Introduction to Restatement of Contracts
The Restatement of Contracts (RESTATEMENT, CONTS) is a treatise that "attempts to recast the law in this field into a body more coherent and consistent than that existing in the multifarious and scattered forms of decision." Joseph M. Perillo, Understanding the Restatement of Contracts (1999), p. 91. "It is a codification and an explication of the eventual outcomes of individual cases and how these outcomes are eventually disposed." Id. at 92. Among the goals of the Restatement is "to settle what the law is in various fields of interest and to forewarn individuals and the courts as to what the ultimate result of future litigation probably should and would be." Id. "It organizes disparate rules and principles in a systematic manner in accordance with specific categories." Id. at 96.
The Restatement has been called an "underappreciated success story" in American jurisprudence with regard to its "highly influential dictates and recommendations." Paul M. Schwartz (2006). The Restatement has an "affinity for application and adoption." Id. See also, John Gordon (2007) ("The Restatements are far from the elitist imposition of a small group of experts or lawyers on the entire legal profession . Instead, they are the result of extensive input from a variety of sources…"). Restatements "aim to embody consensus and to serve as a reference tool for those seeking answers concerning the law." Id.
Restatements differ from most legal publications because they are meant to be "authoritative and aspirational." Id. (emphasis added). The Restatements are meant to be "adaptable to the many jurisdictions that exist in the United States" with an "underlying theme that reflects the best policy!" Id. at 97. "The Restatements encourage judges to think of the real world problems that comprise the subject matter and to seek solutions that best serve the society as a whole." Id. at 97-98. This is in contrast to practice guides which are "the promulgation of a bright-line perspective" for answering narrowly drafted questions. Id. at 98. "The Restatements do not purport to create any new ‘law’ regarding promissory estoppel or any topic, but simply contain restatements in conjunction with original thoughts about present issues." Id. at 110.
What is 90?
Section 90 of the Restatement of Contracts is a commonly used section of the Restatement of Contracts concerning promissory estoppel. Promissory estoppel as defined in the Restatement arises where a promise of a promissor causes detrimental reliance on the promise by a promisee.
Section 90’s importance in contract law is that it can apply to situations where the promise of a promissor does not amount to an enforceable contract – meaning there was no acceptance, consideration, or lack of capacity, if you will, to enter into a contract according to the definitions and elements of a contract.
Section 90 states as follows:
- (1) A promise which the promisor should reasonably expect to induce action or forbearance 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. The remedy granted for breach may be limited as justice requires.
- (2) An action or forbearance of a benefiting beneficiary shall not be treated as sufficient in the absence of other circumstances unless the promise induces such action or forbearance.
- (3) A charitable subscription or a marriage settlement is binding under the same conditions as the promise or agreement on which it is relied.
- (4) A misrepresentation that induced action or forbearance is a basis for restitution under the rules stated in the Chapter on Quasi-Contracts or Restitution.
The comment to Section 90 explains further:
Comment
a. A voluntary undertaking creates a power of enforcement.
The rules stated in this Section are arranged in three parts. First, it is necessary that the promisee, by action or forbearance, have put himself in a position of substantial change; and the test to be applied is, to a substantial extent, whether the promise compelled him to change his position or whether he would have changed it to the same extent had the promise not been made. Secondly, it must appear that the promise • was made under circumstances that in the judgment of the court it would be inequitable not to enforce it. Thirdly, the remedy granted should be proportionate to the prejudice suffered by the promisee.
The most common example of the application of Section 90 is the so-called ‘naked promise.’
Elements of a Promissory Estoppel Claim
Promissory estoppel claims under Section 90 require a few different key elements to be present in order to hold an otherwise unenforceable promise against a party. The elements of a Section 90 claim have been repeatedly defined by courts in various jurisdictions as:
- A promise that the promisor should reasonably foresee would lead the promise to rely on it;
- Actual reliance by the promisee on the promise (the reliance can be in the form of some type of action or forbearance);
- The action or forbearance is undertaken by the promisee in a definite and specific manner;
- Injustice can be avoided only by enforcement of the promise.
