Hoffmann v. Red Owl Stores, Inc., 133 N.W. 2d 267 (Wis. 1965)

Joseph HOFFMAN et al. v. RED OWL STORES, INC., a foreign corp., et al.

Supreme Court of Wisconsin.

March 2, 1965.



Action by Joseph Hoffman (hereinafter "Hoffman") and wife, plaintiffs, against defendants Red Owl Stores, Inc. (hereinafter "Red Owl") and Edward Lukowitz.

The complaint alleged that Lukowitz, as agent for Red Owl, represented to and agreed with plaintiffs that Red Owl would build a store building in Chilton and stock it with merchandise for Hoffman to operate in return for which plaintiffs were to put up and invest a total sum of $18,000; that in reliance upon the above mentioned agreement and representations plaintiffs 269 sold their bakery building and business and their grocery store and business; also in reliance on the agreement and representations Hoffman purchased the building site in Chilton and rented a residence for himself and his family in Chilton; plaintiffs' actions in reliance on the representations and agreement disrupted their personal and business life; plaintiffs lost substantial amounts of income and expended large sums of money as expenses. Plaintiffs demanded recovery of damages for the breach of defendants' representations and agreements.

The action was tried to a court and jury. The facts hereafter stated are taken from the evidence adduced at the trial. Where there was a conflict in the evidence the version favorable to plaintiffs has been accepted since the verdict rendered was in favor of plaintiffs.

Hoffman assisted by his wife operated a bakery at Wautoma from 1956 until sale of the building late in 1961. The building was owned in joint tenancy by him and his wife. Red Owl is a Minnesota corporation having its home office at Hopkins, Minnesota. It owns and operated a number of grocery supermarket stores and also extends franchises to agency stores which are owned by individuals, partnerships and corporations. Lukowitz resides at Green Bay and since September, 1960, has been divisional manager for Red Owl in a territory comprising Upper Michigan and most of Wisconsin in charge of 84 stores. Prior to September, 1960, he was district manager having charge of approximately 20 stores.

In November, 1959, Hoffman was desirous of expanding his operations by establishing a grocery store and contacted a Red Owl representative by the name of Jansen, now deceased. Numerous conversations were had in 1960 with the idea of establishing a Red Owl franchise store in Wautoma. In September, 1960, Lukowitz succeeded Jansen as Red Owl's representative in the negotiations. Hoffman mentioned that $18,000 was all the capital he had available to invest and he was repeatedly assured that this would be sufficient to set him up in business as a Red Owl store. About Christmastime, 1960, Hoffman thought it would be a good idea if he bought a small grocery store in Wautoma and operated it in order that he gain experience in the grocery business prior to operating a Red Owl store in some lager community. On February 6, 1961, on the advice of Lukowitz and Sykes, who had succeeded Lukowitz as Red Owl's district manager, Hoffman bought the inventory and fixtures of a small grocery store in Wautoma and leased the building in which it was operated.

After three months of operating this Wautoma store, the Red Owl representatives came in and took inventory and checked the operations and found the store was operating at a profit. Lukowitz advised Hoffman to sell the store to his manager, and assured him that Red Owl would find a larger store for him elsewhere. Acting on this advice and assurance, Hoffman sold the fixtures and inventory to his manager on June 6, 1961. Hoffman was reluctant to sell at that time because it meant losing the summer tourist business, but he sold on the assurance that he would be operating in a new location by fall and that he must sell this store if he wanted a bigger one. Before selling, Hoffman told the Red Owl representatives that he had $18,000 for "getting set up in business" and they assured him that there would be no problems in establishing him in a bigger operation. The makeup of the $18,000 was not discussed; it was understood plaintiff's father in law would furnish part of it. By June, 1961, the towns for the new grocery store had been narrowed down, to two, Kewaunee and Chilton. In Kewaunee, Red Owl had an option on a building site. In Chilton, Red Owl had nothing under option, but it did select a site to which plaintiff obtained an option at Red Owl's suggestion. The option stipulated a purchase price of $6,000 with $1,000 to be paid 270 on election to purchase and the balance to be paid within 30 days. On Lukowitz's assurance, that everything was all set plaintiff paid $,1,000 down an the lot on September 15th.

