Goodman v. Dicker
169 F.2d 684 (1948)
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Rule of Law:
A party who makes a promise that foreseeably induces another to act in reliance may be held liable for the promisee's out-of-pocket expenses incurred in reliance on that promise, even if the promise itself does not form an enforceable contract. Recovery under this principle of promissory estoppel is limited to reliance damages and does not include lost profits (expectation damages).
Facts:
- Appellants were local distributors for Emerson Radio and Phonograph Corporation.
- Appellees, with the knowledge and encouragement of appellants, applied for a dealer franchise to sell Emerson products.
- Appellants represented to appellees that their application had been accepted, that the franchise would be granted, and that they would receive an initial delivery of 30 to 40 radios.
- In reliance on these representations, appellees incurred expenses, including hiring salesmen and soliciting orders for radios.
- Appellants failed to deliver any radios.
- Appellants ultimately notified appellees that the franchise would not be granted.
Procedural Posture:
- Appellees sued appellants for breach of contract in the District Court (the court of first instance).
- After a bench trial, the court found that no enforceable contract had been proven.
- The trial court held, however, that appellants were estopped from denying the promise and entered a judgment for appellees for $1500, which included $1150 in expenses and $350 in anticipated profits.
- Appellants (as appellants) appealed the judgment to the U.S. Court of Appeals for the D.C. Circuit, with appellees as the appellees.
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Issue:
Does the doctrine of promissory estoppel allow a party to recover damages for expenses incurred in reliance on a promise that a franchise would be granted, even if no enforceable contract was ever formed and the promised franchise would have been terminable at will?
Opinions:
Majority - Proctor, J.
Yes. A party who induces another to act to their detriment based on a promise can be held liable for the resulting reliance damages, even without an enforceable contract. The court reasoned that the case was not about the specific terms of the unenforceable franchise, but about the promise that a franchise would be granted, which appellants knew would induce appellees to incur expenses. Citing principles of "justice and fair dealing" from precedents like Dair v. United States, the court applied the doctrine of equitable estoppel (promissory estoppel) to prevent appellants from denying their promise after appellees had relied on it. The court concluded that the correct measure of damages is the loss sustained through reliance—the out-of-pocket expenditures—and not expectation damages like lost profits, because the goal is to remedy the injustice caused by the reliance itself.
Analysis:
This case is a foundational example of promissory estoppel serving as a cause of action, creating liability where no formal contract exists. It establishes that the doctrine's primary role is to protect a party's reliance interest, preventing injustice, rather than to enforce the full benefit of the promised bargain. The court's crucial distinction between reliance damages (recoverable) and expectation damages (not recoverable) has had a lasting impact, shaping the remedies available in promissory estoppel claims. This decision limits recovery to restoring the plaintiff to the position they were in before the promise, thereby preventing them from receiving a windfall from a promise that never ripened into an enforceable contract.