The theory behind this particular formulation of a promissory estoppel claim is that the promise, evidence of reliance by the promisee, and the injustice in not allowing the promisee to recover on the promise work to prevent unfair outcomes by giving the promisee a recovery when no enforcement of the promise is allowed under the statute of frauds. The parol evidence rule, for example, also prevents the enforcement of a promise that is not in writing and may lead to the same type of potential injustice. Section 90, however, prevents any type of injustice that may occur if the promise is not fulfilled.
Supporting Case Law
Promissory estoppel under Restatement of Contracts section 90 has evolved through numerous legal precedents and influential case studies. One notable case is the 1980 decision in Durney v. National Park Service, 532 F. Supp. 1177 (E.D. Maine). The plaintiff, who was an "officer and director in the Golden Rod Club, Inc.," allegedly relied to his detriment on the promise of a letter from the National Park Service, which assured the Club’s access to a contract worth a substantial sum of money. The court found that this reliance was based on conduct (or, lack thereof) of the National Park Service, not on an actual promise that could be construed as binding under Section 90. This is because, according to Durney, the letter itself merely stated that "[t]his is a notice of intention to award but it is not a contract," and that the National Park Service was under "no obligation for the payment of any bill submitted."
Another instructive case where Section 90 was central to the court’s ruling is the 1956 case of King v. Wichita Oil Co., 297 P. 2d 186 (Okla. 1956). In King, the defendants "were convinced from plaintiffs’ representations and agreement that they could go ahead in the purchase of property; could secure financing thereon; and, if they could secure financing, then their interest would be vested. The trial court concluded that Kings were entitled to rely upon the representations made as . . . a binding promise. . . . [because] Promissory estoppel is another and possibly clearer method of . . . indicating when a promise will be enforced. . . ."
As Judge Cross wrote in King, the elements necessary to create a binding promise under Section 90 include "(1) a promise, (2) in which the promisor should reasonably expect will induce action or forbearance of a definite and substantial character on the part of the promise, (3) which does induce such action or forbearance, (4) and can only be avoided if a material change of position is required." (citation omitted).
These case studies and legal precedents illustrate how section 90 has attached itself to practical and empirical application.
The Effect of 90 on a Contract
The reach of Restatement of Contracts Section 90 has significant implications for contractual agreements and actions involving promises. Previously, we discussed how Section 90 has drastically changed the landscape of contract law and how to understand its implications. The contours of Section 90 can be plainly seen in the many examples provided earlier, from the example of a tenant improvement lease to the latter example of a note and mortgage signed by an individual in favor of a bank. In both cases the facts were straightforward enough that the imposition of Section 90 was clearly foreseeable, and to the loser of the property or cash value derived from their reasonable reliance on the misrepresentation was relatively evident. However, what is less clear is what the policy implications are for how and when Section 90 should apply as well as why Section 90, as a central tenet of the Restatement of Contracts, has engendered such drastic changes to the landscape of contract law as it existed prior to Section 90 becoming a core principle. The answer to these questions is somewhat complex. The policy implications of Section 90 are two-fold. First, it would appear that the inherent nature of Section 90 is to provide an alternative cause of action that is independent of the elements of actual fraud. That is to say, while practical concerns dictate that a court is unlikely to award promissory estoppel damages if there is also a valid cause of action of fraud, situations may arise where awarding both is justified . Likewise a court may have legitimate concerns with misrepresentations that support a fraud claim but that do not actually hamper the person misled. Dismissing such a case out of hand because fraud is also involved could potentially lead to just as many unjust results as were being addressed before Section 90 became a part of contract law. Second, while the legal profession had historically, at least until recently, considered misrepresentations as mere overtures or inducements unless tied to a breach of contract or an express warranty, such a simple, cut-and-dry interpretation of misrepresentations is all too simplistic. In an age of increasing social media dependency that feeds and amplifies misrepresentations, once merely social, into something more pernicious, such an interpretation was untenable. The reality is that misrepresentations can occur at any time and greatly impact parties before an actual agreement ever comes in to play. The ripple effect of Section 90 upon the landscape of contract law has been far-reaching. Fairness and convenience had previously dictated that an agreement be binding upon all parties for any remedy to be available in contract law. Section 90 now ensures that fairness and convenience are no longer the standard. Following the evolution of contract law leading to Section 90 and how Section 90 has since evolved into a broader concept we cannot go back. Far-reaching effects such as these show how Section 90 has become a fundamental part of the Restatement of Contracts and how important it has become in its application to real estate transactions.
