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Home Electric Co. v. Hall and Underdown Heating and Air Conditioning Co.

COURT OF APPEALS OF NORTH CAROLINA


Filed: August 4, 1987.

HOME ELECTRIC CO. OF LENOIR, INC., A NORTH CAROLINA CORPORATION
v.
HALL AND UNDERDOWN HEATING AND AIR CONDITIONING COMPANY, A NORTH CAROLINA PARTNERSHIP

Appeal by plaintiff from Sitton, Judge. Judgment entered 30 September 1986 in Superior Court, Caldwell County.

Orr, Judge. Judges Johnson and Eagles concur.

Orr

Plaintiff argues that the trial court erred in dismissing its contractual claim on the grounds of a failure of consideration. It is contended by the plaintiff that the doctrine of promissory estoppel should apply in the case sub judice so as to serve as a substitute for consideration. We decline to expand the use of the doctrine of promissory estoppel in cases such as this one and affirm the trial court's decision for the reasons set forth below.

[86 NCApp Page 542]

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint, Sutton v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970), which will be dismissed if it is completely without merit. Lee v. Paragon Group Contractors, 78 N.C. App. 334, 337 S.E.2d 132 (1985). A complaint is without merit if (1) there is an absence of law to support a claim of the sort made; (2) there is an absence of fact sufficient to make a good claim; or (3) there is the disclosure of some fact which will defeat a claim. Id. at 337, 337 S.E.2d at 134. In the case sub judice, there is an absence of law to support the plaintiff's claim.

Plaintiff's complaint alleges the existence of a contract between plaintiff and defendant. However, the complaint fails to allege the existence of any consideration for defendant's promise to perform the duct work for $29,400. A contract, to be enforceable, must be supported by adequate consideration. Matthews v. Matthews, 2 N.C. App. 143, 162 S.E.2d 697 (1968). Consideration which is sufficient to support a contract "consists of 'any benefit, right, or interest bestowed upon the promisor, or any forbearance, detriment, or loss undertaken by the promisee.'" Lee v. Paragon Group Contractors, 78 N.C. App. at 338, 337 S.E.2d at 134 (citation omitted).

Plaintiff, however, asserts the doctrine of promissory estoppel and argues that it serves as a substitute for consideration.

The Restatement of Contracts states the following:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Restatement (Second) of Contracts § 90 (1979). The comment to this section states that this section is often referred to in terms of "promissory estoppel."

However, there are differing interpretations of § 90.

It [§ 90] appears to be intended as a substantive rule of law to be used as a sword under which a promisee can bring an action and, if he proves the elements set out in § 90, enforce the promise. By supplying the missing elements to the contract

[86 NCApp Page 543]

it appears to give the promisee an enforceable right of action in contract against his promisor. In effect, if a complaint is patterned after § 90, it anticipates the defenses of lack of assent and lack of consideration, and thus precludes, at least as a matter of law, the promisor's reliance on such defenses.

Apparently not all legal scholars equate promissory estoppel with § 90 of the Restatement. The position has been taken that promissory estoppel applies only in cases where there is a promise or representation as to an intended abandonment by the promisor of a legal right which he holds or will hold against the promisee.

Annot. "Statute of Frauds -- Promissory Estoppel," 56 A.L.R. 3d 1047 (1974).

The North Carolina Courts have recognized to a limited extent the doctrine of promissory estoppel, but have not expressly recognized it in all situations. Furthermore, our Courts have never recognized it as a substitute for consideration, either in construction bidding, or in any other context. The North Carolina cases which have applied the doctrine have only done so in a defensive situation, where there has been an intended abandonment of an existing right by the promisee. North Carolina case law has not approved the doctrine for affirmative relief.

In Clement v. Clement, 230 N.C. 636, 55 S.E.2d 459 (1949), the Supreme Court recognized the doctrine of promissory estoppel in the limited context of a judicial waiver. In that case defendant asserted the doctrine to prevent plaintiff from charging interest when plaintiff had previously agreed not to charge it. The Court stated that promissory estoppel would apply to the waiver situation, but refused to apply the doctrine on these facts. It stated that the waiver of interest on a loan was an extrajudicial waiver and also that there was no detrimental reliance by the promisee in that case.

