Kiely v. St. Germain

• Decision Date: 11 October 1983
• Docket Number: No. 82SC145,82SC145
• Parties: 37 UCC Rep.Serv. 878 Joseph A. KIELY, as Interim Trustee in Bankruptcy for the Estate of William Boshouwers, and Boshouwers Color Laboratory, Inc., a Colorado corporation, Petitioners, v. Joel F. ST. GERMAIN, Respondent.
• Court: Colorado Supreme Court

Page 764

670 P.2d 764

37 UCC Rep.Serv. 878

Joseph A. KIELY, as Interim Trustee in Bankruptcy for the

Estate of William Boshouwers, and Boshouwers Color

Laboratory, Inc., a Colorado

corporation, Petitioners, v. Joel F. ST. GERMAIN, Respondent.

No. 82SC145.

Supreme Court of Colorado,

En Banc.

Oct. 11, 1983.

Law & Scheid, P.C., Patricia Jo Stone, Denver, for petitioner Kiely.

No appearance for petitioner Boshouwers Color Laboratory, Inc.

Myers, Woodford & Hoppin, P.C., Frederick J. Myers, Denver, for respondent.

KIRSHBAUM, Justice.

In St. Germain v. Boshouwers, 646 P.2d 952 (Colo.App.1982), the Colorado Court of Appeals affirmed the trial court's judgment awarding damages of $9,500 to Joel F. St. Germain against defendants William B. Boshouwers and Boshouwers Color Laboratory, Inc., ¹ and reversed the trial court's denial of plaintiff's claim of additional damages of $25,000. We granted defendant's petition for writ of certiorari, and now affirm in part and reverse in part.

The record supports the following pertinent findings of fact entered by the trial court and substantially adopted by the Court of Appeals. In October 1978, St. Germain and Boshouwers began discussing the possibility of St. Germain's joining the color film processing business then operated by Boshouwers and his wife. At that time, St. Germain had been employed by the Public Service Company of Colorado for approximately twelve years.

On December 8, 1978, St. Germain and Boshouwers visited the office of St. Germain's lawyer. In response to questions by the attorney, both parties stated that they had reached an agreement on all major terms of a new business venture. Those terms included the provision that, commencing January 22, 1979, St. Germain would receive a salary of $1,500 per month for six months, which salary was guaranteed by the corporation, and that Boshouwers, who owned all of the 100 issued and outstanding shares of the corporation's stock, would sell forty-nine of those shares to St. Germain for $25,000.

St. Germain's attorney then drafted a document containing these and the other provisions of what both parties assured him was a "firm deal." Neither St. Germain nor Boshouwers executed the document then; however, at the conclusion of the meeting Boshouwers made the following statement: "Well, now we have a deal and you can go tell your employer ... that you are leaving." St. Germain terminated his employment with Public Service Company later that same day.

St. Germain then obtained a second mortgage on his residence in the amount of $25,000, took a prearranged vacation with his family, and, on January 17, 1979, tendered a document ² containing the terms of the December 8, 1978, oral agreement to Boshouwers for signature. At that point Boshouwers refused to sign the document, denied that the parties had an oral agreement, and asked St. Germain to become an employee of the corporation at a salary of $250 per week. St. Germain refused this proposal and, despite efforts to enter other business enterprises, was unable to generate any income until June 6, 1979. This civil action ensued.

St. Germain's complaint sought damages on claims of breach of oral contract or, alternatively, promissory estoppel. Among the affirmative defenses raised by the defendants was the assertion that the statute of frauds provision of the Uniform Commercial Code, section 4-8-319, C.R.S.1973, rendered unenforceable any oral agreement between the parties concerning the sale of the corporate stock. The trial court concluded that St. Germain was entitled to lost wages and legal services costs totaling $9,509 on the basis of promissory estoppel. The trial court also held that section 4-8-319 barred his claim for lost profits relating to the purchase of the corporate stock.

Defendants appealed the former ruling, and St. Germain cross-appealed the latter determination. The Court of Appeals affirmed the trial court's award of damages for lost wages and cost of legal services. Concluding that the statute of frauds did not bar St. Germain's promissory estoppel claim relating to the purchase of the corporate securities, the Court of Appeals held that St. Germain was entitled to damages for lost profits in the amount of $25,000. ³ We granted certiorari to consider defendant's assertions that the doctrine of promissory estoppel may not be evoked to enforce an alleged oral agreement in the face of a statute of frauds defense, and that no award of damages for lost profits is warranted in this case.

