Don't Make Promises You Can't Keep
It’s a lesson we should all have picked up in kindergarten, but in your business it's even more important now that the Illinois Supreme Court has rendered its decision in Newton Tractor Sales, Inc. v. Kubota Tractor Corporation (Docket No. 106798).
In Newton, the Kubota tractor corporation was sued by the Newton dealership. The dispute centered on Newton’s decision to purchase a Vandalia tractor dealership. Kubota had a deal with the Vandalia dealership where it was the exclusive Kubota dealer in the area and Newton wanted to be sure that if it bought the Vandalia store, it wouldn’t lose the Kubota line.
Newton allegedly met with representatives of Kubota to make sure that after the purchase of the Vandalia store, they would still be the Kubota dealer. In order for the new store to get the Kubota deal, the old store owner had to sign a termination agreement with Kubota to end the sale of the Kubota line and the new store – now owned by Newton – would have to apply for permission to sell. A Kubota representative allegedly told the parties that “They [Newton] would be the dealer” which induced the old owner of the Vandalia store to sign an agreement terminating the Vandalia store’s then existing right to sell Kubota.
You’re reading this, so you can guess that Newton’s application to sell the line at the recently purchased Vandalia store was denied.
Newton went to court to enforce its rights and sued under a theory of promissory estoppel… which is why the opinion is important. When there is no contract or someone relies on your promise to their detriment, this cause of action may be available. In order “to establish a claim, the plaintiff must prove that (1) defendant made an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff’s reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment.”
The trial court ruled that Newton couldn’t maintain this cause of action because it wasn’t recognized as such in Illinois. The appellate court affirmed…. and the Illinois Supreme Court corrected their mistaken impressions. The cause of action does exist in Illinois and people can use it to sue when they’ve relied to their detriment on someone else’s promise. (see the factors we listed above).
The Supreme Court also addressed and rejected an argument made by Kubota that allowing people to sue under this doctrine would wreak havoc on our industry:
“With respect to the first issue, Kubota points in particular to relationships in the field of development and construction. In construction, before a general contractor is awarded a bid, it must approach one or more subcontractors for their respective bids on specific parts of the overall project. Kubota expresses concern that promissory estoppel, as an affirmative action, would “erode the incentives for parties to carefully consider and detail the contractual terms and obligations in their relationships, and it would unfairly and unnecessarily expose one of the parties to unilateral obligations.” Citing a North Carolina case, Kubota argues that promissory estoppel would “force[ ] the subcontractor to be bound if the general contractor uses his bid, even though the general contractor is not obligated to award the job to that subcontractor.”
“We note that the scenario envisioned by Kubota is not the scenario presented in this case. Newton and Kubota did not have a general contractor-subcontractor relationship. However, we also note that our own appellate court has addressed the particular issue of subcontractor bids and has applied the promissory estoppel doctrine. See Pickus Construction & Equipment, 326 Ill. App. 3d at 523-27; Illinois Valley Asphalt, 90 Ill. App. 3d at 770-71; S.M. Wilson & Co. v. Prepakt Concrete Co., 23 Ill. App. 3d 137, 139 (1974) (“The doctrine of promissory estoppel is recognized in Illinois”). Given the appellate court’s experience and familiarity in addressing this scenario, we remain convinced that allowing promissory estoppel as a cause of action will not affect the existing relationship between general contractors and their subcontractors and suppliers. Therefore, we reject Kubota’s first public policy argument.”
The lesson here is no joke. Be careful what you’re promising and when you’re promising it in a transaction.