Controversies over 90
Not all legal scholars or even all practitioners advocate for the use of Section 90 as written. Some have argued that it is too abstract and lacks a helpful framework. Others argue that it may expand into areas best left to other doctrines, like statutory and tort liability.
Some critics assert that Section 90 is ambiguous regarding its applicability, especially in cases where recent decisional law has developed around already-existing doctrines like unjust enrichment, promissory fraud, or other modern liability theories. They argue this ambiguity leads to uncertainty on the part of courts. Courts trying to apply Section 90 appropriately and in harmony with other legal doctrines should avoid this problem by ensuring they do look to other doctrines to be certain Section 90’s use does not conflict with them. Section 90 should be limited to its strict, traditional criteria, otherwise the ambiguity which has been criticized is rightly returned. And then Section 90 should be demoted to a secondary, inconsistent, doctrines, such as promissory fraud, at the court’s discretion.
Other critics of Section 90 and its use by courts have said that the fact that Section 90 arrives at results which may make sense in retrospect does not mean it is necessarily a good predictor of future behavior by parties. In addition, the critics argue that the broadness of Section 90 invites inconsistency, as noted above, and experience has shown cases which fit squarely into Section 90 seldom do not see its application or become embroiled in long, protracted litigation about what Section 90 ought to require, before settling out of court under the bargaining power and other factors at play.
Some criticize Section 90’s definition of the reliance measure as providing an incentive for parties to fear making representations or undertakings without a formal contract, because they will do so at their peril. Instead of undertaking actions in reliance upon an informal commitment made by another party, critics argue parties will now forego reliance-outside-of-law. By doing that, critics argue that parties will lose whatever bargaining advantage they may have had by relying on a promise so that later they can sue for reliance damages if that promise turns out to have been real.
There is also the criticism that Section 90 interferes with the traditional contractual right of a party to change its mind, but which normally would not obligate them to pay reliance damages to the other party. The reliance requirement therefore forces courts to create exceptions to allow contractual rights to change one’s mind based upon a party’s reasonable reliance on a promise.
Most courts and other authority considering or discussing Section 90 recognize there are many problems and open issues which have arisen and will inevitably continue to arise because of Section 90’s emphasis on unconscionability and its deregulation of the contractual process by erasing the Statute of Frauds’ requirement of a writing. To the extent Section 90 is invoked in an effort to undo the Statute of Frauds and/or the parole evidence rule, it should be avoided.
Conclusion as to 90
Section 90’s eventual fate is uncertain. The drafters of the Restatement (Second) were highly critical of Section 90, marking it inconsistently and offering only a guarded assessment of its import. Yet as the Restatement (Second) turned out, its criticism was of little use. Section 90 has, if anything, flourished since then, becoming a premier example of the Restatement’s after-the-fact assessment of the law. Courts across the country have adopted it and restated its holding, offering their own glosses on its meaning and application. Section 90, and its judges’ interpretations, now firmly reside in the American toolbox.
And its basic holdings remain remarkably consistent, all the more so over many decades . In its latest relitigation of the issue, the Supreme Court of Hawaii described the existence of Section 90’s framework in contract law as "vituating" the law, i.e., just as responsible for the conceptual underpinnings of contract law as the consideration doctrine itself. Sections 19 and 71, over time, have shed much of their vitality, as have many of the Restatement’s earlier formulations of fundamentals like accord and satisfaction and novation and delegation. But Section 90 remains vital, in both theory and practice, in contract law.
What will Section 90 look like going forward? The future use of the doctrine is highly uncertain. Perhaps more than 90 itself, the "Modern Approach" to contracts will continue its evolution in the coming years. But Section 90 itself continues to thrive as a foundational concept of contract law, and ought to continue to do so.