Many laypeople — in Illinois and elsewhere — are surprised to discover that a legitimate commercial dispute may arise even without a valid contract having been executed, and damages or injunctive relief may be owed. These disputes generally rely on promissory estoppel claims. Promissory estoppel claims have recently been acknowledged as a legitimate cause of action (in a commercial dispute) by the Supreme Court of Illinois. As such, it’s increasingly important for businesses to understand the law so as to better shield themselves from exposure to liability.
If you are being sued for damages on the basis of detrimental reliance and promissory estoppel, then you could be exposed to substantial liability pursuant to Illinois law, even without a valid contract having been put in place. Illinois case law has only recently granted plaintiffs an affirmative right to sue in commercial disputes for promissory estoppel, so an effective defense requires a creative and dynamic team of commercial litigators. Consult with an experienced Chicago business lawyer for further guidance.
Promissory estoppel is based on the rather straightforward concept of detrimental reliance, but how exactly does a promissory estoppel cause of action proceed, and what are its unique qualities? We’ll begin with an exploration of the basics of consideration in the formation of a valid contract.
Consideration is Required for Valid Contracts
Consideration is a foundational issue in contract formation. Valid contracts require adequate consideration. Consideration is essentially the benefit of the bargain in any agreement. In other words, it is the exchanged-for benefit of the contractual bargain. For example, consideration in an employment contract is the labor of the employee, in exchange for payment, bonuses, and/or benefits.
Mere promises do not generally involve consideration. For example, if you are at a trade convention, and you off-handedly promise the owner of another business that you will work together on a product line next year, there is no consideration involved. You are not exchanging anything of value in making that promise, nor is the other owner doing so. As such, one cannot reasonably say that an enforceable contract has been formed.
Importantly, however, Illinois law recognizes that certain promises are “binding” in a way that is not unlike a contract and may entitle the promisee (the person who has been promised something of value) to damages, or even injunctive relief.
Elements of a Promissory Estoppel Claim
The elements of a promissory estoppel claim in Illinois are as follows:
- there must be a promise;
- the plaintiff must have reasonably reliedon such promise; and
- the plaintiff must have suffered somedetriment as a result of having relied on the promise made by the defendant.
In real-world business conditions, promises are made quite regularly that might induce another party to change their behavior. For example, if you are fielding potential clients and promise that you will seriously consider their business, they may make some changes internally to prepare for the potential relationship, depending on how likely it is that they believe you will become a business partner.
Whether a promise is enforceable in Illinois depends primarily on whether the plaintiff’s reliance was reasonable, and whether their reliance caused them to suffer a detriment. Much of the determination is dependent on the unique circumstances at-issue in the case. This is perhaps best illustrated through example.
Suppose that you have promised a potential business partner that you will enter into a contract with them (supplier-buyer relationship). Relying on this promise, however, the plaintiff cancels their existing contract with another supplier and attempts to enter into a contract with you. You cannot do so, however, due to a variety of different factors. Clearly the plaintiff has suffered a detriment, but it’s not necessarily clear that the plaintiff reasonably relied on your promise. If the circumstances show that your promise was more “casual” and less “formal,” this might cut in your favor. Further, circumstances may demonstrate that it was entirely unnecessary for them to cancel their existing contract before negotiating an agreement with you. If you had requested that they cancel their existing contract, on the other hand, a court is much more likely to find that the reliance was reasonable.
