Promissory estoppel is the legal theory that a promise is enforceable by law, even if made without formal consideration. In California, the doctrine of Promissory estoppel is a lawsuit and argument raised when a person made a promise for which he did not receive any value or compensation, and which the promisee relied on by changing their position.
By Brad Nakase, Attorney
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Under contract law, promissory estoppel is a legal theory a plaintiff asserts in court to recover damages or specific performance on a promise made by the opposing party, which the plaintiff relied upon without providing consideration (something of value). The plaintiff stops the defendant from reneging on a promise by asserting promissory estoppel, although a contract does not exist. Promissory estoppel helps injured parties recover damages they suffer due to broken promises by another party. It ensures fairness and prevents injustice when the general rules of contract law might cause an unfair result.
What elements are required for the promissory? The elements of a promissory estoppel lawsuit are:
A promise clear and unambiguous in its terms (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411); Reliance by the party to whom the promise is made; The reliance must be both reasonable and foreseeable (Restatement (Second) of Contracts § 90); and The party asserting the estoppel must be injured by his or her reliance (aka: detrimental reliance).
The promisee’s reliance on the promise must be reasonable and foreseeable. A promise that induces such reliance is binding if injustice can be avoided only by enforcement of the promise. Promissory estoppel was formally “ushered” into American contract law in the First Restatement of Contracts. Granadino v. Wells Fargo Bank, N.A. (2015), 236 Cal. App. 4th 411
“Promissory estoppel applies whenever a promise that the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and that does induce such action or forbearance would result in an injustice if the promise were not enforced. A party plaintiff’s misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance. If the conduct of the plaintiff in the light of his or her own intelligence and information was manifestly unreasonable, he or she will be denied a recovery. A mere hopeful expectation cannot be equated with the necessary justifiable reliance.”
The first element in a complaint for promissory estoppel is a promise that is clear and unambiguous in its terms. Promissory estoppel can’t be invoked simply to enforce preliminary negotiations or talks between parties because no guarantees have been made clearly (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411).
Preliminary Negotiations Are Not Enforceable Promises
Promissory estoppel cannot be invoked to enforce preliminary negotiations or discussions between the parties because no clear and unambiguous promise has been made. Preliminary discussions and vague promises are not enforceable.
Further Negotiations
Where a full commitment between the parties is missing and the offeree is on notice that finalization of the terms will require further negotiations, there is no clear and unambiguous promise by the offeror. In most cases, a conditional letter of commitment does not create such a promise (Healy v. Brewster (1963) 59 Cal.2d 455).
Promising Retire Benefits is an Enforceable Promise
A promise originally intended as a promise to make a retirement gift became enforceable under the doctrine of promissory estoppel when the plaintiff, knowing of the offer, turned down other offers of employment because he did not want to lose the retirement allowance. Promises that induce such actions can lead to legal enforcement under promissory estoppel (Toscano v. Greene Music (2004) 124 Cal.App.4th 685).
General Contractor’s Listing of Subcontractors Not an Enforceable Promise
A general contractor’s listing of subcontractors combined with a statutory restriction on the right to change listed subcontractors did not constitute a clear and unambiguous promise to accept a listed subcontractor’s bid. Courts determine enforceability based on whether the promises are clear or conditional (Restatement (Second) of Contracts § 90).
Job Application Instructions Not an Enforceable Promise
A representation in job application instructions that industry experience would be “considered” did not constitute a clear and unambiguous promise that previous longshore experience would be the determinative factor in who was registered for full-time permanent longshore work. Statements like these, lacking clarity, fail the test of enforceability under promissory estoppel (Blatt v. University of So. California (1970) 5 Cal.App.3d 935).
If extrinsic evidence is needed to interpret a promise, then the promise does not satisfy the requirement of clear and unambiguous.
The promisee must have actually relied on the promise. For example, actual reliance was demonstrated where a borrower relied on the bank’s promise to work with the borrower to reinstate and modify the loan and did not take other measures to save their home (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411).