The doctrine of "promissory estoppel," as articulated in section 90 of the Restatement of Contracts is part of the common law of Colorado. Vigoda v. Denver Urban Renewal Authority, 646 P.2d 900 (Colo.1982); Mooney v. Craddock, 35 Colo.App. 20, 530 P.2d 1302 (1974). That section, entitled "Promise Reasonably Inducing Definite and Substantial Action," states as follows:

"A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."

The doctrine has since been restated in section 90(1) of the Restatement (Second) of Contracts, as follows:

"A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires." (emphasis added)

This revised statement, the language of which was not argued to the trial court or to the Court of Appeals, recognizes the force of the principle that in some circumstances the interests of justice will best be served by partial rather than total enforcement of the promise. See, e.g., Fuller & Perdue, The Reliance Interest in Contract Damages: 1, 46 Yale L.J. 52 (1936). We agree that any remedial order in cases involving claims based on promissory estoppel must be fashioned carefully to achieve fairness to all parties in the circumstances of the particular case. Hence, we adopt the principles articulated by section 90(1) of the Restatement (Second) of Contracts.

The doctrine of promissory estoppel encourages fair dealing in business relationships and discourages conduct which unreasonably causes foreseeable economic loss because of action or inaction induced by a specific promise. Justifiable reliance on the representations of another is the gist of this action. Vigoda v. Denver Urban Renewal Authority, supra; Mooney v. Craddock, supra. The doctrine represents, in part, a modest extension of the basic contract principle that one who makes promises must be required to keep them. See Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 Yale L.J. 343 (1969).

However, promissory estoppel is not defined totally in terms of contract principles. The recognition that justifiable reliance resulting in a reasonable and foreseeable detrimental change of position will support an award of compensatory damages is also grounded upon principles of fair dealing familiar to equity jurisprudence. See Vigoda v. Denver Urban Renewal Authority, supra; 1A A. Corbin, Contracts § 204 (1963). See also Restatement (Second) of Contracts § 90 comment a (1981); C & K Engineering Contractors v. Amber Steel Co., Inc., 23 Cal.3d 1, 587 P.2d 1136, 151 Cal.Rptr. 323 (1978). It is often appropriate when parties have not mutually agreed on all the essential terms of a proposed transaction. See, e.g., Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965). Contrary to defendant's argument, fraudulent conduct by the promissor is not an element of promissory estoppel. Other civil remedies and criminal sanctions are available to deter fraudulent conduct. When injustice to a promisee who reasonably and justifiably relies on a promise can be prevented only by recognizing a right of recovery from the promissor, neither the lack of a written contract nor the absence of fraudulent conduct can defeat the claim for recompense.

As the Court of Appeals noted in its opinion, the trial court's conclusion that St. Germain has established all the elements of promissory estoppel is amply supported by the record. The trial court's award of damages for lost wages and costs of legal services was appropriate. We also agree with the conclusion of the Court of Appeals that section 4-8-319 does not constitute a bar to St. Germain's claim for damages based on the promise to sell forty-nine shares of the corporation's stock.

The policies furthered by any statute of frauds find their origins in the "Act for Prevention of Frauds and Perjuries," adopted by England's Parliament in 1677. 29 Car. 2, c. 3 (1677). ⁴ The act represented a forceful effort to prevent the perpetration of fraud by the device of perjury. 6 W. Holdsworth, A History of English Law 379-97 (1924). Almost all American legislatures have enacted statutes containing language substantially similar to portions of England's original act.

However laudable the goals of such legislation might be, courts concerned about the inequitable results invariably produced in some circumstances by strict application of statute of frauds provisions almost immediately began to develop such doctrines as equitable estoppel and part performance to prevent the defense from becoming itself a means to perpetrate fraud. See Summers, The Doctrine of Estoppel Applied to the Statute of Frauds, 79 U.Pa.L.Rev. 440 (1931); Note, Statute of Frauds--The Doctrine of Equitable Estoppel and the Statute of Frauds, 66 Mich.L.Rev. 170 (1967). The doctrine of promissory estoppel is but one of the principles developed by the courts to prevent parties from employing the statute of frauds to defeat just claims. Note, Promissory Estoppel as a Means of Defeating the Statute of Frauds, 44...