Walters v. Marathon Oil Co.
642 F.2d 1098 (1981)
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Rule of Law:
When a party reasonably relies on a promise to their detriment, under the doctrine of promissory estoppel, a court may award expectation damages (lost profits) if they can be ascertained with reasonable certainty and such an award is necessary to achieve complete justice.
Facts:
- In late December 1978, Dennis E. Walters contacted Marathon Oil Company about becoming a dealer and supplying a vacant service station site.
- Based on Marathon's promises and ongoing negotiations, Walters and his wife purchased the service station in February 1979.
- In reliance on Marathon's continued assurances, the Walters made improvements to the property.
- The Walters signed a three-party agreement with Time Oil Company, the previous supplier, and delivered it to Marathon for its signature.
- After receiving the signed paperwork from Walters but before executing it, Marathon implemented a moratorium on new dealerships due to the Iranian revolution.
- Marathon then refused to sign the agreement and supply the Walters with gasoline.
Procedural Posture:
- Dennis and his wife Walters sued Marathon Oil Company in federal district court.
- Following a bench trial, the district court found in favor of the Walters on the theory of promissory estoppel.
- The district court awarded the Walters $22,200 in damages, representing lost profits.
- Marathon Oil Company (appellant) appealed the damages award to the U.S. Court of Appeals, arguing that lost profits were improper and that the Walters (appellees) failed to mitigate damages.
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Issue:
In an action for promissory estoppel, may a court award damages for lost profits instead of limiting damages to out-of-pocket expenses incurred in reliance on the promise?
Opinions:
Majority - Spears, District Judge
Yes, a court may award damages for lost profits in an action for promissory estoppel. Promissory estoppel is an equitable doctrine, granting courts broad power to fashion remedies that achieve complete justice. In this case, simply awarding reliance damages (out-of-pocket expenses) would result in no recovery for the Walters, as the value of their improved property exceeded their expenditures. This would not be a just outcome, as they forwent other opportunities and invested time and money in anticipation of profits based on Marathon's promise. Since the Walters' lost profits were a direct result of their reliance and the amount was calculated with reasonable certainty, awarding these expectation damages is necessary to make them whole and provide a complete remedy.
Analysis:
This decision is significant for expanding the traditional scope of remedies available under promissory estoppel. Historically, promissory estoppel damages were limited to reliance damages (out-of-pocket costs) to return the plaintiff to the position they were in before the promise. This case demonstrates that courts, acting in equity, can award expectation damages (lost profits) to place the plaintiff in the position they would have been in had the promise been fulfilled. This blurs the remedial distinction between promissory estoppel and breach of contract, allowing for more flexible and just outcomes where reliance damages would be inadequate.
