October 7, 2013

Section 90 of the Restatement of the law of Contracts states: “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.” (Restatement of Contracts § 90 (1932))

We are all familiar with the word “promise.” At a point you probably had a situation where a family member, friend or acquaintance, made you a promise they either fulfilled or failed to honor. In most cases such promises are a mere word of mouth that is never reduced to writing or have the binding effect of law. In such circumstances, one with no recourse is made to bear the loss and pay the price for a promise not fulfilled.

Part of the exceptions to the general rule that gratuitous promises are not enforceable, are many grouped under the rubric of “past consideration.” A subsequent promise to pay a debt barred by the statute of limitation, or to pay a debt discharged in bankruptcy, {bankruptcy cases have since been overturned by Congress} or to pay a debt that is uncollectable because the debtor was a minor at the time contract was made, can be legally enforced even though there is no fresh consideration for the promise. (See Richard A. Posner, Gratuitous Promises in Economics and Law; 6 J. Legal Studies 411 (1977).)

What do you do when you’re made a promise that you reasonably relied on and which caused you a loss because the promisor failed to honor his promise? Many will say such a promise cannot be enforced, since there is no contract to make it binding in a court of law. However, Promissory estoppel implies a contract in law where no contract exists in fact. (Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 283, 230 N.W. 2d 588, 593 (1975).)

Under the doctrine of promissory estoppel, a promise can have the binding effect of law when (a) it is clear and definite, (b) the promisor intended to induce the promisee to rely on the promise, (c) the promisee to his detriment relied on the promise, and (d) enforcement of the promise is required to prevent an injustice. (Cohen v. Cowles Media Co., 479 N.W. 2d 387, 391 (Minn. 1992) (Providing elements of promissory estoppel).

In Grouse v. Group Health Plan, Inc. (Supreme Court of Minnesota), 306 N.W. 2d 114 (1981). The question before the court on appeal was whether the trial court erred by concluding that Grouse’s complaint fails to state a claim upon which relief can be granted. The court decided that the doctrine of promissory estoppel entitles Grouse to recover and therefore, reversed and remanded for a new trial on the issue of damages.

The facts in Grouse are briefly as follows: Grouse a 1974 graduate of the university of Minnesota school of Pharmacy, got a job in 1975 as a retail Pharmacist at Richter Drug in Minneapolis, working 41 hours per week and earning $7 per hour. In the summer of 1975, the Health Sciences Placement office at the University advised Grouse that Group Health was seeking a Pharmacist.

Grouse called Group Health and he was told to come in and fill out an application. He did so in September and got interviewed by Cyrus Elliott, Group Health’s Chief Pharmacist. Two weeks later, Elliott contacted Grouse to come for an interview with Donald Shoberg, Group Health’s General Manager. Shoberg explained company policies and procedures including salary and benefits to Grouse.

On December 4, 1975, Elliott called Grouse at Richter Drug and offered him a position as a Pharmacist at Group Health’s St Louis Park Clinic. Grouse accepted offer but informed Elliott that 2 weeks notice to Richter Drug would be necessary. Same afternoon Grouse got an offer from a Veteran’s Administration Hospital in Virginia but turned it down because of Group Health’s offer. Elliott called back to confirm Grouse had resigned from Richter Drug.

Elliott mentioned to Shoberg that he had hired, or was thinking of hiring Grouse. Shoberg told him that hiring requirements included a favorable written reference, a background check, and approval of the General Manager. Elliott contacted two faculty members at the school of Pharmacy but could not get references for Grouse. He contacted other Pharmacies where Grouse had done relief work including an internship employer but all declined, because they had not had enough exposure to Grouse’s work. Elliott did not contact Richter because Grouse application demanded that he not be contacted.

Unable to supply a reference for Grouse, Shoberg hired another person to fill the position. On December 15, 1975 Grouse called Group Health to inform he was free to begin work, but was told another person had been hired. Grouse complained to the Director of Group Health who apologized but did not act on his complaint. Grouse could not find another job and suffered wage loss as a result. He commenced an action for damages but the trial judge found he had not stated an actionable claim.

On appeal, the Supreme Court found that though, no contract exists since neither party committed to performance, making the promises illusory. The principle of contract law applicable therefore, was promissory estoppel since its effect is to imply a contract in law where none exists in fact. Group Health knew that to accept its offer Grouse would have to resign his employment at Richter Drug. Grouse gave notice to Richter Drug and informed Group Health when asked. Under these circumstances it would be unjust not to hold Group Health to its promise.

The court however, stated that when a promise is enforced under section 90, the remedy granted for breach could be as justice demands and relief for damages, measured by the promisee’s reliance. Since the prospective employment might be terminated at will, the measure of remedy to Grouse was not so much what he would have earned from Group Health as what he lost in quitting his job and in declining the offer of employment elsewhere. The court reversed and remanded for a new trial on the issue of damages.

In most cases where promissory estoppel is applicable, the first element for a cause of action is that the promisor made a promise, that he should reasonably expect to induce action or forbearance on the part of the promisee. (Holewinski v. Children’s Hospital of Pittsburgh, 437 Pa. Super. 174, 178, 649 A. 2d 712, 714 (1994)) If applied to the Grouse case, there is no doubt that Group Health made a promise to Grouse when he was offered employment, which he accepted.

The second element is that the promisee actually relied upon the promise. (Id. At 178, 649 A. 2d at 714). It is indisputable that Grouse relied upon Group Health’s promise when he quitted his job and accepted offer of employment. Group Health knew or should have known that its offer would induce action by Grouse, who indeed got induced to forgo his career with Richter in expectation of a job at Group Health.

The third and last element of a promissory estoppel cause of action is that injustice can be avoided only by enforcement of the promise. (Id. At 178, 649 A. 2d at 714). One of the factors a court may consider in determining whether this element is satisfied is the reasonableness of promisee’s reliance. It is clear that after receiving the call for an offer, Grouse informed Elliott he would give notice of quit to his employer. Elliott did in fact called to confirm Grouse did quit his job.

Grouse may have acted reasonably knowing he must quit his service with Richter to take the job at Group Health. The court found the evidence enough when it reversed on the issue of damages. However, its decision to limit damages could be due to the degree of reasonableness, since Group Health’s offer was at will.

Dr. Adeyemi Oshunrinade [E. JD] is the author of  ‘Wills Law and Contests,’ ‘Constitutional Law-First Amendment’ and ‘SAVING LOVE’ available at Follow on Twitter @san0670.


Categories: Academic Journal, LAW

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