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The Promise Element in Contract Disputes: How to Protect Your Business

The promissory estoppel is a powerful tool for protecting your business interests in legal disputes. As a business owner, it isn’t a surprise that legal disputes can disrupt your business’ daily operations and lead to costly damages. Contract disputes, partnership disputes, and other business disputes can arise at any time and are best handled with careful planning and protection.

Promissory Estoppel at Work: Understanding a Recent Ruling

In a recent ruling, Justice Richard M. Platkin in the Supreme Court, Albany County Commercial Division in Media Logic USA, LLC v. Prinova US, LLC has allowed a promissory estoppel claim to proceed while dismissing a breach of a Letter of Understanding. While there was not a proper contract in place, Justice Richard M. Platkin explained that an “Agreement to Agree” without objective criteria to enforce the material terms does not establish an enforceable contract.

Instead, the judge asserted a promissory estoppel could provide an alternative avenue for relief for plaintiffs slighted by a promise to do business. The promissory estoppel may allow an aggrieved party to recover damages, even when there is no formal agreement between the parties. 

In the case of Media Logic USA, LLC v. Prinova US, LLC, the decision emphasizes that relying on an “agreement to agree” where there are no clear criteria for terms like price, a court may not enforce the agreement, even if there are other clear terms in place. However, if a party can show that they suffered losses because they reasonably relied on a clear promise to do business in the future, they may be able to recover damage by enforcing the promissory estoppel.

What Is the Promissory Estoppel, and How Can It Be Established?

The promissory estoppel is a legal doctrine that provides a remedy when a party makes a promise that is relied upon by another party. When a party experiences losses as a result of this reliance, this doctrine can allow them to recover damages even when there is no formal contract between the parties involved. 

If there is no formal contract between the parties, the burden of proof falls on the business owner to show that a “promise” has been made. Some examples can be:

  • Emails or letters: An email or a letter to the other party that summarizes the promise and asks for confirmation creates a written record of that promise. 
  • Witnesses:  A witness present when a promise is made can help confirm what was said. Make sure to have the witness sign a document concerning the promise. This will also create a written record and will provide additional evidence. 

In order to establish a promissory estoppel claim, the following elements must be satisfied: 

  1. Clear and Definite Promise: It must be clear that the other party made a definite promise.
  2. Expectation of Reliance: This promise was made with the expectation that the other party would rely on it.
  3. Actual Reliance: The party did rely on the promise to its detriment.
  4. Avoiding Injustice: Injustice can be avoided only through enforcing the promise.

If the above elements are met, the party can recover damages due to the reliance placed on the promise. Damages may include the costs associated with performing the promised action, as well as any other losses. 

How a Promissory Estoppel Can Help in a Business Dispute

If you find yourself in a business dispute, a promissory estoppel could be your saving grace. The following are several ways a promissory estoppel can be used in a dispute:

  1. Enforcing promises made with a formal contract: It can enforce promises that may not be covered or clear in a formal contract in place. 
  2. Holding parties accountable: It can be a way to hold all parties accountable for their promises, even if they avoid liability through legal loopholes or technicalities. 
  3. Resolving disputes outside of court: It can help resolve disputes outside of court, through negotiation, mediation, or arbitration. All of these methods can be faster, cheaper, and less adversarial than going through court. 

In Media Logic USA v. Prinova US, LLC, the decision reinforces the need for clear and definite contract terms that can withstand legal scrutiny. It also expands the use of promissory estoppel as a viable theory of liability in contract disputes, especially when the traditional elements of a contract are not met.

As a business owner, having an understanding of a promissory estoppel could prove helpful in protecting your business. If you believe your business has suffered losses due to a dispute between parties, connect with our experienced litigators at Woods Lonergan. We have represented numerous clients in their most important business disputes. 

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