Remedies where Agreement Incomplete or Indefinite

Case: Hoffman v. Red Owl Stores, Inc. (1965, WI) [pp. 435-443]

Parties: Plaintiff - Hoffman

Defendant - Red Owl

Facts: Lukowitz (as agent for Red Owl) made an agreement with Hoffmans that Red
Owl would build a store and stock it with merchandise in return for P's putting up
$18,000. In reliance on this agreement, Hoffman sold his bakery and grocery (which
was only a temporary experiment to gain experience in the grocery business); they
also rented a house in Chilton where they thought they were going to move.
Basically, Hoffman let Red Owl know he could only get $18,000, and he received
assurances like “everything is ready to go, get your money together and we are
set.” Then, the situation kept chaning and ultimately Red Owl asked for $34,000,
and which $13k investment from P's father-in-law in exchange for being a partner
was going to be an outright gift . At this point, Hoffman said he couldn’t go
along with this. They had negotiated but had not reached final agreement on all
details at the time P withdrew from negotiations. There was no contract ever
made, but P acted in reliance of D's promises.

Issue: What kind of damages can be awarded when no contract was ever made, but P
acted in reliance of D's promises?

Holding: Court decides to enforce the indefinite agreement based on promissory

estoppel and awards reliance damages.

Reasoning: Although the details of the agreement weren't all established, they
are enough to satisfy a claim of reliance via promissory estoppel (which says that
reliance can substitute for consideration and allow enforcement based on
reliance). Rest §90 does not require that in order to use PE the promise has to
be definite. It only requires that (1) the promise is of the type that promisor
should reasonably expect to induce action or forbearance of a definite and
substantial character on the part of the promise, (2) the promise induced such
action or forbearance, and (3) injustice be avoided only by enforcement of the
promise. The first 2 questions are the be determined by the jury and the jury in
this case found in favor of P. The last question requires court’s discretion, and
it finds that justice can only be avoided if P is compensated.
Damages: Since there was no contract, the damages are limited to those
necessary to avoid injustice - reliance damages.
□ Reliance damages awarded $3,265 for the selling of the bakery
and his moving costs, etc.
® Also included: Chilton option (the ground he would buy),
moved to another city to rent an apt.
□ P can get difference between fair market value of store and the
price he received
® But need more info on fair market value (new trial
granted for this) P had to sell quickly, and didn’t get as much as he should have.

® Cant get damages for lost profits, there was no contract.

□ he does NOT get expected profits, because the court thinks this
would be expectation (only for breach of K)

RULE:
· A party can be held liable w/o a K, if they induced reliance on part of other
party prior to making of a definite K.
· Promissory estoppel can be used to recover damages in absence of a clear
contract and finalized details.
· damages are limited to “those necessary to avoid injustice”

***This case highwater mark for promissory estoppel – considered extreme (common
law doesn’t usually impose duty of good faith in negotiations) – diff from Baskin
Robbins b/c there was a K to bargain in good faith, but here, no K to bargain in
good faith, but duty still imposed – K to negotiate in good faith IMPLIED

Notes

§ 1-304. Obligation of Good Faith.

Every contract or duty within [the Uniform Commercial Code] imposes an obligation
of good faith in its performance and enforcement.

· What is the proposition that the case seems to stand for?

o Promissory estoppel
o Red Owl repeatedly gave assurances to Hoffman, but you wouldn’t get lost
profits, only get reliance damages.
o No contract was formed. - in that event the most you can get is reliance
damages. How else can you evaluate this case?
§ If you don’t negotiate in good faith, you can be penalized. You can
be penalized for leading the party on, up to this point. The penalty is reliance
damages.
· Argument for what dissent should have said:
o In both UCC and rest, obligation of good faith only arises in context of a
contract. No good faith requirement in negotiations. Should there be a duty of
good faith in negotiations?
§ Conduct was outrageous - we should have an obligation of good faith.
So why shouldn’t we penalize the party negotiating in bad faith by awarding
expectation damages.
□ Difficult to calculate lost profits - being asked to peer into
the future. Court can't imply what the parties would have agreed to, because they
don't know, or even if they would have created a contract even if Red Owl had
negotiated in good faith. So expectation damages hard to be calculated.
· Argument for Hoffman being entitled to expectation damages (for leading someone
along pre-contract):
o At what point do you say the parties have a binding contract (see Baskin
Robbins). Did the parties intend to be bound?
· Dangerous case - allows damages even before a contract is reached. Or otherwise,
nobody is allowed to give repeated assurances.