On September 27, 1961, plaintiff met at Chilton with Lukowitz and Mr. Reymund and Mr. Carlson from the home office who prepared a projected financial statement. Part of the funds plaintiffs were to supply as their investment in the venture were to be obtained by sale of their Wautoma bakery building.

On the basis of this meeting Lukowitz assured Hoffman: " [E]verything is ready to go. Get your money together and we are set." Shortly after this meeting Lukowitz told plaintiffs that they would have to sell their bakery business and bakery building, and that their retaining this property was the only "hitch" in the entire plan. On November 6, 1961, plaintiffs sold their bakery building for $10,000. Hoffman was to retain the bakery equipment as he contemplated using it to operate a bakery in connection with his Red Owl store. After, sale of the bakery Hoffman obtained employment on the night shift at an Appleton bakery.

The record contains different exhibits which were prepared in September and October; some of which were projections of the fiscal operation of the business others were proposed building and floor plans. Red Owl was to procure some third party to buy the Chilton lot from Hoffman, construct the building, and then lease it to Hoffman. No final plans were ever made, nor were bids let or a construction contract entered. Some time prior to November 20, 1961, certain of the terms of the lease under which the building was to be rented by Hoffman were understood between him and Lukowitz. The lease was to be for 10 years with a rental approximating $550 a month calculated on the basis of 1 percent per month on the building cost, plus, 6 percent of the land cost divided on a monthly basis. At the end of the 10-year term he was to have an option to renew the lease for an additional 10-year period or to buy the property at cost on an instalment basis. There was no discussion as to what the instalments would be or with respect to repairs and maintenance.

On November 22nd or 23rd, Lukowitz and plaintiffs met in Minneapolis with Red Owl's credit manager to come on Hoffman's financial standing and on financing the agency. Another projected financial statement was there drawn up entitled, "Proposed Financing For An Agency Store:" This showed Hoffman. contributing $24,100 of cash capital of which only $4,600 was to be cash possessed by plaintiffs. Eight thousand was to be procured as a loan from a Chilton bank. secured by a mortgage on the bakery fixtures, $7,500 was to be obtained on a 5 percent loan from the father-in-law, and $4,000 was to be obtained by sale of the lot to the lessor at a profit.

A week or two after the Minneapolis meeting Lukowitz showed Hoqman a telegram from the home office to the effect that if plaintiff could get another $2,000 for promotional purposes the deal could go through for $26,000. Hoffman stated he would have to find out if he could get another $2,000. He met with his father-in-law, who agreed to put $13,000 into the business provided he could come into the business as a partner. Lukowitz told Hoffman the partnership arrangement "sounds fine" and that Hoffman should not go into the partnership arrangement with the "front office." On, January l6, 1962, the Red Owl credit manager teletyped Lukowitz that the father-in-law would have to sign an agreement that the $13,000 was either a gift or a loan subordinate to all general creditors and that he would prepare the agreement. On January 31, 1962, Lukowitz teletyped the home office that the father-in-law would sign one or other of the agreements. However, Hoffman Hoffman testified that it was not until the final meeting some time between January 26th and 271 February 2nd, 1962, that he was told that his father-in-law was expected to sign an agreement that the $13,000 he was advancing was to be an outright gift. No mention was then, made by the Red Owl representatives of the alternative of the father-in-law signing a subordination agreement. At this meeting the Red Owl agents presented Hoffman with the following projected financial statement:


Hoffman interpreted the above statement to require of plaintiffs a total of $34,000 cash made up of $13,000 gift from his father-in-law, $2,000 on mortgage, $8,000 on Chilton bank loan, $5,000 in cash from plaintiff, and $6,000 on the resale of the Chilton lot. Red Owl claims $18;000 is the total of the unborrowed or unencumbered cash, that is, $13,000 from the father-in-law and $5,000 cash from Hoffman himself. Hoffman informed Red Owl he could not go along with this proposal, and particularly objected to the requirement that his father-in-law sign an agreement that his $13,000 advancement was an absolute gift. This terminated the negotiations between the parties.




CURRIE, Chief Justice.

The instant appeal and cross-appeal present these questions:

(1) Whether this court should recognize causes of action grounded on promissory 273 estoppel as exemplified by sec. 90 of Restatement, 1 Contracts?


