Doctrine of Promissory Estoppel: Definition, Examples & Elements
- 0:05 Doctrine of Promissory Estoppel
- 2:19 McIntosh v. Murphy (1970)
- 5:43 Lesson Summary
The doctrine of promissory estoppel allows a party to recover the benefit of a promise made even if a legal contract does not exist. Use of this doctrine relies on how significant the promisee's loss is in the absence of the fulfilled promise.
Doctrine of Promissory Estoppel
So what happens when someone makes you a promise, you rely on this promise, act on the promise and the person does not come through? In our personal lives, nothing will happen. We will move on and be more cautious next time. Legally speaking, when one party promises to perform and the other party relies on that promise, the injured party can sue. Even in the absence of a signed contract.
An example will help. Suppose you are the principal of a small high school. A musician approaches you to discuss implementing a music program on campus. Excited about the possibilities this will bring to your students, you begin planning for the program. You order construction of a new building complete with soundproofing and a stage. Next, new furniture and fixtures, drums and tubas are delivered. You may even hire staff to manage the new music program. Then, in one fell swoop, the promise is retracted. The musician simply changes his mind. You might think that, without a contract, there is no recourse to recover not only the expenses but the embarrassment of having this promise broken.
Well, the law cannot help you with the embarrassment, but the doctrine of promissory estoppel can help you to recover your losses. It states that an injured party can recover damages if those damages were the result of a promise made by a promisor and the promise was significant enough to move the promisee to act on it. There are specific elements that must be present:
- Promisor made a promise significant enough to cause the promisee to act on it
- Promisee relied upon the promise
- Promisee suffered a significant detriment
- Relief can only come in the form of the promisor fulfilling the promise
And, there need not be a contract involved. In fact, when promissory estoppel is used, it is because a contract did not exist. Now it may not be as simple as this. The court will look at a few things. First, the court will decide whether there was detrimental reliance, or a change in the position of the promisee, who acts based on the promise and becomes damaged as a result. An interesting court case will help to explain.
McIntosh v. Murphy (1970)
In March of 1964, George Murphy, owner of Murphy's Motors, located in Hawaii, flew to southern California to recruit for his car dealership. At the time, Dick McIntosh was searching for work. The two met on two occasions to interview.
In April of the same year, Murphy contacted McIntosh via telephone to inquire about his interest in a position. McIntosh expressed continued interest in the position, and the parties agreed that employment would begin within 30 days of the conversation. In the oral agreement, Murphy offered McIntosh a one-year employment contract. Sometime during April, McIntosh, just to be sure, sent a telegraph to Murphy advising him that he would be arriving in Honolulu on Sunday, April 26, 1964. It is important to note that McIntosh did not arrive empty handed. He brought along personal items, sold other items and rented an apartment.
In the afternoon of Saturday, April 25, Murphy called McIntosh to let him know he could begin employment as assistant sales manager on the coming Monday. Although he was confused by the title change, McIntosh accepted the assignment and reported to work. Things seemed like they were going smoothly when out of nowhere, everything changed. McIntosh was terminated from employment on July 16, 1964. Murphy claimed that McIntosh was unable to close deals on cars and could not train salespeople.
McIntosh sued Murphy for promissory estoppel, arguing that his decision to relocate some 2,200 miles from home was solely based on the promise of a yearlong contract for employment. Further, even though no written contract had ever been drafted, the promise made by Murphy in the oral contract was significant enough that McIntosh believed that employment would last for a period of one year.
In an effort to keep things clear, the Statute of Frauds requires that certain contracts be in writing. If a contract will endure for longer than one year, it must be expressed in writing or the contract is unenforceable. The day the contract agreement is made is considered the date to be used to determine enforceability. At trial, the defense argued that the contract was not enforceable because, according to the Statute of Frauds, a contract whose terms last more than one year and is not in writing is, in fact and law, unenforceable. The Statute of Frauds states that the contractual period must be within one year. On face value, it appears that this oral agreement will occur within a one-year period of time. But on closer inspection, it won't. The contract terms technically exceed one year, making for an unenforceable contract.
This was a clever defense indeed. But was it enough to sway a judge? In simple terms, no! Murphy argued that the agreement was in violation of the Statute of Frauds, and the contract could not be enforced. The judge saw it differently. Considering the agreement was actually made on a weekend, and weekend days do not count at the beginning and the end of a contract term, the contract did begin the Monday McIntosh began work. Promissory estoppel was granted. To end the court drama, McIntosh prevailed and Murphy was required to restore him financially for the duration of the contract period, totaling approximately $12,000.
In sum, the doctrine of promissory estoppel states that an injured party can recover damages if those damages were the result of a promise made by a promisor and the promise was significant enough to move the promisee to act on it. There are several elements that must be present, like:
- The promisor made a promise significant enough to cause the promisee to act on it,
- the promisee relied upon the promise, and
- the promisee suffered a significant detriment and relief can only come in the form of the promisor fulfilling the promise.
Detrimental reliance is a change in the position of the promisee, who acts based on the promise and becomes damaged as a result. As we followed McIntosh v. Murphy, we learned that an oral employment agreement was a significant enough promise that once breached, the plaintiff would be able to exercise promissory estoppel over the defendant for relief. The Statute of Frauds was instrumental in McIntosh's financial relief.
Chapters in Business 103: Introductory Business Law
- 1. History of American Law (6 lessons)
- 2. Sources of Law (15 lessons)
- 3. Constitutional Law (6 lessons)
- 4. American Legal Systems (13 lessons)
- 5. Legal Procedures (10 lessons)
- 6. Contract Law Basics (19 lessons)
- 7. Capacity in Contract Law (4 lessons)
- 8. Contract Law and Third Party Beneficiaries (3 lessons)
- 9. Contracts: Assignment and Delegation (4 lessons)
- 10. Contracts: Statute of Frauds (7 lessons)
- 11. Contracts: Scopes and Meanings (6 lessons)
- 12. Contracts: Breach of Contract (11 lessons)
- 13. Contracts: Discharge of Contracts (8 lessons)
- 14. The Legal Environment (10 lessons)
- 15. Securities and Antitrust Law (5 lessons)
- 16. Property Law (10 lessons)
- 17. Employment and Labor Law (13 lessons)
- 18. Creditors Rights (4 lessons)
- 19. Product Liability and Consumer Protection (6 lessons)
- 20. International Business Law (4 lessons)
- 21. Torts in Business Law (16 lessons)
- 22. The Role of Agency in Business Law (7 lessons)
- 23. Types of Business Organizations (13 lessons)
- 24. Sales & the Law (11 lessons)
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