East Providence Credit Union v. Geremia

Brief Fact Summary.

East Providence Credit Union (Plaintiff) sued to collect the unpaid balance of a promissory note borrowed by Mr. and Mrs. Geremia (Defendants).  The note was secured by a chattel mortgage on Defendants’ 1962 ranch wagon, which was demolished in a mishap.

Synopsis of Rule of Law.

Promissory estoppel is defined as “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”

Facts.

The mortgage contained a clause that obligated the Defendants to maintain insurance on the wagon, but Mr. Geremia was sick and the Defendants were unable to pay their installment loan or the insurance.  Mrs. Geremia explained the situation to the Plaintiff’s employee, and the Plaintiff agreed to pay the overdue insurance premium.  Pursuant to the mortgage terms, the premium would then be added to the balance owed by the Defendants. 

Two months after the Plaintiff agreed to pay the premium, there was a mishap and the wagon was destroyed.  The insurance company refused to pay for the loss because the Plaintiff had never paid the premium.  The outstanding balance on the loan was $987.89, the Plaintiff applied $200 of Defendants’ savings shares and brought suit to recover $779.53 from the Defendants.  The Defendants counterclaimed for their $200 back. 

The superior court dismissed the Plaintiff’s complaint and found for the Defendants on their counterclaim.

Issue.

Was the Plaintiff barred from recovering under the promissory note as a result of its promise to pay the insurance premium and failure to do so?

Held.

Yes.  Judgment affirmed and Plaintiff’s appeal denied. 

In this case, the Plaintiff made more than a mere gratuitous promise to pay the insurance.  Instead, the promise was made in exchange for valid consideration, as the terms of the mortgage contract provided that in the event the Plaintiff paid such a premium, it would add such expended terms to the outstanding balance of Defendants’ loan.  The Plaintiff intended to compute interest on the money it expended keeping Defendants’ car insured, and the interest due represented valid consideration and converted the promise into a valid contract, which Plaintiff breached by its failure to pay for the insurance.
Even if it was a gratuitous act and the Plaintiff did not intend to charge the Defendants interest, there was sufficient evidence to establish promissory estoppel.

Dissent.

None.

Concurrence.

None.

Discussion.

The Court reached its conclusion based on traditional notions of contract and breach; however, it would have reached the same result (that Plaintiff could not recover) based on promissory estoppel.