Illinois Supreme Court rules in Kubota case: Promissory estoppel is cause of action
The Illinois Supreme Court has reversed the appellate court's and Fayette County Circuit Court's judgments that say a dealership is not allowed to sue a tractor company on the basis of promissory estoppel.
In an opinion issued Thursday, justices unanimously sided with Newton Tractor Sales and remanded the case to circuit court for further proceedings.
Promissory estoppel essentially prevents a party from arguing that its promise should not be upheld.
Newton is a dealership that filed suit against Kubota Tractor Corporation on the grounds of promissory estoppel after Kubota denied it permission to sell Kubota tractors.
Newton began negotiations to buy another dealership in November 2002. The dealership, Vandalia Tractor and Equipment owned by brothers Tim and Ron Emerick, already sold Kubota tractors.
The negotiations with the dealership resulted in Newton signing an asset purchase agreement on July 10, 2003. As part of the deal, Newton was allowed to cancel the asset purchase agreement if it was unable to obtain permission to sell New Holland, Agco or Kubota products.
In order to sell Kubota products, Newton was required to submit an application to Kubota's local representative, Michael Jacobson.
After submitting the application, Newton officers met with Tim Emerick and with Jacobson on July 25, 2003. At the meeting, Jacobson informed Newton that he could not approve the sale of Kubota products unless the Emericks terminated their agreement with the company.
Tim Emerick agreed to sign the termination agreement only if Newton could become an authorized dealer, according to court records.
"Newton alleges Jacobson responded by saying, 'They [Newton] will be the dealer,'" the opinion authored by Justice Rita Garman states.
Although Newton's application was approved at Kubota's division level on Aug. 12, 2003, it was denied by Kubota's corporate office.
So Newton filed suit against Kubota and Jacobson in Fayette County Circuit Court on three counts – promissory estoppel, common law fraud and negligent misrepresentation. Fayette County Circuit Court later granted summary judgment in favor of Kubota and Jacobson on all three counts.
Newton filed an appeal seeking reversal of the circuit court's opinion, but only argued against the promissory estoppel claim in its appellate brief.
The company argued that since it relied to its detriment on Jacobson's promise that it would be allowed to sell Kubota tractors, it should be allowed to file a claim based on promissory estoppel.
But the appellate court concurred with the circuit court, saying a promissory estoppel claim can only be brought forth as a defense and not as a cause of action.
However, the Illinois Supreme Court reversed both the circuit court's and appellate court's decisions, saying a promissory estoppel is an affirmative cause of action in Illinois.
A promissory estoppel is based upon a promise that can be enforced to prevent injustice if the promisee relied on the promise to his or her detriment, according to a definition from Black's Law Dictionary that the Supreme Court looked at when making its judgment.
The Supreme Court based its judgment on the case Bank of Marion v. Robert "Chick" Fritz, Inc. In that case, the bank and a contractor agreed to advance funds to a beer distributor if the distributor promised to make payments on the loan to both the bank and contractor. However, the distributor only made payments to the contractor, so the bank sued on the basis of promissory estoppel.
"We noted that '[a]lthough there may be absent a bargained-for consideration, a person who makes a promise may nonetheless be bound by its terms," Garman wrote in the opinion.
In another case, Quake Construction, Inc. v. American Airlines, the Illinois Supreme Court of Appeals recognized promissory estoppel as an affirmative cause of action, according to the opinion.
But Kubota argued that Quake did not fully consider whether promissory estoppel could be used as an affirmative action because only two pages of the "voluminous opinion" were dedicated to the question.
"We recognize that in Quake this court did not examine the full contours of the doctrine of promissory estoppel," Garman wrote. "However, as noted above, an examination of the precedent cited in Quake, particularly our decision in Bank of Marion referencing and adopting section 90 of the Restatement of Contracts, leads to the conclusion that promissory estoppel is a recognized affirmative cause of action in Illinois."
The Supreme Court refused to rule on whether Newton established a promissory estoppel claim, which was Kubota's alternative argument.
"Reviewing the circuit court's decision on the Newton's fraud claim would require this court to determine whether the elements of fraud and promissory estoppel are identical for purposes of reveiewing a grant of summary judgment," Garman wrote. "That issue has not been posed to this court or briefed by the parties."
The Supreme Court instead remanded the issue to circuit court for further consideration.
Supreme Court case number: 106798.
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