Farm Crop Energy, Inc. v. Old Nat. Bank of Washington

• Decision Date: 03 July 1984
• Docket Number: No. 5597-III-3,5597-III-3
• Citation: 38 Wn.App. 50,685 P.2d 1097
• Parties: FARM CROP ENERGY, INC., a Washington corporation, Respondent, v. OLD NATIONAL BANK OF WASHINGTON, a national banking association, Appellant.
• Court: Washington Court of Appeals

Page 50

38 Wn.App. 50

685 P.2d 1097

FARM CROP ENERGY, INC., a Washington corporation, Respondent, v. OLD NATIONAL BANK OF WASHINGTON, a national banking association, Appellant.

No. 5597-III-3.

Court of Appeals of Washington Division 3, Panel Four.

July 3, 1984.

Rehearing Denied Aug. 27, 1984.

Jeffrey L. Supinger, John E. Heath, Witherspoon, Kelley, Davenport & Toole, Spokane, for appellant.

Gerald J. Moberg, Harry E. Ries, Ries & Kenison, Moses Lake, for respondent.

THOMPSON, Judge.

Old National Bank of Washington (ONB) appeals a judgment entered on a verdict of $295,000 in favor of Farm Crop Energy, Inc. (Farm Crop), for ONB's revocation of a loan commitment. We affirm.

In 1980, Farm Crop was formed for the purpose of constructing a fuel alcohol plant. In February 1981, ONB issued a commitment letter stating it would loan Farm Crop $1,475,000 if certain conditions were met, including individual guaranties, some limited and some unlimited, and a $500,000 loan guaranty from the Small Business Administration (SBA). The SBA required unlimited guaranties from all investors, contracts for raw materials, and contracts for the alcohol and spent grain.

In May 1981, Matrix Energy, the firm which was to construct the plant, informed Farm Crop there would be considerable savings if money was advanced immediately. Farm Crop members testified Mr. Danelo, of ONB, assured them the loan would go through and, based on this, they advanced $175,000 to Matrix. On the other hand, Mr. Danelo testified he told Farm Crop the loan would go through only if the conditions were met.

ONB revoked its loan commitment in June 1981. Farm Crop successfully sued, alleging breach of contract. ONB's appeal is concerned with the propriety of instructions, given and refused, and the measure of damages.

ONB first contends the trial court confused the doctrines of waiver, equitable estoppel, and promissory estoppel. All parties agree waiver applies to this case, but ONB believes only waiver applies. We disagree.

Promissory estoppel requires five elements:

(1) A promise which (2) the promisor should reasonably expect to cause the promisee to change his position and (3) which does cause the promisee to change his position (4) justifiably relying upon the promise, in such a manner that (5) injustice can be avoided only by enforcement of the promise.

Corbit v. J.I. Case Co., 70 Wash.2d 522, 539, 424 P.2d 290 (1967). Instruction 9 covered promissory estoppel:

If you find that Old National Bank made a promise which it reasonably expected to cause Farm Crop Energy, Inc. to change its position, and which promise did cause Farm Crop Energy, Inc. to justifiably change its position, then the Old National Bank is liable to Farm Crop Energy, Inc. for all damages reasonably caused by the promise made and relied upon.

ONB contends an instruction on promissory estoppel was improper because there was an enforceable contract between the parties. Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 230 N.W.2d 588 (1975) (cited with approval in Klinke v. Famous Recipe Fried Chicken, Inc., 94 Wash.2d 255, 261 n. 4, 616 P.2d 644 (1980)). ONB is correct that the letter of loan commitment cannot be the basis of promissory estoppel. Promissory estoppel is used to avoid injury when parties have failed to properly form a contract but one party has acted in reliance on the promise of another. See Corbit v. J.I. Case Co., supra. Farm Crop agrees, but contends the jury might have found there was no contract because it failed to perform the conditions, but that Farm Crop relied on the later promise by Mr. Danelo that the loan would go through. Although it might have been preferable to treat this latter assurance under the doctrines of waiver and equitable estoppel, it is possible to treat it as a separate promise. Thus, it was not error to instruct on the doctrine of promissory estoppel.

Equitable estoppel differs from promissory estoppel. It requires three elements:

(1) an admission, statement, or act inconsistent with the claim afterwards asserted; (2) action by the other party on the faith of such admission, statement or act; (3) injury to such other party resulting from permitting the first party to contradict or repudiate such admission, statement, or act.

Wilson v. Westinghouse Elec. Corp., 85 Wash.2d 78, 81, 530 P.2d 298 (1975). Farm Crop argued that ONB was estopped to require performance of conditions due to various acts of Mr. Danelo. ONB contends equitable estoppel can be used only as a defense (a shield) but not as an independent basis of recovery (a sword). Klinke v. Famous Recipe Fried Chicken, Inc., supra. ONB then assumes that since the instruction is pointed against the bank, it is being used as a sword. We disagree. Here, equitable estoppel is being used as a defense, that is, to prevent ONB from insisting on performance of conditions because of ONB's action. This is a proper use of equitable estoppel.

