Using Promissory Estoppel to Recover Damages in Tennessee
Promissory estoppel may be used offensively as a cause of action to recover damages, unlike equitable estoppel, which may only be used defensively. It is a useful cause of action in situations where a promise was made to the plaintiff, but the promise does not rise to the level of an enforceable contract.
To prove a promissory estoppel claim, a plaintiff must show that:
The defendant made a promise;
The promise was definite and unambiguous enough to be enforced, and
The plaintiff reasonably relied on the promise.
A plaintiff does not have to prove the existence of an express contract to prevail on a promissory estoppel claim.
A review of Tennessee cases where courts have considered promissory estoppel reveals two important points. First, plaintiffs are not often successful with it. This is not surprising since Tennessee courts have said recovery under promissory estoppel is only appropriate in “exceptional cases.” Second, whether a claim succeeds often depends heavily on the unique equities of the case.
While many Tennessee decisions explain why plaintiffs failed in asserting promissory estoppel, it is more instructive to look at one of the “exceptional cases” where the claim succeeded. One such case is Engenius Entertainment, Inc. v. W.W. Herenton, 971 S.W.2d 12 (Tenn. Ct. App. 1997).
Here are the key facts:
In 1993, the City of Memphis (“City”) sought a private developer for 121,000 square feet of space in the Pyramid arena.
The City issued an RFP requiring about $10 million in investment and sent it to more than 200 potential developers.
The City informed the plaintiff developer (“Developer”) that its proposal had been selected, provided it could prove financial capability.
Developer’s proposal was to build a high-tech family entertainment park, “Island Earth EcoCenter.”
Developer proved financial capability, but the City ignored repeated requests to begin lease negotiations.
The City revived a public agency (PBA) to oversee the project. Despite Developer’s concerns, the City assured it that the RFP would not be reopened and that only its plan would be considered.
Developer invested further time and money making presentations to the PBA.
The City then began discussions with other developers, even though Developer’s plan required no City investment. Ironically, City attorneys rejected Developer’s plan claiming it required City investment, while recommending alternatives that would require up to $10 million in City funds.
In 1995, Developer was told to make another presentation, which was expensive to prepare.
In October 1995, the City again informed Developer that it had been selected, encouraged it to finalize arrangements with subcontractors, and expressed eagerness to complete the contract.
Developer spent more money finalizing lease terms, creating construction drawings, and obtaining bids.
When Developer refused to pay a non-refundable $50,000 fee demanded by the City for the right to negotiate, the mayor allegedly stated the City could simply use Developer’s ideas without it.
The City then ended the RFP process without selecting a developer.
Developer sued the City under promissory estoppel, claiming over $1 million in damages incurred in reliance on the City’s promises. The trial court dismissed the claim, but the Court of Appeals reversed.
The appellate court found that the City had made promises upon which the Developer reasonably relied, incurring substantial expenses. Importantly, the court clarified that Developer did not need to prove that a formal contract existed to prevail.
In reviewing Tennessee cases on promissory estoppel, it is clear that the extensive unscrupulous and underhanded conduct of the City in Engenius distinguishes it from most other commercial litigation cases where plaintiffs assert promissory estoppel but fail.