State Bank of Standish v. Curry

Riley, J.

(dissenting).

i

Because the statements at issue were not clear and definite promises necessary for the application of promissory estoppel, I respectfully dissent.

ii

The majority omits significant facts underlying this litigation, therefore I recite the pertinent facts. Robert and Kathleen Curry were dairy and cash crop farmers who financed their operations *93through a series of one-year loans with the State Bank of Standish. Beginning in 1975, the bank usually approved loans at two percent over the prime lending rate, and the balance of the previous years’ loans were rolled over. Ante, p 79. This method of financing, however, slowly began to accumulate debt, and, by 1983, the Currys’ outstanding balance totaled at least $110,000. The next year the debt reached $151,000, and in 1985, it rose to $167,000. Noting the mounting debt, in 1985 the parties agreed to abandon the rollover basis of payment, and agreed that operating loans were to be paid on a yearly basis. The Currys secured the loans with nearly all of their realty and personal property. Ante, p 79.

In 1986, the Currys seriously considered submitting a bid to a federal program designed to reduce dairy surpluses by purchasing dairy farms.1 Ante, p 79. The Currys discussed the program with Mr. Robert Garry, a vice president of the bank as well as the loan officer in charge of the Currys’ file, and Mr. Matthew Pelts, an executive vice president. Ante, p 80. Mr. Curry testified that he "went down [to the bank] with the sole purpose and was very blunt about it, are you with me or against me. I wanted to know, should I continue farming, or should I get out, and, basically the bottom line was, you’ve done a good job, you’ve made your payments, we’re with you.” Mr. Curry repeatedly testified that the bank officers had pledged their "support” to the Currys.

In early 1986, Mr. Curry requested an annual loan of $20,000, which was later supplemented *94with an additional request for $5,000 to tile a field. Ante, p 81. As part of the loan application process, the Currys submitted a "Tel Farm” statement, a recordkeeping system which generates income and expense records for businesses such as dairy farms. The bank discerned errors in the statement, including obvious omissions detailing the outstanding debt owed to the bank, and informed the Currys that they should correct the form. The bank’s request went unheeded. However, at the bank’s request, the Currys did provide their prior year’s tax return, which recorded losses of $72,000.

The Currys, assuming their loan request would be approved, purchased seed and supplies, but delayed planting corn while awaiting funds from the bank. Ante, p 81. The bank’s financial projections regarding the farm and its mounting debt, combined with the Currys’ previous year’s losses of $72,000, however, ultimately led the bank to deny the loan request.

In October 1986, the bank filed suit when the Currys failed to pay their obligations on the outstanding debt. The Currys counterclaimed, alleging, inter alia, that the bank’s refusal to approve the 1986 operating loan was a breach of the duties of good-faith performance and fair dealing that resulted in substantial damages. The trial court ruled that although the Currys did not have a defense regarding their outstanding debt, they had alleged detrimental reliance warranting a trial.

On May 4, 1988, a six-day trial concluded with a jury verdict in favor of the Currys for $127,575. The trial court found that with interest and costs the Currys were entitled to $157,000 along with a setoff of $101,000 of outstanding debt to the bank, and awarded the Currys $56,000. The court denied the bank’s motion for judgment notwithstanding the verdict or, in the alternative, remitter. In May *951991, the Court of Appeals reversed the denial of judgment notwithstanding the verdict. The Court held "there was no clear and definite promise of a loan sufficient to warrant [the Currys] subsequent purchases and actions and, consequently, insufficient evidence to establish their theory of promissory estoppel.” 190 Mich App 616, 621; 476 NW2d 635 (1991).