ONB also suggests the court has confused waiver and estoppel because one waives conditions and estoppel is not the correct term. However, waiver applies only to existing rights. Panorama Residential Protective Ass'n v. Panorama Corp., 28 Wash.App. 923, 627 P.2d 121 (1981). If at the time of ONB's assurances it was not yet entitled to performance of the conditions, the assurance would give rise to an estoppel, not waiver. Furthermore, waiver and estoppel differ in other ways. Waiver requires an intentional relinquishment of a right whereas estoppel may be inadvertent. Either doctrine could apply to conditions in a contract.

The law of equitable estoppel and waiver is contained in instruction 8:

If on the other hand, you find that the plaintiff, Farm Crop Energy failed to meet or could not meet any condition of the loan commitment within the time allowed for compliance, then your verdict should be for the defendant, Old National Bank unless you find that compliance with any such condition was waived by the Bank or that the Bank is estopped from asserting non-compliance with any such condition.

"Waiver["] is the intentional and voluntary relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right. It may result from an express agreement or may be inferred from circumstances indicating an intent to waive.

"Estoppel" means that a party is precluded by his own acts from asserting a right to the detriment of another who, entitled to rely on such conduct has acted thereon.

ONB suggests the instruction on equitable estoppel improperly submits an equity matter to the jury. This was not raised by exception. Claimed error in instructions is limited to those issues raised by exception. Galvan v. Prosser Packers, Inc., 83 Wash.2d 690, 692, 521 P.2d 929 (1974). ONB is also concerned the instruction left several unanswered questions for the jury. It appears these questions are a necessary result of submitting the difficult issue of equitable estoppel to the jury. ONB did not propose any clarifying instruction. We find instruction 8 correctly stated the law of equitable estoppel and the court did not err.

ONB's next assignment of error concerns the instruction on waiver. It contends instruction 8 was inadequate because it did not require an express agreement to waive or unequivocal acts. See Birkeland v. Corbett, 51 Wash.2d 554, 320 P.2d 635 (1958). ONB's proposed instruction was more complete. ¹ Both the given and proposed instructions appear to be correct statements of the law. See Birkeland v. Corbett, supra; Ross v. Harding, 64 Wash.2d 231, 391 P.2d 526 (1964). The question is whether the trial court should have given the more complete instruction.

Instructions are sufficient if they (1) permit each party to argue his theory of the case, (2) are not misleading, and (3) when read as a whole, properly inform the trier of fact of the applicable law. Crossen v. Skagit Cy, 100 Wash.2d 355, 360, 669 P.2d 1244 (1983). The language of the proposed instruction is taken directly from Birkeland and Bowman v. Webster, 44 Wash.2d 667, 269 P.2d 960 (1954). A party is not entitled to certain language just because it appeared in an appellate opinion. Swope v. Sundgren, 73 Wash.2d 747, 440 P.2d 494 (1968). Although the proposed instruction was more explicit, the instruction as given allowed ONB to argue its theory of the case. We find no error.

The next major area of dispute is the measure of damages. The trial court allowed consideration of lost profits. ONB contends in an action for promissory estoppel, damages should be limited to those incurred in reliance, i.e., $175,000. Although there are cases which deny lost profits in this type of action, there are also cases which grant them. Compare Goodman v. Dicker, 169 F.2d 684 (D.C.Cir.1948); Fretz Constr. Co. v. Southern Nat'l Bank, 626 S.W.2d 478 (Tex.1981); Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965), with Chrysler Corp. v. Quimby, 51 Del. 264, 144 A.2d 123, 144 A.2d 885 (1958), and Kramer v. Alpine Valley Resort, Inc., 108 Wis.2d 417, 321 N.W.2d 293 (1982). Interestingly, Kramer, which allowed lost profits, relied on language in Hoffman v. Red Owl Stores, supra, which did not.

Rather than a mechanical approach to damages, the commentators and cases support a flexible approach. See Hoffman v. Red Owl Stores, supra 133 N.W.2d at 276-77; 1A A. Corbin, Contracts § 205, at 240 (1963); J. Calamari & J. Perillo, Contracts § 6-12 (1977). As stated in section 90, page 242, of the Restatement (Second) of Contracts (1981), "The remedy granted for breach may be limited as justice requires." Comment d elaborates:

d. Partial enforcement. A promise binding under this section is a contract, and full-scale enforcement by normal remedies is often appropriate. But the same factors which bear on whether any relief should be granted also bear on the character and extent of the remedy. In particular, relief may sometimes be limited to restitution or...