D & G Stout, Inc. v. Bacardi Imports, Inc.
United States Court of Appeals, Seventh Circuit, 1991.
Author: Jim

Facts: The plaintiff company had recently lost 2 suppliers and as a result, it started questioning whether to sell out or to stay in business. While negotiations for the sale of the company were going on with a prospective buyer, the defendant, a major supplier to the plaintiff company, promised the plaintiff that they will keep using them as their distributors.  This promise was reassured a second time.  Due to this, the plaintiffs rejected the price that the prospective buyer offered and the plaintiffs decided to stay in business.  On the same day, defendants decided to pull out of their promise and abandoned the plaintiffs as their distributors.  As a result of this, the plaintiffs had to sell their company to the previous buyer at a much lower price.

Procedure: The district judge entered summary judgment for the defendant.

Issue:  Can the plaintiff recover the price differential from the defendants based on the theory of promissory estoppel?

Holding: Yes

Rule: “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee and a third person and which does induce such action or forbearance is binding if injustice can be avoided only by the enforcement of the promise.”

Rationale:  Under the promissory estoppel rule, only reliance damages and not the expectation damages can be recovered.  Here if the plaintiff was asking for the profits it would have gained had the defendant kept its promise, then that would have been considered expectation damages and the plaintiff was not going to prevail.  But the plaintiff is not seeking such damages.  Plaintiff is only seeking damages that resulted from their reliance on the defendants‘ promise. The plaintiff was about to sell its company to another company when the defendants came in the picture and promised the plaintiff that they will keep the plaintiff as their distributor.  Relying on this promise, the plaintiffs declined the offer to sell and decided to stay in business.  But then the defendants backed out and this extremely decreased the bargaining power of the plaintiff in the new selling proceedings.  As a result, the plaintiff’s company was sold at a much lower price than was previously offered.  Therefore plaintiffs are titled to reliance damages if a jury rules in their favor. Case reversed and remanded.