No Reliance Where Law Student Worked Hard to Become Eligible for Honors Society
A law student’s hard work to obtain a top ten percent ranking in his law school class, performed in reliance upon the law school’s representation that such ranking would make him eligible for election to the Order of the Coif, was not action of a definite and substantial character necessary for the application of promissory estoppel (Blatt v. University of So. California (1970) 5 Cal.App.3d 935).
Actual Reliance in Employment Relationships
In matters of employment relationships, courts may make reasonable inferences from the realities of the marketplace concerning the inducement and reliance of employees upon the benefits offered by the employer. Courts take into account the actual employment context and specific reliance.
Actual Reliance Where Borrower Relies on Bank’s Promise to Modify Loan
A borrower has a promissory estoppel claim against his or her bank when he or she relies on the bank’s promise to work with the borrower to reinstate and modify the loan. As a result, borrower did not attempt to save her home by converting from a Chapter 7 bankruptcy case to a Chapter 13. Such reliance ties directly to actions taken based on the promise made (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411).
The promisee’s reliance on the promise must be both reasonable and foreseeable. Promissory estoppel aims to address situations where the promisor should have expected reliance.
Reasonable Reliance
Reasonable reliance binds the promisor in lieu of the consideration ordinarily required to make the offer binding. Courts focus on the logical expectation of reliance based on the promise made.
Promisor Deliberately Intends to Induce Reliance
The element of reasonable and foreseeable reliance is satisfied if the promisor, in making the promise, deliberately intended to induce the plaintiff’s reliance on such promise. Intent to induce reliance strengthens the enforceability of the promise (Restatement (Second) of Contracts § 90).
Intention to Induce Reliance in Employment Relationship
A terminated employee is entitled to economic damages for the lost income the employee suffered as a result of his leaving a secure job due to a supervisor’s false promises regarding the monthly compensation the employee would earn working for the employer. Courts evaluate whether reliance was deliberately induced and justified (Tomerlin v. Canadian Indem. Co. (1964) 61 Cal.2d 638).
No Reliance Where Promisees are Sophisticated Parties
Where the promisees were experienced business persons and the promisor made nothing more than a conditional offer with essential details missing, the promisees could not legitimately have expected that there was a binding offer and could not reasonably have relied on it. Experience and conditional offers often preclude enforceable reliance.
No Reliance on Promises that are not Specific and Clear
Reliance on a promise that was not specific and clear was unreasonable and unforeseeable. Courts require clarity and specificity for enforceability.
Promissory Estoppel and Third Parties
Although the Restatement (Second) of Contracts §90 does extend the doctrine of promissory estoppel to third parties, it does not extend to price quotations by manufacturers to general contractors. Enforceability depends on context and direct reliance.
Reliance in Construction Contracts
In construction contracts, if the general contractor has reason to believe that the subcontractor’s bid is erroneous, the general contractor cannot reasonably rely on the bid. Reliance must align with reasonable expectations and the industry context (Healy v. Brewster (1963) 59 Cal.2d 455).
The party asserting the estoppel must be injured by his reliance on the promise. Promissory estoppel seeks to address and rectify unconscionable injuries stemming from unfulfilled promises.
The purpose of the promissory estoppel doctrine is to make a promise by one party and the resulting detrimental reliance by another party operate as a substitute for consideration under certain circumstances. Courts focus on balancing fairness and preventing unjust enrichment or harm.
The value of the plaintiff’s detrimental reliance need not be identical with, or equated to, the value of the defendant’s promise.
Injustice Can Be Avoided Only By Enforcement of the Promise
The plaintiff must show that injustice can be avoided only by enforcement of the promise. Courts use this test to evaluate whether relief is warranted (Doe v. Marten (2020) 49 Cal.App.5th 1022).
Oral Promises and Promissory Estoppel
An oral promise that meets the elements of promissory estoppel is enforceable if injustice can be avoided only by enforcement of the promise. Oral promises are scrutinized for clarity and fairness.
