Suppose you own a business in Illinois. You are looking to expand and to do so, you need to drop your smaller vendors and sign up with a new vendor that has a bigger product selection and a much larger capacity that will be able to satisfy your increasing demand. You negotiate with your new vendor and they promise to sign a distribution contract with you but you will have to terminate your contracts with your other suppliers. You legally terminate your other contracts and go to the table to sign your new contract with the larger vendor. They refuse to sign. Suddenly your business is struggling because you no longer have inventory and your old suppliers won’t give you the time of day. Clearly, you didn’t sign a contract with the new vendor. What do you do?
Detrimental Reliance/Promissory Estoppel
What has happened to your business involves the legal principle known either as detrimental reliance or, in Illinois, promissory estoppel. Although the idea has been around in the law as a defense for a long time, it is only recently (2009) that it became an affirmative cause of action in Illinois.
A contract is a bargained-for exchange. This means that, for a contract to be faced, each side exchanges something – goods, services, or money in forbearance. Promissory estoppel acts as a consideration substitute. In the above example, there was no contract in place. However, your actions in severing your business ties act as a stand-in for consideration. You relied on what the other party said would happen if you performed your part of the deal and they failed to uphold their end of the bargain.
The seminal case in Illinois law that expressly stated this concept is Newton Tractor Sales v. Kubota Tractor Corporation. The plaintiff in this case, Newton, was purchasing another farm implement dealer known as VTE and as one of the conditions of the sale, VTE had to sever its ties with Kubota. Kubota, through its representative, agreed that Newton would in turn be made a distributor. The purchase ensued and Newton began selling and servicing Kubota tractors. However, Kubota refused to make them a dealer. Newton sued, saying they had relied on Kubota’s promise which, in turn, Kubota broke. In this case, the Illinois Supreme Court unequivocally stated that Newton had an affirmative right to be based on promissory estoppel.
Typically, the elements necessary to prove this are:
● A promise is made that is reasonably expected to induce action or forbearance (by the promissor; here, Kubota’s representative);
● An action or forbearance is carried out (by the promisee; here, Newton) that is based on justifiable reliance on the promise; and
● Injustice can be avoided only through enforcement of the promise.
Businesses conduct day-to-day operations in this manner all of the time: “If you sign with me and quit buying from Acme, I will sell you the product as my exclusive distributor”. Unfortunately, not every business is willing to own up to its promises. If you have a business in the Chicago area and you find yourself on the wrong side of a promise, you may have a cause of action. The experienced professionals at the Patterson Law Firm have decades of experience litigating contracts like this. Call us at (312) 223-1699 to set up your initial consultation.