Law School Case Brief
Cyberchron Corp. v. Calldata Sys. Dev. - 47 F.3d 39 (2d Cir. 1995)
Promissory estoppel has three elements: a clear and unambiguous promise; a reasonable and foreseeable reliance by the party to whom the promise is made, and an injury sustained by the party asserting the estoppel by reason of the reliance. An unconscionable injury is sometimes required to fulfill the third requirement. In addition, some courts will apply the doctrine only when enforcement is necessary to avoid injustice.
Plaintiff-appellant Cyberchron Corporation continued production of certain equipment for defendant-appellee Calldata Systems Development, even though it never agreed to Calldata’s purchase order. Calldata encouraged Cyberchron in that course. Calldata issued a revised purchase order that increased its termination liability from the amount provided in the original purchase order. The parties never reached agreement, and Calldata terminated the purchase order. Cyberchron sued for breach of contract, quantum meruit, and promissory estoppel. The trial court found that there was no contract, Cyberchron was not entitled to recover on quantum meruit because Calldata derived no benefit, but allowed Cyberchron to recover certain costs on the promissory estoppel claim. The trial court awarded Cyberchron $ 162,824 for direct labor and materials costs incurred in reliance upon statements and conduct of Calldata that gave rise to the claim of promissory estoppel. The trial court decided that Cyberchron's damages should not include overhead expenditures, lost profits, or shutdown expenses incurred after July 15, 1990 and before the termination of negotiations on September 25, 1990. Cyberchron sought review.
Did the trial court err in awarding plaintiff Cyberchron damages on a claim for relief sounding in promissory estoppel for certain costs incurred in reliance upon statements and conduct of defendant Calldata?
The United States Court of Appeals affirmed the findings on liability. The Court considered the three elements of promissory estoppel, noting that an unconscionable injury is sometimes required to fulfill the third requirement. The Court regarded the injury inflicted upon appellant Cyberchron as unconscionable and believed that injustice can be avoided in this case only by invoking the doctrine of promissory estoppel on Cyberchron's behalf. At the same time that Grumman (Calidata's subsidiary) was pressuring Cyberchron to produce, with the promise of payment, it was already negotiating with another company to do the work. There came a time when Calldata made an unambiguous promise to pay Cyberchron, the latter reasonably and foreseeably relied on it, and it was unconscionable to allow Cyberchron nothing. However, the Court rejected the argument that promissory estoppel recovery should be extended to the periods prior to mid-July 1990. Regarding the claim for overhead and "shutdown" expenses, the Court vacated the judgment and remanded for a redetermination of damages because Cyberchron was entitled to recover reasonable overhead expenses normally allocated to projects in accordance with Cyberchron’s accounting practices.
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