In the last lecture we talked about consideration and how courts look for a bargain for exchange to determine whether a promise creates an enforceable contract. Today, we're going to introduce another basis for enforcing promises known as promissory estoppel. The doctrine of promissory estoppel has it's roots in the 1898 Nebraska case called Ricketts versus Scothorn in which there was no bargain for exchange, but the courts found a legally enforceable promise anyway. The facts are these, the plaintiff in the Ricketts case Katie Scothorn received a written promise from her grandfather, John C Ricketts, that he would pay her, "On demand $2,000 to be at six per cent per annum." When he made the promise, the grandfather told Ms Scothorn that "I have fixed out something that you have not got to work anymore', 'and that none of my grandchildren work and you don't have to." A year later with the consent and assistance of her grandfather, she got a new job. Two years later, the grandfather died having paid one year's interest on the note and having expressed regret that he had not been able to pay the balance. Miss Scothorn then sued the executor of the grandfather's estate, Andrew D. Ricketts for the balance. So, was there consideration in this case? No, not this case. The grandfather promised to give his granddaughter the money, but he did not ask for anything in return, nor did she promise anything in return. Although she quit her job after he implied that she would not need to work anymore, her grandfather did not condition the money on her quitting her job. In the words of the court, the plaintiff's grandfather gave her the note as a gratuity and asked for nothing in return. And the abandonment by Miss Scothorn of her position as a bookkeeper was altogether voluntary. Therefore, the note was not given in consideration of the plaintiff pursuing or agreeing to pursue any particular line of conduct. The trial court found for the plaintiff and the instant court affirmed not withstanding the lack of consideration. So, the central issue on appeal is this, despite the lack of consideration, is the grandfather's promise still legally enforceable? As we just discussed, the court found there was no consideration in this case, therefore, if consideration is absolutely necessary for a binding promise, the grandfathers promise would not be legally enforceable. However, there have always been traces of an easiness respecting a strong consideration requirement. Much of the dissatisfaction relates to transactions such as those involved in Ricketts where a promise induces substantial and bargained for reliance on the part of the promisee. Do you think it would be fair if the grandfather or in this case his estate could later fail to perform his promise after his granddaughter relied on that promise and quit her job? The court didn't think it would be fair. The court reasoned that the grandfather intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due. So, it would be grossly inequitable to permit the maker or his executor to resist payment on the ground that the promise was given without consideration. To get around the consideration requirement, the court invoked the doctrine of equitable estoppel. The court conceded that the promise, "Being given without any valuable consideration was nothing more than a promise to make a gift in the future and that ordinarily such promises are not enforceable". However, the court held that a promisor who promises to make a gift may be estopped, that is stopped or barred from denying the existence of the consideration if the promisee changes her position in reliance on the promise. In other words, even though the grandfathers promise to his granddaughter was not supported by consideration, the executor of the estate was estopped from arguing that the promise lacked consideration, because his granddaughter had quit her job in reliance on that promise. The court supported it's position with precedent. Past courts had held that "An action on a note given to a church, college, or other institution upon the faith of which money has been expended or obligations incurred, could not be successfully defended on the ground of a want of consideration. But those courts found an enforceable promise for a different reason. Those courts held that "The expenditure of money or assumption of liability by the donee on the faith of the promise constitutes a valuable and sufficient consideration." The court and Ricketts on the other hand held that there was no consideration but estopped the defendant from raising that defense. This use of estoppel was unusual for two reasons. First, equitable estoppel traditionally only applied to representations of facts. If you represented to a patient that you were a specialist, you can be estopped from later denying it in court even if you in fact are not a specialist. Second, the doctrine of equitable estoppel is commonly understood to provide a shield not a sword. Estoppel is a defense that prevents another from denying certain facts. In Ricketts the doctrine is applied as a sword to support a new cause of action that would otherwise not exist. Was the Ricketts court simply confused about the meaning of equitable estoppel? Well, one might instead read the opinion as a good example of judicial craft under the common law. The court observed a form of injustice that the law might remedy, finding no clear legal grounds at hand and facing the bar against enforcement under the doctrine of consideration, it took a neighboring legal category, estoppel and stretched it a bit to do new work. This is the process of creative destruction where courts sometimes do injury to an existing concept to help redeploy it in another context. It's only later the courts feel comfortable giving the new creation a separate and new name. The modern term, promissory estoppel, dates from Samuel Williston's 1920 treatise on contract law. Williston carefully studied cases and convinced himself that the consideration doctrine could not explain all the case outcomes. In his treatise Williston collected a number of cases including Ricketts in which reliance seemed to be doing the job of consideration. It was a substitute for consideration. Recognizing the differences between the well-established doctrine of equitable estoppel and the doctrine invoked by this collection of cases, Williston suggested a new name for the latter, promissory estoppel. Williston later served as the reporter on the first restatement of contracts and included a new section, section 90 for promissory estoppel. The sections number remained the same in the second restatement which now reads, "A promise which the promise or 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." section 90 is one of the few sections of the restatement that you should commit to memory as synonymous with promissory estoppel. You can see that it has three elements. The promisor should have expected her promise to induce reliance, the promise must actually induce reliance, and injustice can be avoided only by the promisor's enforcement. If the plaintiff in Ricketts versus Scothorn had not quit her job after her grandfather promised her $2,000 plus interest, would the promise have been binding under the theory of promissory estoppel? Nop. If Miss Scothorn did not rely on the promise to her detriment, she would not satisfy one of the requirements for promissory estoppel, so the promise would not be binding under that doctrine. The court awarded Miss Scothorn the $2,000 face amount of the promissory note plus interest. This put Miss Scothorn in the position she would have been in if the promise had been performed. When court does this we say that the court awards expectation damages because the court puts the plaintiff in the position she would expect to be in, when the promise was made. But section 90 permit courts to limit the remedy as justice requires. Relying on her grandfather's promise, Miss Scothorn quit her job which paid $10 a week for a year before taking another job. In other words, she sacrificed at most $520 when she relied on the promise. Therefore, when justice be served if damages were limited to $520? If the court did so, we would say that the court awarded reliance damages. Reliance damages seek to make the promisee whole by compensating her for the cost she incurred in relying on the promise, instead of putting the promise in the position she would have been in had the promise been fully performed. Grant Gilmore famously predicted in a book called "Death of Contracts", that section 90 would swallow contracts, that promisees would use promissory estoppel claims under section 90, instead of breach of contract claims to enforce their promises. But Gilmore's prediction has not come true. Promises routinely opt to sue for breach of contract because it's a more certain basis for liability. Avoiding all these considerations of what justice requires, and without potentially having limited damages. So, let's recap. Sometimes consideration is not needed to enforce a promise. If a promisee reasonably relies on a promise and changes or position accordingly. The promise may be binding even without consideration, if justice so requires. However, the remedy granted for the breach may be limited to compensate the promisee for her reliance and the court need not award the full value of the promise.