Recognition of a Cause of Action Grounded on Promissory Estoppel.

Sec. 90 of Restatement, 1 Contracts, provides (at p. 110):

"A promise which the promisor should reasonably expect 'to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."

The Wisconsin Annotations to Restatement, Contracts, prepared under the direction of the late Professor William H. Page and issued in 1933, stated (at p. 53, sec. 90):

"The Wisconsin cases do not seem to be in accord with this section of the Restatement. It is certain that no such proposition has ever been announced by the Wisconsin court and it is at least doubtful if it would be approved by the court."

Since 1933, the closest approach this court has made to adopting the rule of the Restatement occurred in the recent case of Lazarus v. American Motors Corp. (1963), 21 Wis.2d 76, 85, 123 N.W.2d 548, 553, wherein the court stated: 

"We recognize that upon different facts it would be possible for a seller of steel to have altered his position so as to effectuate the equitable considerations inherent in sec. 90 of the Restatement."

While it was not necessary to the disposition of the Lazarus Case to adopt the promissory estoppel rule of the Restatement, we are squarely faced in the instant case with that issue. Not only did the trial court frame the special verdict on the theory of sec. 90 of Restatement, Contracts, but no other possible theory has been presented to or discovered by this court which would permit plaintiffs to recover. Of other remedies considered that of an action for fraud and deceit seemed to be the most comparable. An action at law for fraud, however, cannot be predicated on unfulfilled promises unless the promisor possessed the present intent not to perform. Suskey v. Davidoff (1958), 2 Wis.2d 503, 507, 87 N.W.2d 306, and cases cited. Here, there is no evidence that would support, a finding that Lukowitz made any of the promises, upon which plaintiffs' complaint is predicated; in bad faith with any present intent that they would not be fulfilled by Red Owl.

Many courts of other jurisdictions have seen fit over the years to adopt the principle of promissory estoppel, and the tendency in that direction continues. As Mr. Justice McFADDIN, speaking in behalf of the Arkansas court, well stated, that the development of the law of promissory estoppel "is an attempt by the courts to keep remedies abreast of increased moral consciousness of honesty and fair representations in all business dealings." Peoples National Bank of Little Rock v. 274 Linebarger Construction Company (1951), 219 Ark. 11, 17; 240 S.W.2d 12, 16. For a further discussion of the doctrine of promissory estoppel, see 1A Corbin, Contracts pp. 187, et seq., secs. 193-209; 3 Pomeroy's Equity jurisprudence (5th ed.), pp. 211, et seq., sec. 808b; 1 Williston, Contracts (Jaeger's 3d ed.), pp. 607, et seq., sec. 140; Boyer, Promissory Estoppel: Requirements and Limitations of the Doctrine 98 University of Pennsylvania Law Review (1950), 459; Seavey Reliance Upon Gratuitous Promises or Other Conduct, 64 Harvard Law Review (1951), 913; Annos. 115 A.L.R. 152, and 48 A.L.R.2d 1069.

The Restatement avoids use of the term "promissory estoppel," and there has been criticism of it as an inaccurate term. See 1A Corbin, Contracts, p. 232, et seq., sec. 204. On the other hand, Williston advocated the use of this term or something equivalent. 1 Williston, Contracts (1st ed.), p. 308, sec. 139. Use of the word "estoppel" to describe a doctrine upon which a party to a lawsuit may obtain affirmative relief offends the traditional concept that estoppel merely serves as a shield and cannot serve as a sword to create a cause of action. See Utschig v. McClone (1962), 16 Wis.2d 506, 509, 114 N.W.2d 854. "Attractive nuisance" is also a much criticized term. See concurring opinion, Flamingo v. City of Waukesha (1952), 262 Wis.219, 227, 55 N.W.2d 24. However, the latter term is still in almost universal use by the courts because of the lack of a better substitute. The same is also true of the wide use of the term "promissory estoppel." We have employed its use in this opinion not only because of its extensive use by other courts but also since a more accurate equivalent has not been devised.

[2] Because we deem the doctrine of promissory estoppel, as stated in sec. 90 of Restatement, 1 Contracts, is one which supplies a needed tool which courts may employ in a proper case to prevent injustice, we endorse and adopt it.


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