on the promise and the promisee did in fact rely on the promise to his or her detriment.
In order to prevail on a promissory estoppel claim, the promisee must establish each of the following elements:
- a promise clear and unambiguous in its terms;
- reliance by the party to whom the promise was made;
- the reliance must be both reasonable and foreseeable; and
- the party asserting the estoppel must be injured by his reliance.
(See Advanced Choices, Inc. v. State Dept. of Health Services, 182 Cal. App. 4th 1661, 1672 (2010).)
The damages available under the promissory estoppel doctrine are usually limited to only that which is necessary to avoid injustice (reliance damages) and not what the promisee would have earned had the promise been performed (expectation damages).
The doctrine of promissory estoppel has been used by the courts to enforce a wife variety of promises that otherwise would not have been enforceable under the principles of contract formation. Following are examples of the types of promises the courts have enforced based on promissory estoppel:
- Promise of Employment: Alaska Democratic Party v. Rice, 934 P.2d 1313 (Alaska 1997).
- Promise of Pension Benefits: Feinberg v. Pfeiffer Co.,322 S.W. 2d 163 (Mo. App. 1959).
- Charitable Promises: Salsbury v. Northwestern Bell Telephone Co., 221 N.W. 2d 609 (Iowa 1974).
- Promise to Provide a Franchise: Goodman v. Dicker, 169 F.2d 684 (D.C. Cir. 1948).
- Promise for Child Support: Wright v. Newman, 266 Ga. 519 (1996).
- Promise to Remove an Internet Posting: Barnes v. Yahoo, 570 F.3d 1096 (9th Cir. 2009).
The 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.
§ 139. Enforcement By Virtue Of Action In Reliance
(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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:
(a) the availability and adequacy of other remedies, particularly cancellation and restitution;
(b) the definite and substantial character of the action or forbearance in relation to the remedy sought;
(d) the reasonableness of the action or forbearance;
(e) the extent to which the action or forbearance was foreseeable by the promisor.
Ann Taylor Schwing, California Affirmative Defenses § 34:16 (2d ed. 1996)
The doctrine of promissory estoppel is equitable in origin and nature and arose to provide a remedy through the enforcement of a gratuitous promise. Promissory is distinct from equitable estoppel in that the representation at issue is promissory rather than a representation of fact. Promissory estoppel and estoppel by conduct are two entirely distinct theories. The latter does not require a promise.”
Wheeler v. White, 398 S.W.2d 93 (Tex. 1965)
Where a promisee acts to his detriment in reasonable reliance upon an otherwise unenforceable promise, courts in other jurisdictions have recognized that the disappointed party may have a substantial and compelling claim for relief. The Restatement, Contracts, § 90, says:
“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.”
According to Dean Hildebrand’s Texas Annotation to the Restatement, Texas follows Section 90, supra. These early cases do not speak of the doctrine of promissory estoppel in specific terms since those cases were written before the compilation of the Restatement, but, while many of them dealt with subscription transactions or transactions within the statute of frauds, it is readily apparent that the equities involved in those cases are applicable to the instant case.
The binding thread which runs through the cases applying promissory estoppel is the existence of promises designedly made to influence the conduct of the promisee, tacitly encouraging the conduct, which conduct, although not necessarily constituting any actual performance of the contract itself, is something that must be done by the promisee before he could begin to perform, and was a fact known to the promisor. As to the argument that no new cause of action may be created by such a promise regardless of its established applicability as a defense, it has been answered that where one party has by his words or conduct made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the party who gave the promise cannot afterward be allowed to revert to the previous relationship as if no such promise had been made. This does not create a contract where none existed before, but only prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them.
The function of the doctrine of promissory estoppel is, under our view, defensive in that it estops a promisor from denying the enforceability of the promise. It was said in the case of Dickerson v. Colgrove, 100 U.S. 578, 580, 25 L.Ed. 618, that:
“The vital principle is that he 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. Such a change of position is sternly forbidden * * *. This remedy is always so applied as to promote the ends of justice.”
In the case of Goodman v. Dicker, 83 U.S. App.D.C. 353, 169 F.2d 684 (1948), the trial court held that a contract had not been proven but that “* * * appellants were estopped from denying the same by reason of their statements and conduct upon which appellees relied to their detriment.” In 97*97 that case, Dicker relied upon a promise by Goodman that a franchise to sell radios would be granted and radios would be supplied. In reliance upon the promise, Dicker incurred expenses in making preparations to engage in the business of selling radios. The franchise was not granted and Goodman failed to deliver the radios. The appellate court in holding that Dicker was entitled to damages for moneys expended in preparing to do business, said:
“We are dealing with a promise by appellants that a franchise would be granted and radios supplied, on the faith of which appellees with the knowledge and encouragement of appellants incurred expenses in making preparations to do business. Under these circumstances we think that appellants cannot now advance any defense inconsistent with their assurance that the franchise would be granted. 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. * *”
The Court, having so held, rendered its judgment that Goodman was liable for moneys expended in preparing to do business under the promised dealer franchise, but was not liable for loss of profits on the radios which were never delivered.
The Court in the Goodman case, in refusing to allow damages based on a loss of anticipated profits, apparently acted in harmony with the theory that promissory estoppel acts defensively so as to prevent an attack upon the enforceability of a contract. Under this theory, losses of expected profits will not be allowed even if expected profits are provable with certainty. The rule thus announced should be followed in the present case. We agree with the reasoning announced in those jurisdictions that, in cases such as we have before us, where there is actually no contract the promissory estoppel theory may be invoked, thereby supplying a remedy which will enable the injured party to be compensated for his foreseeable, definite and substantial reliance. Where the promisee has failed to bind the promisor to a legally sufficient contract, but where the promisee has acted in reliance upon a promise to his detriment, the promisee is to be allowed to recover no more than reliance damages measured by the detriment sustained. Since the promisee in such cases is partially responsible for his failure to bind the promisor to a legally sufficient contract, it is reasonable to conclude that all that is required to achieve justice is to put the promisee in the position he would have been in had he not acted in reliance upon the promise.