Promissory Estoppel Q.

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Promissory Estoppel Q.

Postby downing » Wed Oct 12, 2011 6:10 pm

My Contract's class received this problem awhile ago. It's already been handed back and graded, so I think it would be kosher to post it here for others to try it. There are a few issues buried in the problem besides promissory estoppel.
I'll post the answer checklist up after it's been attempted a few times (so you can grade your own answers; or you can send me a PM if you want the answer(s) faster.).
Sookie, a waitress at Merlotte's Bar and Grill, seeks your assistance and legal advice when you come into Merlotte's one for lunch one day. Sookie had been in dire need of some extra cash to fix her home after a run-in with a local wolf and decided to go to her friend Eric for some help. When Sookie approached Eric with her problem, he offered to lend her the money she needed to fix her home. The two of them entered into the following agreement:

"Eric promises to lend Sookie $10,000 (ten thousand dollars) if, in exchange, Sookie agrees to pay Eric $10 dollars within the next 100 years and to repay the loan if she thinks she can afford it."

Sookie agrees with the intention of paying Eric back the full $10,000 (ten thousand dollars) well within the 100 years. Sookie tells Eric that she will be calling the contractor that very day to begin repairs, and Eric says that he will give the money to Sookie when she needs to pay for the repairs.

The next day, Sookie hires a contractor to come and fix her house. When Sookie asks Eric for the money a few weeks later to pay the contractor who had fixed her house, Eric refuses to give her the money unless she agrees to stop dating her boyfriend, Bill, and agrees to go out on a dinner date with Eric. After thinking it over, Sookie refused to break up with her boyfriend Bill and turned Eric's dinner date invitation down. Sookie is extremely upset because she now owes the contractor who fixed her home $10,000 (ten thousand dollars). When she informed the contractor she might not be able to pay him, he threatened to sue Sookie.

Q. How is a court likely to resolve this dispute? Be sure to include all theories of contract law that are applicable to the situation even if you think one theory would resolve the issue. This memo should be no longer than one page, double spaced....

(I modified the directions, editing out the requirement of turning this into a personal letter, and the font stuff. Obviously what's important here is finding all the issues.)
Last edited by downing on Thu Oct 13, 2011 3:38 pm, edited 1 time in total.

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Re: Promissory Estoppel Q.

Postby highviolet » Thu Oct 13, 2011 2:48 pm

i'm stumped as to why this would not be an enforceable contract.

there is inducement by both promisor and promisee - $10,000 --> $10 over 100 years + possibility for full repayment, and $10 over 100 years + possibility for full repayment --> $10,000.

mutuality doesn't seem entirely lacking. although she only has to repay in full if she can afford it, she can't withdraw from full payment on a whim or at her leisure. plus she's bound to pay the $10, whether she can afford it in 100 years or not.

the agreement also doesn't seem wholly unconscionable. if she can afford it, she has to pay him back fully. barring that Eric still receives SOME money, albeit only .01% of the initial loan. in any case, i think this it's debatable at least whether a court would hold that consideration was completely inadequate, since the assumption is usually that courts will stay out of adequacy debates.

what am i missing?

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Re: Promissory Estoppel Q.

Postby Ludacrispat26 » Thu Oct 13, 2011 3:42 pm

Last edited by Ludacrispat26 on Mon Jan 02, 2012 5:26 pm, edited 1 time in total.

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Re: Promissory Estoppel Q.

Postby catlawl » Thu Oct 13, 2011 3:55 pm

In this case, probably no contract was formed, but Sookie will likely recover reliance damages under a theory of promissory estoppel.

The agreement between Sookie and Eric is probably not a contract due to lack of consideration and mutuality of obligation. It is true that Sookie promised to pay Eric $10 dollars within the next 100 years, but the evidence suggests Eric did not intend to pay $10,000 to Sookie so that he could obtain her $10. Thus, the $10 promise was not bargained for because it was not sought by Eric in exchange for his promise. Therefore, his promise a mere gift. Courts generally do not inquire into the adequacy of consideration for the purposes of contract modification, but will inquire as to whether the promised performance was actually bargained for in the original contract.