Avoiding Injustice by Enforcement of the Promise
The meaning of “injustice can be avoided only by enforcement of the promise” is substantively the same thing as the requirement of unjust enrichment or unconscionable injury. Enforcement serves as a remedy to prevent undue harm or inequity.
Unconscionable Injury
Unconscionable injury results from denying enforcement of an oral agreement after one party is induced by another party to seriously change position relying upon the agreement. This ensures fairness and accountability in promises that lead to significant reliance.
What damages are recoverable in a case of promissory estoppel?
Enforcement of the Promise
Insurer under personal liability policy was liable for judgment against its insured where insurer made commitment to be liable under insurance policy for amount of judgment. (Tomerlin v. Canadian Indem. Co. (1964) 61 Cal.2d 638.)
Compensatory Damages
A trial court’s damage award on a promissory estoppel claim must not be speculative, remote, contingent, or merely possible (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411).
Lost Profits
A plaintiff’s lost future wages from a former at-will employer are recoverable under a promissory estoppel theory if they are not speculative or remote and are supported by substantial evidence (Toscano v. Greene Music (2004) 124 Cal.App.4th 685).
No Right to Jury Trial
A jury trial is not available to plaintiffs whose cause of action is based on the equitable doctrine of promissory estoppel (A-C Co. v. Security Pacific Nat. Bank (1985) 173 Cal.App.3d 462).
The statute of limitation for promissory estoppel in California based an oral promise is two years. Civ. Proc. Code § 339(1).
The statute of limitation for promissory estoppel in California based an written document is four years. Civ. Proc. Code § 337(1).
If delay in commencing an action is induced by the promisor’s conduct, the promisor is estopped from asserting the defense of the statute of limitations. The plaintiff has a reasonable time in which to bring his action after the estoppel has expired (Doe v. Marten (2020) 49 Cal.App.5th 1022).
Plaintiff’s Performance Was Bargained-For
Promissory Estoppel does not apply if the promisee gave actual consideration and, therefore, a cause of action for promissory estoppel is inconsistent with a cause of action for breach of contract based on the same facts.
No Promissory Estoppel Where Employee Bargained to Work for Annual Salary Raises
Promissory estoppel doctrine did not apply when employee relied on promise of annual merit step increases in salary in accepting employment, continuing in that job and refraining from accepting a job elsewhere (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240).
No Promissory Estoppel Where Subcontractor Bargained to Continue to Work for Extra Compensation
Subcontractor who continued to excavate unexpected cemented soil in response to general contractor’s promise that he would be compensated for the extra work gave bargained-for performance (Healy v. Brewster (1963) 59 Cal.2d 455).
Statute of Frauds
Promissory estoppel may act as exception to statute of frauds where promisee proves detrimental reliance and unconscionable injury (Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935).
The plaintiff must allege Breach of Promise. Assuming a clear and unambiguous promise is made, the promisee must then plead a breach of that promise. A promise of eligibility is will not create a promise.
Example re Pleading
A law school did not breach its promise to a law student when they promised him he would be eligible for membership in an honors society if he ranked in the top ten percent of his class. The election committee considered him for membership but did not elect him into the society but this did not breach a promise (Blatt v. University of So. California (1970) 5 Cal.App.3d 935).
“No justiciable issue was pleaded in an attorney’s action for injunctive and declaratory relief seeking to compel his admission to membership in a national honorary legal society, where, despite his allegation that non-election, for failure to meet his schools’s law review requirements, would adversely affect his professional and economic interest, membership in the society was not a prerequisite to the practice of law, indicated no qualification for any specialized field of practice, had no direct bearing on the number or type of clients he might have or on the income he would make, and had no effect on his basic right to earn a living, and where his allegations of arbitrary or discriminatory action on the part of the election committee were insufficient to state a cause of action.” (Blatt v. University of So. California (1970) 5 Cal.App.3d 935).
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