The Four Phases of Promissory Estoppel

• Jurisdiction: United States,Federal
• Citation: Vol. 20 No. 01
• Publication year: 1996

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 20, No. 1FALL 1996

The Four Phases of Promissory Estoppel

Eric Mills Holmes(fn*)

I. Introduction.............................. 45

II. Four Phases in the Doctrinal Evolution of Promissory Estoppel ................................ 51

A. Phase One (Estoppel): Defensive and Offensive Equitable Estoppel ...................... 56

1. Defensive Equitable "Promissory" Estoppel ... 57

2. Offensive Equitable "Promissory" Estoppel ... 62

B. Phase Two (Contract): Promissory Estoppel as Consideration Substitute .................. 65

C. Phase Three (Tort): Independent Claim for Detrimental Reliance..................... 67

D. Phase Four (Equity): Equitable Promissory Estoppel's Rights, Duties and Remedies ....... 72

III. Conclusion............................... 77

I. Introduction

Promissory estoppel is supremely misunderstood. It is said that promissory estoppel is waning,(fn1) dying, traveling a road to irrelevancy.(fn2) Some pronounce its death, as promissory estoppel is reabsorbed into the womb of tort from which it emerged in the not too distant past.(fn3) Proclaiming the primacy of promise and bargain, others warmly reaffirm the doctrine's vitality as authentic classical contract law in action.(fn4) Eschewing border wars, a few courteously allow the doctrine to rest in the shadowlands of tort and contract.(fn5) Emulating truth torn into a thousand pieces, the dissimilar and conflicting scholarship surrounding promissory estoppel merits assured resolution and guidance for our future in social and commercial transactions. In the common law tradition, our courts, in their mountainous mass of promissory estoppel opinions and decisions, may provide that resolution and guidance.

The hard-core research and scholarship of identifying, analyzing, and resolving more than a thousand promissory estoppel cases has been accomplished and published.(fn6) Given the gracious plenty of text and footnotes in print, this Article's purpose is to summarize the extensive case law and literature regarding promissory estoppel and report the findings in a condensed, accessible form for serious consideration and future use. With that aspiration, two broad conclusions can be reported from the outset.

First, all American jurisdictions (including American Samoa, Guam, Puerto Rico, and the Virgin Islands) adopt and apply some form of "promissory estoppel," grounded in Section 90 of the Restatement (Second) of Contracts.(fn7) Moreover, two American jurisdictions (Georgia and Louisiana) adopt promissory estoppel by statute.(fn8) Furthermore, an incipient and evolving body of federal common law of promissory estoppel, predicated primarily on Section 90 of the Restatement (Second) of Contracts, has arisen with the advent of the 1990s.(fn9)

Second, the root basis of the doctrine is equity. The research evidences that promissory estoppel is a syncretistic doctrine of civil liability, or, more simply, a theory of American civil liability. In four evolutionary stages (explained in Part II), the doctrine reconciles, blends, and unifies the presumed disparate classifications of contract, tort, and equity. Even more plainly, promissory estoppel is promissory estoppel-neither exclusively contract nor tort nor equity. The doctrine's synergistic nature is aptly summarized by the federal Second Circuit Court:Thus, the protean doctrine of 'promissory estoppel' eludes classification as either entirely legal or entirely equitable, and the historical evidence is equivocal. It is clear, however, that both law and equity exert gravitational pulls on the doctrine, and its application in any particular case depends on the context in which it appears. For example, where a plaintiff sues for contract damages and uses detrimental reliance as a substitute for consideration, the analogy to actions in assumpsit (law) is compelling. By contrast, when the plaintiff uses promissory estoppel to avoid a draconian application of the Statute of Frauds, the pull of equity becomes irresistible.(fn10)