This Court granted leave to appeal.

hi

The Court of Appeals reversed the trial court’s denial of judgment notwithstanding the verdict because it found that there was insufficient evidence provided by the Currys to establish that the bank had made the clear and definite promise necessary .for a successful assertion of promissory estoppel. In reviewing the decision of the Court of Appeals, this Court is to view the evidence in the light most favorable to the nonmoving party. VanderWall v Midkiff, 166 Mich App 668, 676; 421 NW2d 263 (1988). Hence, the Currys’ testimony must be assumed true, and all reasonable inferences must be drawn.

iv

A

Justice Cooley long ago explained the premise of promissory estoppel:

The doctrine of estoppel rests upon a party having directly or indirectly made assertions, promises or assurances upon which another has acted under such circumstances that he would be seriously prejudiced if the assertions were suffered to be disproved or the promises or assurances to be withdrawn. [Maxwell v Bay City Bridge Co, 41 Mich 453, 467; 2 NW 639 (1879).]

*96See also Holt v Stofflet, 338 Mich 115, 119; 61 NW2d 28 (1953).2

Because promissory estoppel is an exception to general contract principles in that it permits enforcement of a promise that may have no consideration, the general rule is:

In order that a statement or representation may be relied upon as creating an estoppel, its language must be clear and plain, or it must be clear and reasonably certain in its intendment, since estoppels must be certain and are not to be taken or sustained on mere argument or doubtful inference. [28 Am Jur 2d, Estoppel and Waiver, § 45, p 654.]

Hence, "a promise must be definite and clear.” McMath v Ford Motor Co, 77 Mich App 721, 726; 259 NW2d 140 (1977).3

The requirement that promises be clear and definite is especially appropriate in the context of complex commercial financing. Hence, the majority recognizes that the finding of "general discussions of extending credit or 'past renewals of credit should not lead a borrower to reasonably believe that credit will be extended or renewed again and again/.” Ante, p 87 (citation omitted). In fact, "a *97pattern of renewal in itself [does not] amount to sufficient assent to continue dealing or that renewal will be indefinite.” Ante, p 87 (citation omitted). Accordingly, the majority finds that "[f]or a promise to loan money in the future to be sufficiently clear and definite, some evidence must exist of the material terms of the loan, including the amount of the loan, the interest rate, and the method of repayment.” Ante, p 88. This must be so because to enforce ambiguous promises of future financing is both inequitable and permits the speculative awarding of damages.4

B

In the instant case, the testimony reveals that the alleged promise was so ambiguous as to bar the application of promissory estoppel. In Malaker Corp Stockholders Protective Committee v First Jersey Nat'l Bank, 163 NJ Super 463, 480; 395 *98A2d 222 (1978), the court ruled that a promise to loan an unspecified amount of money was not sufficient to constitute a clear and definite promise for the purposes of promissory estoppel:

At best, one could imply a promise of a loan of some indefinite amount guaranteed by additional collateral. We do not regard this kind of implied undertaking to lend an unspecified amount of money as the "clear and definite promise” that is required as an adequate foundation for estopping the bank to deny absence of consideration as a defense.

Similarly, the circumstances in the instant case do not constitute promissory estoppel. The vaporous and amorphous pledges of . "support” were certainly not clear and definite promises. No terms of the loans were specified — the amount of the loan, the interest rates, the payment schedule, the method of payment were all undetermined. Nor were these statements of support formal agreements with merely some terms to be decided. The recent alteration of the terms of payment from a rollover to an annual payment basis, for instance, disproves any notion of "customary loan practices between the parties.”5 Ante, p 92. Moreover, the quickly souring financial circumstances of the Currys significantly altered any established customary *99norms between the parties.6 Clearly the terms and approval of the annual loans were not fixed, but subject to annual renegotiation.7 Furthermore, the majority relies heavily on the fact that Curry "went to the bank for the express purpose of learning whether he would receive financing should he decide to continue in the dairy business,” ante, p 90, yet his intent is irrelevant to whether the bank made such a binding promise. Even after drawing all due inferences in favor of the Currys, the bank’s statements were not a clear and definite promise sufficient to apply promissory estoppel because the bank clearly did not state the "material terms of the loan, including the amount of the loan, the interest rate, and the method of repayment.” Ante, p 88. In the arena of highly complex financial lending, the bank’s statements are too vague and ambiguous to possess the necessary definiteness to justify a legitimate use of promissory estoppel.

v

Because the statements at issue were not clear *100and definite promises necessary for the application of promissory estoppel, I respectfully dissent.

