Alaska Airlines, Inc. v. Stephenson

United States Court of Appeals Ninth Circuit
217 F.2d 295 (1954)

ELI5:

Rule of Law:

An oral contract that otherwise would be unenforceable under the Statute of Frauds may be enforced under the doctrine of promissory estoppel if the promisee detrimentally relied on the promise in a definite and substantial manner, and injustice can only be avoided by enforcement, particularly when the promisor also promised to reduce the agreement to writing.

Facts:

In September 1950, Arthur W. Stephenson, an employee of Western Airlines with re-employment rights, took a six-month leave of absence to work for Alaska Airlines, Inc.
On September 15, 1950, R.W. Marshall, chairman of Alaska Airlines, hired Stephenson in New York as general manager under an initial oral agreement, with the understanding that a long-term contract would be formalized later.
In March 1951, as Stephenson's right to return to Western Airlines was about to expire, he pressed Marshall to finalize the long-term contract.
Stephenson alleged that Marshall then orally promised him a two-year employment term and further promised that a written contract formalizing this agreement would be executed once the airline received a key certificate.
In reliance on these oral promises, Stephenson allowed his re-employment rights with Western Airlines to lapse.
Stephenson also moved his family from California to Anchorage, Alaska, to perform his duties.
Alaska Airlines terminated Stephenson's employment around September 1, 1951, long before the conclusion of the alleged two-year term.

Procedural Posture:

Arthur W. Stephenson filed a lawsuit against Alaska Airlines, Inc. in the District Court for the Territory of Alaska, a trial court.
The suit included a claim for breach of an oral two-year employment contract.
The case was tried before a jury, which returned a verdict in favor of Stephenson, awarding him $11,050 in unpaid salary on the contract claim.
Alaska Airlines, Inc., the defendant, appealed the judgment to the United States Court of Appeals for the Ninth Circuit, becoming the appellant. Stephenson is the appellee.

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Issue:

Does the doctrine of promissory estoppel create an exception to the Statute of Frauds, making an oral two-year employment contract enforceable when an employee, in reliance on the employer's promise of a long-term contract and its promise to put it in writing, forgoes the right to return to his previous secure employment?

Opinions:

Majority - Chambers, Circuit Judge

Yes, the doctrine of promissory estoppel creates an exception to the Statute of Frauds under these circumstances. After determining that Alaska law, rather than New York law, should apply based on a 'center of gravity' approach, the court found no controlling Alaska precedent. It therefore adopted the principles of promissory estoppel articulated in Section 90 of the Restatement of the Law of Contracts. The court reasoned that Stephenson's reliance on Alaska Airlines' promise was both definite and substantial, as he gave up his right to return to his former job. The injustice of allowing the airline to use the Statute of Frauds as a defense after inducing such reliance was manifest. The court found the promise to reduce the agreement to writing was a critical additional factor weighing in favor of applying promissory estoppel to overcome the statute's requirements.

Analysis:

This decision is significant for its adoption of the Restatement's view of promissory estoppel as a potent exception to the Statute of Frauds in an employment context. It reflects a judicial trend away from the rigid application of the Statute where it would produce inequitable results. By emphasizing that reliance in the form of surrendering job security constitutes substantial detriment, the case provides a stronger basis for employees to enforce oral promises of long-term employment. The court's flexible choice-of-law analysis, looking to the 'center of gravity' of the contract, also illustrates a modern approach to resolving conflicts between different states' laws.

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