The most recent and definitive discussion of promissory estoppel occurred in the case of Wachovia Bank v. Rubish, 306 N.C. 417, 293 S.E.2d 749, reh. denied, 306 N.C. 753, 302 S.E.2d 884 (1982), where defendant relied on his landlord's promise not to require a written notice to renew his lease. After the landlord

[86 NCApp Page 544]

died, defendant failed to give written notice of renewal and the landlord's executors cancelled his lease and sued for summary ejectment. The Court held that defendant could assert promissory estoppel as a defense to the summary ejectment action by proving an express or implied promise to waive the written notice provision and by proving his detrimental reliance on that promise. It is important to note that the opinion makes no mention of § 90 of the Restatement of Contracts and deals with the waiver of a legal right.

Plaintiff relies on Allen M. Campbell Co., Gen. Cont. v. Virginia Metal Ind., 708 F.2d 930 (4th Cir. 1983), a case arising in North Carolina, to support its theory of promissory estoppel as a substitute for consideration. In that case, plaintiff contractor used defendant subcontractor's oral bid for metal doors in formulating its prime bid for a construction project. Plaintiff was awarded the contract, but defendant was unable to deliver the goods at the stated price. Plaintiff sued on a theory of promissory estoppel to recover the difference between the price of defendant's oral bid and its replacement cost. The Fourth Circuit Court of Appeals held that plaintiff could recover on the theory of promissory estoppel and concluded that North Carolina courts would have applied the doctrine had they been faced with those facts.

The Court in Campbell relied on Wachovia as explicitly holding, "that the law of North Carolina includes, and where appropriate applies, the doctrine of promissory estoppel." Campbell, 708 F.2d at 931. The Court then applied the elements of promissory estoppel to the pleadings in Campbell and concluded that it had been error to dismiss the case under Rule 12(b)(6) of the Federal Rules.

However, the Wachovia case, while recognizing the doctrine of promissory estoppel, makes no assertion that this Court can apply the doctrine in an affirmative manner, particularly under the facts of this case. This Court, therefore, cannot base an expansive interpretation and use of promissory estoppel in the case sub judice, on the precedential value of Wachovia. Neither is this Court obligated to rely on Campbell which is not binding precedent on North Carolina Courts and is distinguishable on its facts from the Wachovia case.

[86 NCApp Page 545]

In Campbell, the Fourth Circuit allowed the use of the doctrine to grant affirmative relief to the plaintiff. As stated previously, the doctrine has only been permitted in North Carolina for defensive relief and both North Carolina cases which recognized the doctrine involved the waiver of a preexisting right by a promisee.

Also, the plaintiffs in Campbell and in the case at bar were attempting to create a contract which would not exist without the application of promissory estoppel. In Clement and Wachovia, however, the parties were merely attempting to modify a valid contract which was already in existence.

Allowing a cause of action based on promissory estoppel in construction bidding also creates the potential for injustice. It forces 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. The general contractor is still free to shop around between the time he receives the subcontractor's bid and the time he needs the goods or services, to see if he can obtain them at a lower price.

Using the doctrine in this context is also inequitable in that it allows the general contractor to sue the subcontractor if the subcontractor is unable to perform after the contractor has used his bid, but before he has formally accepted the subcontractor's offer. The subcontractor, however, is powerless and has no grounds on which to sue the contractor if the contractor refuses to use the subcontractor for the actual work.

Finally, general contractors can avoid this problem entirely by securing a contract with the subcontractor at the outset, conditioned on a successful bid. Contractors should be responsible for protecting themselves without having to resort to the use of promissory estoppel for relief.

For the foregoing reasons, we hold that the trial court was correct in granting defendant's motion to dismiss for failure to state a claim.

Affirmed.

Disposition

Affirmed.

19870804

© 1998 VersusLaw Inc.



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