Griffin, J., concurred with Riley, J.

Farmers submitted selling bids to the government. If accepted, the government purchased the dairy herd and the farmer agreed not to reenter the dairy business for five years. If the Currys had submitted such a bid and it had been accepted, the Currys most likely would have received sufficient compensation to pay their debts and produce a profit.

More recently the doctrine has been articulated by four elements:

(1) a promise, (2) that the promisor should reasonably have expected to induce action of a definite and substantial character on the part of the promisee, (3) which in fact produced reliance or forbearance of that nature, (4) in circumstances such that the promise must be enforced if injustice is to be avoided. [McMath v Ford Motor Co, 77 Mich App 721, 725; 259 NW2d 140 (1977).]

See also Hebrew Teachers Ass’n v Jewish Welfare Federation, 62 Mich App 54, 61-62; 233 NW2d 184 (1975); Malaker Corp Stockholders Protective Committee v First Jersey Nat’l Bank, 163 NJ Super 463, 479; 395 A2d 222 (1978) (referring to a " 'clear and definite promise,’ the sine qua non for applicability of this theory of recovery”).

The essential justification for the doctrine of promissory estoppel is the avoidance of substantial hardship or injustice were the promise not to be enforced. Too liberal an application of the concept will result in an unwitting and unintended undermining of the traditional rule requiring consideration for a contract. This is particularly true where the promise is the loan of money. Such promises, even when unsupported by consideration, do induce borrowers to neglect to secure the needed money elsewhere, and lenders must be held to anticipate such conduct. To hold as enforceable, however, a voluntary promise of a loan made to one who, in reliance thereon, fails to exercise a valueless right to seek the money elsewhere, would be tantamount to rendering all such voluntary promises of a loan enforceable without consideration. A determination declaring such a deviation from presently accepted contract principles should only come from a confrontation with that issue, and not as an unintended consequence of the loose application of promissory estoppel to promises to lend money. [Malaker Corp, n 3 supra at 484.]

See also Hebrew Teachers Ass’n, n 3 supra at 61-62 ("Due to the indefiniteness and uncertainty of defendant’s actual obligation, it is unclear what defendant promised plaintiff. . . . [Therefore] any award by the Court would be entirely speculative”).

In fact, following the analysis of the majority to its logical conclusion, if a vague pledge of support occurred before 1985 and the Currys had relied upon the ability to roll over their debt, the bank would have been estopped from altering the payment schedule. Similarly, if instead of denying the loan request the bank had approved a loan with an increased interest rate, the majority would also declare such an offer estopped. In essence, the majority finds that once a commercial lending relationship exists, debtors are entitled to rely upon vague affirmations of support to paralyze lenders’ abilities to adjust to ever-changing market conditions. Such a holding does extreme violence to the doctrine of promissory estoppel, as well as freedom of contract.

Contrary to the assertion of the majority, this opinion does not rest upon "a review of the bank officer’s testimony regarding the deteriorating financial status of the Currys to support his ultimate decision to refuse to make the loan.” Ante, p 90, n 15. In fact, I agree with the majority that the issue is "whether there was sufficient evidence to support a jury finding that the bank promised the Currys it would make the loan.” Id. Unlike the majority, I have examined those statements which plaintiffs suggest constitute a clear and definite promise and find them wanting. I simply note the Currys’ deteriorating financial conditions to belie the notion that an established pattern of lending existed or could be expected to continue under the circumstances. Hence, the vague affirmation of support should not be understood to be so sufficiently clear and definite that it incorporated "the material terms of the loan, including the amount of the loan, the interest rate, and the method of repayment.” Ante, p 88.

After all, the Currys did submit loan requests each year, and the bank did evaluate each request independently.