When reliance takes the place of a bargain

Lancaster County, Nebraska, May, eighteen ninety one. A young woman named Katie Scothorn is at work as a bookkeeper in a store, earning ten dollars a week. About nine in the morning her grandfather walks in. A witness described it.
The old gentleman unbuttoned his vest and took out a piece of paper in the shape of a note, and he says to Miss Scothorn, I have fixed out something that you have not got to work any more. None of my grandchildren work and you don't have to.
The paper says, I promise to pay to Katie Scothorn on demand two thousand dollars, to be at six per cent per annum. She took it, kissed him, and began to cry. She told her employer she was quitting, and soon after she did. For more than a year she did not work. Then, with her grandfather's consent and help, she took another bookkeeping job. He paid one year's interest. He died. His executor refused to pay the note.
So here is the question. Two lectures ago you learned that a promise to make a gift is not enforceable, and that the widow in Alabama, who moved sixty miles on the strength of one, got nothing. Here is a promise to make a gift, on which a young woman gave up her job. Does she get the two thousand dollars? Think about it before I go on.
And notice that the grandfather never asked her to quit. He said she did not have to work. He did not say she must not.
And now the question I keep asking. What exactly did these people promise each other? He promised two thousand dollars. She promised nothing. The court was very clear about that, and I want you to hear it in the court's words. There was no promise on the part of the plaintiff to do or refrain from doing anything. Mr. Ricketts made no condition, requirement, or request. He exacted no quid pro quo. He gave the note as a gratuity and looked for nothing in return.
So on everything you learned in Module Four, she loses. No bargain, no consideration. The note was, the court said, nothing more than a promise to make a gift in the future of the sum of money therein named. And yet she won. Today is about how, and about the doctrine that grew out of cases like hers.
Here is the first line for the board. A promise which the promisor should reasonably expect to induce action or forbearance by the promisee, and which does induce it, is binding if injustice can be avoided only by enforcing it. That is section ninety of the Restatement, and it is the most quoted sentence in this course after the definition of an offer. Four elements. A promise. Reliance the promisor should have expected. Reliance that actually happened. And injustice otherwise.
Second line. This is not consideration. Nothing was bargained for. Reliance is a separate ground for enforcing a promise, and the lawyers' name for it is promissory estoppel. The name comes from the older idea, estoppel, that a person who has led another to act cannot afterwards deny the thing he led them to believe. The Nebraska court reached for that older idea because the newer name did not yet exist.
Third line. The reliance must be reasonable and it must be the kind of reliance the promisor should have foreseen. The doctrine does not enforce every promise somebody happened to act on. It enforces promises whose maker could see what the promisee would do with them, and let them do it.
Now the case. Ricketts against Scothorn, Supreme Court of Nebraska, eighteen ninety eight. The executor argued want of consideration, and on that point he was right, as you have heard. Then the court turned to a line of cases about promises to churches and colleges, where money had been spent on the faith of a subscription and the courts had refused to let the subscriber plead want of consideration.
The court said what it thought those cases really rested on. It seems to us that the true reason is the preclusion of the defendant, under the doctrine of estoppel, to deny the consideration. And then it applied that idea to Katie Scothorn. Under the circumstances of this case is there an equitable estoppel which ought to preclude the defendant from alleging that the note in controversy is lacking in one of the essential elements of a valid contract? We think there is.
Here is the reasoning, and every element of the first board line is in it. Her grandfather, desiring to put her in a position of independence, gave her the note, accompanying it with the remark that his other grandchildren did not work, and that she would not be obliged to work any longer. In effect he suggested that she might abandon her employment and rely in the future upon the bounty which he promised.
He doubtless desired that she should give up her occupation, but whether he did or not, it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration.
Read that against the board. A promise, the note. Reliance he should have expected, he contemplated it as a reasonable and probable consequence. Reliance that happened, she quit. And injustice otherwise, grossly inequitable. The Nebraska court wrote section ninety thirty years before the Restatement did. Judgment affirmed. She was paid.
Now put the widow beside the bookkeeper, as we put her beside the nephew last module. Both relied on a promise of a gift. Both changed their position for the worse. The widow lost in eighteen forty five and the bookkeeper won in eighteen ninety eight. Nothing in the facts explains the difference. The doctrine did not exist when the widow sued, and it did when the bookkeeper sued. If Kirksey were decided today under section ninety, most courts would find for her.