The agreement is also probably not a contract because the promise made by Sookie is illusory and therefore devoid of mutuality of obligation. Sookie agrees to pay $10 within the next 100 years, but both Eric and Sookie know she will not live 100 more years, so she is not really promising anything. Likewise, she only agrees to repay the loan if "she thinks she can afford it," making this a classic instance in which a party may subjectively determine whether performance is rendered. As a result, she actually made no promise. It could be argued that she is under an obligation to repay under a good faith obligation, but this is a decision left to the court's discretion.

Even assuming that a court chose to find consideration by supplying a good faith obligation and not evaluating whether the promisor actually sought the return promise, the statute of frauds may also make the contract unenforceable. Because Sookie agrees to pay Eric within the next 100 years, she has made a promise that may take over 1 year to complete, thus invoking the statute of frauds. Whether the statute of frauds would apply varies by jurisdiction. A minority of jurisdictions would hold that the statute of frauds is applicable because Sookie is unlikely, indeed almost uncertain, to fulfill her promise within 1 year. However, a majority of jurisdictions following the leading approach would find that the statute of frauds is not applicable because the agreement does not explicitly state that the promise may only be performed a year after the formation.

Although this issue has no bearing on whether Sookie is entitle to damages, it is worth pointing out that Eric's threat to break his contract (if a contract actually existed) was an improper threat that could have prevented any subsequent modification of the contract from being enforceable. Threatening to breach a contract in order to induce the other party to modify a contract does not accord with good faith and customs of fair dealing, and could make any subsequent contract avoidable. Likewise, any modification to the agreement that occurred due to his threat would not be unenforceable for lack of consideration because he had a preexisting duty to provide the $10,000.

Finally, it is likely that a court would find that Sookie is entitled to relief for reliance damages under promissory estoppel in the amount of $10,000. Eric should have reasonably expected that his promise to give Sookie $10,000 would lead her to strike a deal with the contractor to repair her home. He knew how she intended to use the money and why she was seeking the money. There could be a point of contention as to whether Sookie was justified to rely on the promise made by Eric. Out of considerations of fairness, a court would most likely decide that her reliance was justified. The promise was definite in its terms and Eric certainly conveyed the impression that he meant to abide by the promise. However, if Eric had a history of breaking past promises, her reliance might be unjustifiable. Likewise, she may have acted unwisely by contracting with the builder before she had the gift in hand. One could argue that before entering into an expensive contract with another party, one should ensure that financing is available. Nontheless, Eric definitely seems like the bad actor here and a court would probably award Sookie reliance damages.

Hopefully, I didn't miss anything.

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Re: Promissory Estoppel Q.

Postby downing » Thu Oct 13, 2011 5:55 pm

The professor graded the paper by giving it one of the following: check minus, check, and check plus. Your grade depends on how many of the issues you were able to spot.

1. Bargained for Exchange.

Sookie's Promise:
- pretense of bargain: is $10 within the next 100 years a pretense of a bargain? (nominal consideration)
- Illusory promise to repay the loan "if she thinks she can afford it."

Eric's Promise.
- Eric promising to pay Sookie $10,000 is sufficient consideration.

Is there a bargain?
- Assuming no bargain, although it seems that there is a bargain, can Eric's promise be enforced under Promissory Estoppel...?
(this was explained to the class as a good transition to get from the subject of a) bargained for exchange to b) promissory estoppel.)

2.Promissory Estoppel.

1) Promisor made a promise that was reasonably expected to be relied upon.
- Eric promised Sookie that he would lend her $10,000, knowing full well that Sookie was going to hire a contractor that same day.

2) Promisee reasonably relied on the promise.
- Sookie called the contractor that day and hired several workers the next day believing that she had the cash to for the repairs.
- Was it reasonable for Sookie to hire the workers/contractor without actually having the cash in hand and relying solely on Eric's word?

3) Injustice can be avoided in no other way.
- Is it just for Sookie to be sued by the contractor for failing to pay when she truly believed she had the money?

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