Reliance on Oral Promises: Statute of Frauds and Promissory Estoppel
Coauthored with Ryan D. Starbird and Joshua C. Vincent
Reliance on oral promises is the basis not only for law school hypotheticals but also for real world litigation. Consider the following hypothetical based on the 1970 Supreme Court of Hawaii decision in Mcintosh v. Murphy: Tex moved from Lubbock, Texas to Oklahoma to work for Murphy Motors Chevrolet-Oldsmobile, an Okmulgee car dealership. Tex signed a lease for an apartment in Okmulgee. After two months as assistant sales manager, Murphy Motors fired Tex. Tex sued Murphy Motors alleging breach of an alleged oral agreement that she would be employed for two years. It is understandable that a jury might not believe Tex-might not believe her claim that Murphy Motors promised two years of employment. And, it is even understandable that a jury might find that even if such a promise was made, Tex should not be able to recover because her reliance on such a promise was not reasonable, not foreseeable. We can only speculate as to whether a Texas jury would believe Tex or believe her reliance was reasonable. A Texas court would likely grant Murphy Motors's motion to dismiss and base its decision on the contract law concepts of promissory estoppel and statute of frauds. The use of the contract law concepts of statute of frauds and promissory estoppel to prevent juries or other finders of fact from considering claims based on reliance on oral agreements raises questions. And, these questions arise not only in relatively simple transactions such as employment contracts but also in much more complicated business deals, such as the following example inspired by the recent decision in Olympic Holding Co. v. ACE Ltd. NYTR, a New York title reinsurance company, and KON Group, title insurance companies in Kansas, Ohio, and New York, negotiated a five-year joint venture. Their agreement for a five-year joint venture was reduced to writing. NYTR allegedly orally promised that it would sign the writing and KON Group allegedly acted in reliance on that oral promise. NYTR never signed the writing. When KON Group filed a complaint with causes of action for "breach of a joint-venture agreement" and "promissory estoppel," NYTR filed a motion for summary judgment based on the statute of frauds. The fact patterns from Mcintosh and Olympic Holding are not outliers. The 2009 edition of Professor Joseph Perillo's hombook on contracts has a section entitled "Promissory Estoppel'' in the chapter on the statute of frauds, which begins: "The first edition of this hombook published in 1970 predicted a 'major new approach' towards the interrelationship between promissory estoppel and the Statute of Frauds .... Since then there has been a widespread application of promissory estoppel to cases in which it would be inequitable to allow the Statute of Frauds to defeat a meritorious claim." With all due respect to Professor Perillo, we agree that there has been a "widespread application" (and misapplication) of promissory estoppel in cases involving reliance on an oral promise that is within the statute of frauds, but we question whether there has been a "major new approach." In cases like Mcintosh, Olympic Holding, and too many others, courts are using the wrong words to ask and answer the wrong questions.