Two more cases, briefly, because they show the doctrine at work in two very different rooms. The first is Feinberg against Pfeiffer, the Missouri case I left hanging at the end of last lecture. A company's directors resolved to pay a long serving bookkeeper two hundred dollars a month for life whenever she chose to retire. Past services, no consideration. She retired a year and a half later. Seven years after that the company cut the payments.
The court found that she would not have quit had it not been for the pension, that she relied on it, and that by the time of the trial she was past sixty five and, after surgery, no longer able to work. It quoted section ninety in full, called it promissory estoppel, and held the promise binding.
A gratuitous promise, relied on as the promisor expected, enforced to avoid injustice. That is the whole of today in one case.
The second room is a college. Allegheny College against National Chautauqua County Bank, New York, nineteen twenty seven, Judge Cardozo. In June nineteen twenty one a woman in Jamestown, New York, signed a pledge to pay the college five thousand dollars, due thirty days after her death, and wrote on the back, in loving memory this gift shall be known as the Mary Yates Johnston Memorial Fund. She paid one thousand dollars on account. Then she repudiated. After she died the college sued her executor.
Cardozo discussed promissory estoppel at length, and said that New York had adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions. But he did not decide the case on it. He found a bargain.
When the college accepted the thousand dollars, it took on a duty to name the fund after her and to tell the world about it. That implied promise, he held, was consideration for hers. She got a memorial. The college got a promise.
I give you Allegheny College for two reasons. First, because charitable subscriptions are the oldest home of reliance enforcement, and the Restatement now says a charitable subscription is binding under section ninety without proof that it induced action at all. Second, because it shows a great judge preferring to find a bargain, however thin, before reaching for reliance. Consideration is still the front door. Section ninety is the side door. Try the front door first.
Now let's change one fact. The grandfather says, I have fixed out something so you can quit if you like, and hands over the same note. Katie thanks him, and keeps her job. She changes nothing, and simply waits for him to pay. He dies. Does she recover? Choose an answer before I go on.
Most people say yes, because the promise is the same and it seems unfair that she should lose for being prudent. But look at the board. There is no bargain, so consideration is out. And there is no reliance, so section ninety is out. Nothing was done on the faith of the promise. What is left is a promise to make a gift, and that is not enforced. The doctrine protects people who acted, not people who hoped.
Change one fact again. Katie quits, and a month later, before her grandfather dies, takes a better paid job than the one she left. Choose.
This one is argued, and the argument is the point. She relied, and the reliance was foreseeable, so three elements are present. The question is the fourth. What injustice does enforcement avoid, when she is better off than before? 
Some courts would still enforce, because the promise was meant as a gift of independence and she took it as one. Others would ask what she actually lost and limit her to that, which is a question we take up in Lecture Fifteen. What you must not do is skip the fourth element as if it were automatic.
Change one fact a third time. The widow in Kirksey sues today, under section ninety. Choose.
Most people say she wins, and I think they are right. The brother in law wrote, if you will come down and see me, I will let you have a place to raise your family. He should reasonably have expected her to come. She came, giving up her own land. He put her out after two years.
A promise, foreseeable reliance, actual reliance, and injustice. Whether she recovers the value of the place he promised, or only what she lost in moving, is the Lecture Fifteen question again. But she is not sent away with nothing.
Here is what people get wrong here, and why it is tempting. The first mistake is to call reliance consideration. It is not. The Nebraska court said there was no consideration and then enforced the note anyway. Keep the two grounds apart in your head and on your exam paper. Bargain first. If there is no bargain, reliance. Never mix them into one paragraph.
The second mistake is to forget the promisor. The reliance must be the kind he should reasonably have expected. If a stranger overhears a promise and acts on it, section ninety does nothing for him. The third mistake is to assume the relied on promise is enforced in full. The section says injustice can be avoided only by enforcement, and it says the remedy may be limited as justice requires. Enforcement is the ceiling, not the rule.
Here is the rule, in one breath. A promise made without a bargain is still enforceable when the promisor should reasonably have expected it to induce reliance, the promisee did rely on it, and injustice cannot otherwise be avoided, and that is a separate ground from consideration, with its own elements and its own limits on the remedy. Now, five questions.