Hoffman v. Red Owl Stores, Inc.

Brief Fact Summary. The Plaintiff, Hoffman (Plaintiff), entered into negotiations with the Defendant, Red Owl Stores, Inc., (Defendant) to enter into a franchise agreement. In anticipation of opening a new Red Owl Store, Plaintiff sold his business, moved his family and underwent several ventures to “familiarize himself” with the grocery business. Defendant changed the terms of the deal on several occasions, eventually expressing to Plaintiff that more consideration and additional terms were needed, outside of the scope of their original agreement. When Plaintiff could not meet Defendants terms, the deal was broken and Plaintiff brought suit for its reliance damages.

Synopsis of Rule of Law. While promissory estoppel is the appropriate remedy in reliance cases, an injured party will only be awarded damages to the extent they have been displaced.

Facts. In 1959 Plaintiff, the owner/operator of a bakery contacted Defendant with the idea of establishing a Red Owl franchise in his city, Wautoma. In anticipation of an agreement with Defendant, Plaintiff bought a small grocery store in Wautoma and operated it so that he could learn the grocery business. After Defendant saw that Plaintiff was profiting, it suggested that he would have to move, because their stores were located in larger cities. Plaintiff, at that time, sold his bakery, and the Wautoma store, moved his family to Cilton and put a down-payment on a lot for the Red Owl store. Throughout the course of dealing, Plaintiff made it clear to Defendant that he could not afford more than an $18,000.00 capital investment. While Plaintiff was initially assured this would be adequate, before the closing of negotiations, Defendant told Plaintiff he would have to come up with $26,000.00, in order for the deal to go through. Plaintiff involved his father-in-law in the investment pro
cess (who offered capital in the amount of $13,000), and wanted to make him a partner in the store. At that point, Defendant asked Plaintiff to have his father-in-law disavow his investment as an “absolute gift” and relinquish his rights in the store. Plaintiff did not agree to this arrangement and filed suit. At the trial level, the court awarded Plaintiff his moving and rental expenses and reasonable compensation for the sale of the bakery and Wautoma store fixtures and inventory. The court granted a new trial on the issue of the store fixtures and inventory, and both parties appealed.

Issue. The issue in this case is whether the facts support a finding that promissory estoppel should be used to allow Plaintiff to recover his reliance damages.

Held. Affirmed.
The Court concluded that an injustice would result if Plaintiff was not allowed some relief because of the Defendant’s failure to honor the original agreement.
The Court also opined that when damages are awarded in a promissory estoppel action, a promise need not be enforced (to the degree that Plaintiff could have recovered lost profits from the loss of the Wautoma store), but the party should be placed back into the position he or she would have been in, had there not been a contract.
Finally, the court found that Plaintiff’s acquisition of the Wautoma grocery store and his work there was something he had done as more or less an experiment and that Defendant should not be liable for damages resulting in the loss of that operation.

Discussion. The contract remedy used in this case is generally limited to the measure of reliance. Reliance, again, is only the amount a party has displaced itself, in anticipation of an agreement. Thus, reliance damages only serve to put the party back into the position they would have formerly been in.