However, given so many subissues and concerns regarding the purpose, scope and function of promissory estoppel in modern contract law, merely reporting these two encyclopedic conclusions may neither quiet nor assuage the ongoing debate. The contemporary dialectic spawns serious issues to be resolved. These sundry issues can be organized around four categories of questions to be authoritatively answered. The following four groupings of questions historically mirror the four developmental phases in which the doctrine evolved in the common law tradition, as explained in Part II of this Article. The four developmental phases (estoppel, contract, tort, and equity) embody these four categories of questions posed in the scholarly debate: 1. Is estoppel from equity the basis of promissory estoppel, as its name suggests?(fn11) If so, is the doctrine a defensive shield used by American courts to estop another from raising a defense involving the statute of frauds, statute of limitations, lack of consideration, or the parol evidence rule?2. With its basis in promise and assent, is promissory estoppel a contract doctrine? If so, is the doctrine a consideration substitute used by courts to enforce definite and unambiguous promises in commercial transactions by awarding expectation damages, including lost profits in an appropriate case?3. Is the root foundation of promissory estoppel grounded in the tort of detrimental reliance? If so, is the doctrine an independent claim for relief recognizing a duty to prevent (or not cause) foreseeable reliance, a right reasonably to rely on promises (including promissory representations and assurances), and a remedy for injurious reliance?4. Is modern equity the "mother mold" of promissory estoppel with the doctrine's basis grounded in the equitable principles of good faith and conscience? If so, does the doctrine grant the court discretion to enforce one's right to rely reasonably on promises, promissory representations, and assurances by using the equitable doctrine to fashion a personalized remedy to achieve corrective justice between the parties? Although the current legal literature is overflowing with diverse beliefs, insights, and responses(fn12) to these four groups of questions, our courts have provided assured guidance. The surprising "answer" is "yes" to all of the foregoing four sets of questions. Case law accurately delineates the four evolutionary stages of promissory estoppel. As an overview, promissory estoppel has evolved in American case law in four developmental stages: (1) Estoppel Phase, consisting initially of "defensive equitable estoppel" to estop contract defenses based on statutes of limitations and the statute of frauds. In the second part of this first phase, courts have extended "estoppel" based on representations of facts to "promissory" representations and enforced the promissory basis of the representation, thereby creating an affirmative theory of relief. Thus, this first phase of promissory estoppel consists of defensive equitable estoppel and offensive equitable estoppel. (2) Contract Phase, in which promissory estoppel has developed as a consideration substitute which courts have used to validate promises and award traditional contract expectation damages. (3) Tort Phase, in which courts have recognized a promisee's right to rely and a promisor's duty to prevent (or not cause) reasonably foreseeable, detrimental reliance. During this third phase, courts have applied promissory estoppel offensively (independent of contract) to award reliance damages. (4) Equity Phase, in which courts have assimilated the first three phases (estoppel, contract, and tort) and have applied promissory estoppel equitably to rectify wrongs by awarding relief based on the discrete facts of each case. The remedy is discretionary with no mechanical bright line rule; it is equitably molded for each case and may include the full range of remedies (expectation, reliance, restitution, specific performance and exemplary). Part II of this Article considers these four evolutionary phases.

II. Four Phases in the Doctrinal Evolution of Promissory Estoppel

This Part examines the four discrete phases (estoppel, contract, tort, and equity) in the development of promissory estoppel. A brief history and background of promissory estoppel's ancient roots will be outlined to provide a context for the modern doctrine. The theoretical basis for each phase is then explained in sections A through D. These sections illustrate how courts apply these phases and translate them into remedies for each phase. It will be seen that the modern doctrine combines all four phases of promissory estoppel to form a synergistic whole.

As a threshold perspective, the doctrine now labeled promissory estoppel is not a modern twentieth-century development arising from opinions based on Section 90 of the Restatements of Contracts. Rather, it is a venerable, ancient form of relief with historical origins in both the common law action of assumpsit(fn13) and ancient equity decisions.(fn14) Promissory estoppel's ancient genealogy in equity and common law evidences that the doctrine is an ancient form of consideration predating the modern bargain theory of consideration by about five centuries. Noting that history, promissory estoppel could be renamed "reliance...