Rethinking Promissory Estoppel

16 NEV. L.J. 659, ALDEN - FINAL.DOCX 4/12/16 6:09 PM RETHINKING PROMISSORY ESTOPPEL Eric Alden* Samuel Williston, the official Reporter for the ALI’s first Restatement of the Law of Contracts in 1932, claimed that promises had been enforced without consideration in sufficiently many cases across different factual situations that the only way to embrace them all was to create a provision, set forth in Section 90 and generally referred to as “promissory estoppel,” that purports to suspend wholesale the normal rules governing contract formation. This Article challenges that assertion as a factual matter, and challenges the claim that only a provision as broad as Section 90 could accommodate certain limited exceptions to the consideration requirement that had been observed at the time. Since 1932, innumerable cases have been decided on the basis of promissory estoppel precisely because the ALI’s restatements have held themselves out as de- finitive declarations of the law. Williston’s initial claim of authority for Section 90 is the lynchpin upon which both the legitimacy of Section 90 as well as the doctrinal validity of those subsequent cases ultimately depends. This Article further addresses the implications of this analysis for the future of contract law. In order to reduce the risk of contract bleeding out doctrinally in- to tort, the Article argues that a markedly more modest approach than that re- flected in Section 90 should be taken with respect to the enforcement of promises in the absence of consideration. Specifically, the Article argues in favor of dis- crete, limited categorical exceptions to the consideration requirement. As to factual situations not falling within those categorical exceptions, courts should strongly consider implied unilateral contract as an analytic paradigm preferable to that of promissory estoppel. * Associate Professor of Law, Chase College of Law, Northern Kentucky University. Harvard University, B.A. 1988; L’Institut d’Etudes Politiques de Paris (Sciences Po), Certif. d’Etudes Pols. 1986; Freie Universität Berlin, Magister Artium (M.A.) 1991; Columbia Uni- versity, J.D. 1994. Prior to entering academia, the Author was in practice for fifteen years in the field of corporate and securities law as full equity partner at two AmLaw 100 firms, one national and one global. During 2005–2006, the Author served with the Securities and Exchange Com- mission in Washington, D.C., as an Attorney Fellow in the Division of Corporation Finance, Office of Chief Counsel. Prior to joining Chase, the Author was a Lecturer and Research Fellow in Corporate Governance at U.C. Berkeley School of Law (Boalt Hall). The Author wishes to thank Ian Ayres, Randy Barnett, Sidney DeLong, Michael Gib- son, Robert Hillman and Jean Powers, and at Chase, the research librarians, Ursula Doyle, Nancy Firak, Jack Harrison, Kenneth Katkin, Michael Mannheimer, Gerard St. Amand, and Dean Jeffrey Standen. Particular thanks go to my friend and colleague Christopher Gulinello, without whose generous assistance this Article would not have come to pass. The Author is alone responsible for any errors and for the content of the Article. 659 16 NEV. L.J. 659, ALDEN - FINAL.DOCX 4/12/16 6:09 PM 660 NEVADA LAW JOURNAL [Vol. 16:659 TABLE OF CONTENTS INTRODUCTION ................................................................................................ 661 I. GENESIS ............................................................................................... 667 II. TOPOGRAPHY ....................................................................................... 669 A. No Consideration Required ......................................................... 669 B. No Assent Required ...................................................................... 670 C. The Liability Standard ................................................................. 671 D. No Facial Requirement that the Reliance Be Reasonable ........... 674 E. Avoidance of Injustice .................................................................. 676 III. RAMIFICATIONS ................................................................................... 677 IV. JUSTIFICATION ..................................................................................... 678 A. Williston and Corbin .................................................................... 679 B. Alternative Approaches to the Treatment of Heterodox Cases .... 681 V. THE PREEXISTING CASELAW ............................................................... 683 A. Unilateral Contract ...................................................................... 683 B. Waiver .......................................................................................... 685 C. Charitable Donations & Marriage .............................................. 687 D. Gratuitous Promise to Convey, Plus Improvements to, Real Estate ............................................................................................ 688 E. Gratuitous Bailees ....................................................................... 688 F. Miscellaneous, Isolated Cases ..................................................... 692 1. The ALI Record ...................................................................... 692 2. Williston’s 1920 Treatise and the Critical Role of Intrafamily Gifts .................................................................... 696 VI. SUMMATION AND IMPLICATIONS FOR THE FUTURE OF CONTRACT LAW ................................................. 704 CONCLUSION ................................................................................................... 705 16 NEV. L.J. 659, ALDEN - FINAL.DOCX 4/12/16 6:09 PM Spring 2016] PROMISSORY ESTOPPEL 661 [M]odern Restatements . are of questionable value, and must be used with caution. Over time, the Restatements’ authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be. Restatement sections such as that should be given no weight whatever as to the current state of the law, and no more weight re- garding what the law ought to be than the recommendations of any respected lawyer or scholar. And it cannot safely be assumed, without further inquiry, that a Restatement provision describes rather than revises current law.1 INTRODUCTION The doctrine of promissory estoppel has introduced significant, continuing, and unresolved theoretical instability into American contract law.2 Formally ushered onto the stage in 1932 by Section 90 of the Restatement of the Law of Contracts (First Restatement),3 for which Samuel Williston served as the official Reporter, and later amended by the Restatement (Second) of Contracts in 1981,4 the doctrine of promissory estoppel eliminated at the stroke of a pen two core requirements for the imposition of contractual liability, namely mutual assent and consideration.5 Those two threshold requirements of classical Anglo- American contract law had served for centuries as guardians, protecting indi- 1 Kansas v. Nebraska, 135 S. Ct. 1042, 1064 (2015) (Scalia, J., concurring in part and dis- senting in part). Although Justice Scalia referred in this passage to subsequent evolutions of such restatements, as will be demonstrated in this Article the problem to which he refers has existed since the inception thereof. 2 Samuel Williston is generally credited with having first coined the term “promissory estoppel” in his major treatise on contract law appearing in 1920, just several years prior to formation of the American Law Institute and commencement of its institutional project to create “restatements” of numerous substantive areas of the common law. See 1 SAMUEL WILLISTON, THE LAW OF CONTRACTS § 139, at 308 (1920). 3 RESTATEMENT OF THE LAW OF CONTRACTS (AM. LAW INST. 1932). In the Restatement of the Law of Contracts (First Restatement), Section 90 read as follows: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substan- tial 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.” Id. § 90. 4 RESTATEMENT (SECOND) OF CONTRACTS (AM. LAW INST. 1981). As revised by the Re- statement (Second), Section 90 now reads as follows: (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Id. § 90. 5 In the First Restatement, Section 90 appeared under the heading of “Informal Contracts Without Assent or Consideration.” RESTATEMENT OF THE LAW OF CONTRACTS ch. 3, topic 4, at 100 (AM. LAW INST. 1932). In the Restatement (Second), that heading was shortened to “Contracts Without Consideration,” but the note thereto makes clear that “[w]here the stated circumstances [as in Section 90] do not include mutual assent or consideration, those ele- ments are not required,” thus reintroducing the point that assent is not required for liability under the section. RESTATEMENT (SECOND) OF CONTRACTS ch. 4, topic 2, intro. note (AM. LAW INST. 1981). 16 NEV. L.J. 659, ALDEN - FINAL.DOCX 4/12/16 6:09 PM 662 NEVADA LAW JOURNAL [Vol.

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