November 10, 2008
Posner on the "Mercury-Like Slipperiness of Indiana Law"
It is good see Judge Posner in such good form. His recent opinion in Classic Cheesecake Co., Inc. v. JP Morgan Chase Bank made me laugh out loud. [Note to self: avoid reading Posner during the sermon!] The facts of the case are pretty simple. Classic Cheesecake approached the bank seeking a loan so that it could establish a distribution center in Las Vegas for its cheesy comestibles. There were some difficulties, in part because one of the Classic Cheesecakes' principals had some outstanding student loans. This difficulty was apparently quickly overcome, and at that point a bank vice president named Dowling informed Classic Cheesecake that the loan was a "go," although she also informed them that the bank was not yet ready to issue the loan.
In fact, the loan was very far from a "go," It was in fact closer to a "stop." Dowling's superior had expressed significant issues and concerns relating to Classic Cheesecake's financial structure and history. The loan was denied about three weeks after Dowling called it a "go."
Classic Cheesecake sought to enforce an oral agreement to provide the loan based on Indiana's exception to the Statute of Frauds (SoF). Indiana's SoF requires that agreements to loan money be in writing. There is a common law exception to that rule in cases where failing to enforce the agrement would produce an "unjust and unconscionable injury and loss." Now, Judge Posner could have made very quick work of this case, because it is not a close call. Posner goes to the trouble of distinguishing the facts of this case from those in which reliance on an oral promise was significant enough to at least survive a motion for summary judgment. But he doesn't really need to, since in his view the reliance in this case was simply not reasonble. The reliance in this case "is more easily based on hope than on a promise" and thus could not be called "reasonable." The facts of this case would not, according to Judge Posner, even support a claim for ordinary promissory estoppel, and the Indiana standard, whatever it is, involves some kind of enhanced promissory estoppel.
And there the fun begins. Judge Posner begins by pointing out that the Indiana standard is vague (is "unjust" different from "unconscionable"?) and redundant (how does "injury" differ from "loss"?). How did we get into this mess? I'll let Judge Posner answer that one:
The particular erosive process that culminates in the doctrine of "unjust and unconscionable injury and loss" began -- where else? -- in an opinion by Justice Traynor, Monarco v. Lo Greco, 200 P.2d 737 (Cal. 1950), that allowed the statute of frauds to be circumvented by a claim of promissory estoppel.
Justice Traynor's creation caught on and developed until it landed in Indiana in its current muddled form. Posner marches through the various Indiana cases that have invoked and variously explicated the standard. He emerges unenlightened as to the meaning of the relevant language, which he finds "confusing rather than clarifying." Nonetheless, he concludes that the cases establish the following:
The more protracted the period during which reliance costs are being incurred, the stronger the inference that the oral promise was as the plaintiff represents it to be; for had there been no promise the plaintiff's conduct -- his immense reliance cost relative to his resources would be incomprehensible.
Judge Posner then proceeds, in a manner that would be of great interest to those who attended the recent conference at the University of Chicago or are otherwise familiar with Judge Posner's trochaic take on the issue of Fault in Contract Law. Contract law is perfectly reasonable, Judge Posner insists, and that reasonableness is not well reflected in words such as "unconscionable" and "unjust." Rather it reflects a compromise between the" value of protecting reasonable reliance and the policy that animates the statute of frauds" by requiring that a party seeking to enforce an oral promise despite the SoF "prove an enhanced promissory estoppel." We do not enforce oral promises because the conduct of the promisor "shocks the conscience," although it may well do so, but because the conduct of the parties is best explained by the existence of a oral promise.
TrackBack URL for this entry:
Listed below are links to weblogs that reference Posner on the "Mercury-Like Slipperiness of Indiana Law":
re: QUOTE: >>We do not enforce oral promises<< END QUOTE.
Why no reference to the folk wisdom attributed to Yogi Berra? (cf: >An oral contract aint worth the paper its written on.<<)
Please advise. s/ Noel E.PARMENTEL Jr NoelJr@OptOnline.Net
Posted by: Noel E. PARMENTEL Jr. | Nov 10, 2008 8:50:54 PM