Promissory Estoppel

Promissory estoppel is the idea that a promise can be enforced by the law if, after relying on that promise, the promisee is injured or suffers a resulting loss. The idea of promissory estoppel is that the promisor is barred from arguing that the underlying promise at the heart of the case should not be legally upheld. While promissory estoppel is enforceable in all fifty states, the requirements associated with the concept vary from state to state. To explore this concept, consider the following promissory estoppel definition.

Definition of Promissory Estoppel

Noun

1. The concept that a promise can be legally upheld after a promisee has suffered a loss as a result of relying on that promise.

Origin

1575-1585       Middle French estoupail

Promissory Estoppel Doctrine

The promissory estoppel doctrine allows an injured party to recover on a promise upon which he relied, and then suffered a loss as a result.

Example of promissory estoppel:

Charles is ten years from retirement age, and has worked for the company for 19 years. One day Charles is enticed to take on a very large project for the company, by the owner’s promise to pay him a specified amount of money each year, over the duration of his retirement. This amount is nearly 50 percent higher than his retirement amount would be otherwise.

As the two discuss the project over dinner, the employer tells Charles that he would be able to take his retirement early – as early as two years after getting the project off the ground. This plan is made verbally, and as Charles undertakes the project, the employer supports it wholeheartedly, providing funding, personnel, and everything else that is needed.

Two and a half years later, Charles retires as discussed, but his employer lets him know that, because he retired early, his pension will be less than normal. Charles reminds him of their agreement, but the employer tries to put it off as wine-infused musings between two “work buddies,” saying he didn’t mean the retirement offer to be taken seriously.

In this example, promissory estoppel may be enforced by the court, as Charles relied upon his employer’s offer (verbal contract), in making a major decision. Here, promissory estoppel doctrine dictates that the employer could be legally estopped from not making good on his promise.

The promissory estoppel doctrine is most commonly enforced in the field of contract law. This is because the whole point of a contract is for parties to negotiate an agreement based on a promise. Ordinarily, a contract is enforceable upon an agreement for an exchange of money, or a promise to refrain from engaging in a particular activity. However, in order to be truly fair, a court may enforce a promise even if no such exchange was made. All that must be proven is that a promise was made, and that in relying on that promise, a party suffered a loss as a result.

Elements of Promissory Estoppel

There are five elements of promissory estoppel that must exist in order for the concept to be enforced. The five elements of promissory estoppel are listed below:

• Legal Relationship – Some form of legal relationship must exist, or be anticipated to exist, between the parties, such as a contractual relationship.
• Promise – It must be shown that a promise was made between the parties to the action that led the injured party to assume that some sort of action was to be taken. Such a promise must be reasonably reliable, or believable.
• Reliance – It must be shown that the injured party relied on the promise that was made, and took some action based on that promise.
• Detriment – The party that relied upon the promise must have suffered some sort of detriment or loss, which puts him in a worse position than when he started.
• Unconscionability – In must be shown that it was unfair for the promisor to break his promise to the promisee.

Most courts will apply the promissory estoppel doctrine to any situation in which all of these elements are present. However, some courts still restrict its enforcement to those situations that more specifically gave rise to the concept. An example of promissory estoppel that relates to a more specific situation is one concerning real property. For instance, a person may promise to transfer real property to someone as a gift. The recipient of the promised gift, believing in (“relying on”) that promise, spends money to repair and fix up the property, but the donor does not fulfill his promise.

Consider the following example:

Tom is the principal of a private high school. His artist brother, Fred, approaches him about starting an art program at the school, and promises to help Tom finance it. Tom, excited about the world of possibilities that such a program could open up for his students, agrees, and he begins to actively plan for such a program. Tom contacts developers about adding a wing on to the school, and he purchases all of the necessary furniture and fixtures, as well as supplies like easels, smocks, paint, and paintbrushes.

Then, just like that, Fred simply changes his mind and decides that he no longer wants to finance the program as he had initially promised. What does Tom do now? He spent all of this money based on Fred’s verbal promise, without having entered into a written contract. Tom is not without recourse in his attempt to recover the monies he spent and financed up to that point. The doctrine of promissory estoppel helps ensure that Tom will be able to recover damages based on the promise that Fred had made to him.

Here, Fred’s promise was clear enough that it led Tom to act on it. Tom suffered a significant financial blow as the result of Fred’s backing out of his promise. In this case, the court would determine whether Tom suffered a change in position as the result of Fred’s promise. The court might find in Tom’s favor due to the fact that Tom paid a significant amount of money from his own pocket to develop the art wing that will never happen, relying on a promise that never came to fruition.

The elements of promissory estoppel determine whether the remedies that are available to the injured party are equitable, or fair. This means that the court has discretion in deciding how best to make the situation right. The court will not always force the promisor to honor his promise. The only time this is done is if that is the only way to ensure justice for the promisee. A party looking to enforce promissory estoppel must be able to prove that it was unconscionable for the promisor to go back on his promise. Unfairness is at the very core of the promissory estoppel doctrine.

Promissory Estoppel Example Involving a Political Race

An example of promissory estoppel can be found in a case concerning a political race and the leaking of confidential information by an insider. In 1982, Dan Cohen was a campaign associate in the gubernatorial race that was taking place in the state of Minnesota. Cohen leaked court records concerning another party’s candidate to reporters from the St. Paul Pioneer Press, and the Minneapolis Star Tribune, based on a promise that his identity as their source would remain confidential.

Despite the reporters’ urgings to their editors not to publish Cohen’s identity, the editors for both papers published Cohen’s name in their stories, indirectly causing the reporters to go back on their promises. Cohen lost his job as an advertising agent a result, and sued Cowles Media Company, the owner of the Minneapolis Star Tribune, for breach of contract.

Upon the completion of trial, Cohen was awarded compensatory damages in the amount of $200,000. On appeal, the Minnesota Supreme Court reversed the lower court, ruling that the papers had the right to freedom of the press under the First Amendment, and were therefore exempt from the promissory estoppel law.

When the case reached the United States Supreme Court, the Court remanded the case back to the Minnesota Supreme Court, having held that the First Amendment did not stop a promissory estoppel suit from being brought against the press, because the concept of promissory estoppel was a general law that did not specifically target the press. Said the Court in its Decision:

“The First Amendment does not bar a promissory estoppel cause of action against respondents. Such a cause of action, although private, involves state action within the meaning of the Fourteenth Amendment, and therefore triggers the First Amendment’s protections, since promissory estoppel is a state law doctrine creating legal obligations never explicitly assumed by the parties that are enforceable through the Minnesota courts’ official power …

“However, the doctrine is a law of general applicability that does not target or single out the press, but rather is applicable to all Minnesota citizens’ daily transactions. Thus, the First Amendment does not require that its enforcement against the press be subject to stricter scrutiny than would be applied to enforcement against others … even if the payment is characterized as compensatory damages. Nor does that Amendment grant the press protection from any law which in any fashion or to any degree limits or restricts its right to report truthful information.”

However, the United States Supreme Court refused to reinstate the damages award. The Minnesota State Court ultimately reinstated the jury’s original verdict, and the Cowles Media Company was found liable by way of promissory estoppel.

Related Legal Terms and Issues

• Compensatory Damages – An award of money in compensation for actual economic loss, property damage, or injury, not including punitive damages.
• Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
• Estoppel – A legal principle that prevents, or “stops,” someone from asserting a fact that is contradictory to an already established truth.
• Promisee – A person to whom a promise is made.
• Promisor – A person who makes a promise.