Opinion ID: 1176472
Heading Depth: 2
Heading Rank: 1

Heading: Was Diethrich's Promise Enforceable?

Text: The trial court's conclusion that Diethrich and Schade had entered into an enforceable contract was based on an amalgam of legal theories. The court found, first, a contract: Diethrich's promise of fair and equitable severance benefits based on [Schade's] tireless service of 10 1/2 years and his unique contributions and the appointment of an unbiased committee ... to make recommendations as to the amount of fair and equitable severance benefits  all in return for Schade's resignation and his continuing coordination of the 1983 International Cardiovascular Congress. The court then found that Schade had performed under this contract and concluded that Diethrich's silence with respect to the Committee's recommendation constituted acceptance of the recommendation and/or waiver of the right to object. Findings of Fact, Conclusions of Law and Judgment, Instruments of Record on Appeal, at 108.
In contrast, the court of appeals focused almost exclusively on Diethrich's promise to develop a fair and equitable severance agreement for Schade. It found that promise too indefinite on its face to support a contract. Because the parties had not agreed to be bound by the Committee's determination of fair and equitable severance benefits, the court refused to consider its recommendation as a means of making the promise definite. There being no other extrinsic standard to define fair and equitable severance benefits, the court found the agreement too vague to enforce. Even if it could supply the missing terms, the court declined to do so because the parties evidenced no intent to be bound by their agreement. Slip op. at 12. Despite these problems, the court of appeals found Diethrich's promise sufficiently definite for Schade to have relied upon it and enforced the promise on the theory of promissory estoppel. In reaching this conclusion, the court relied on Hoffman v. Red Owl Stores, 26 Wis.2d 683, 133 N.W.2d 267 (1965), and held that to the extent necessary to avoid injustice, the court could enforce a promise normally so indefinite as to be nonbinding. In Hoffman, the Wisconsin Supreme Court extended promissory estoppel beyond its traditional application as a substitute for consideration. See also School District No. 69 v. Altherr, 10 Ariz. App. 333, 339, 458 P.2d 537, 543 (1969). Looking to the Restatement's definition of promissory estoppel, it found that section 90 does not impose the requirement that the promise giving rise to the cause of action must be so comprehensive in scope as to meet the requirements of an offer that would ripen into a contract if accepted. Hoffman, 26 Wis.2d at 698, 133 N.W.2d at 275. Thus, finding that the Committee's recommendation was fair and equitable, the court concluded that Diethrich must pay Schade damages equal to the severance package recommended by the Committee.
The court of appeals compared the promise here to the indefinite promises in Pyeatte v. Pyeatte, 135 Ariz. 346, 661 P.2d 196 (App. 1982), and Edwards v. Hauff, 140 Ariz. 373, 682 P.2d 1 (App. 1984). Finding Diethrich's promise equally indefinite, the court felt compelled to declare it unenforceable. We, however, find Pyeatte and Edwards distinguishable. Pyeatte involved an agreement between a husband and wife that she would put him through law school in return for his later supporting her through a master's program. After the wife completed her performance, the husband decided he wanted a divorce and refused to honor his promise. Because there were no provisions in the agreement for the cost of the wife's education, the time the husband's performance was to commence or last, or the location where it was to take place, the court of appeals found a lack of the mutual understanding necessary to fix the husband's liability with certainty. 135 Ariz. at 350, 661 P.2d at 200. In contrast, Diethrich's promise lacked only the price term. See Restatement § 33 comment c (The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement.). Diethrich and Schade understood their respective duties pursuant to the agreement. Edwards involved a claim that the defendant, Hauff, had appropriated an investment opportunity to himself in violation of his fiduciary duty to his principal, the plaintiff. Hauff counterclaimed that the plaintiff had earlier violated an oral agreement that neither would purchase an interest in property without first giving the other an opportunity to participate. The written contract contained no mention of such an agreement and the only evidence that it had been reached was Hauff's testimony that such was his understanding. The court of appeals upheld the trial court's dismissal of the counterclaim, reasoning that it could have been justified by the lack of evidence showing any agreement at all or by the alleged agreement's indefiniteness as to each party's share of participation. The Schade-Diethrich agreement stands in sharp contrast to this alleged, unilateral understanding. Both parties in our case acknowledged the existence of the agreement and found its terms definite enough to begin performing immediately. We accordingly do not share the court of appeals' belief that Arizona caselaw has recognized the principle that promises such as Diethrich's are too vague to form the basis of a contract. Slip op. at 9. Indeed, such a holding would be contrary to established authority.
Although we do not reject the Hoffman doctrine, we disagree with the court of appeals' application of Restatement § 90 in this case. We note that even the Wisconsin Supreme Court has refused to expand § 90 in the direction the court of appeals has suggested. See Rossow Oil Co., Inc. v. Heiman, 72 Wis.2d 696, 242 N.W.2d 176 (1976). Moreover, we decline to retry the factual issues that were resolved in Schade's favor at trial. This court will not set aside the trial court's findings of fact unless they are clearly erroneous. See Rule 52(a), Ariz.R.Civ.P., 16 A.R.S.; State ex rel. LaSota v. Arizona Licensed Beverage Association, 128 Ariz. 515, 627 P.2d 666 (1981). The trial court found that [T]here were a number of oral conversations among Schade, Diethrich and Diethrich's attorney and agent Paul Meyer culminating in an offer made to Schade by Diethrich that if Schade would resign his employment with both Defendants and the International Heart Foundation effective immediately, Schade would receive fair and equitable severance benefits based on his tireless service of 10 1/2 years and his unique contributions, that an unbiased committee would be appointed to make recommendations as to the amount of fair and equitable severance benefits and Schade would continue to work toward presenting the International Cardiovascular Congress IV. Finding of Fact No. 8. Schade accepted the Defendants' offer and resigned his employment with both Defendants and the [Institute], upon the terms agreed upon with Diethrich. Finding of Fact No. 9. The record facts support the trial court's finding that there was a valid offer and a valid acceptance. See Restatement § 22 (the formation of a contract requires a bargain in which there is a manifestation of mutual assent and a consideration). We turn then to the question of consideration to support the bargain. To constitute consideration, a performance or a return promise must be bargained for. Restatement § 71(1). See also Carroll v. Lee, 148 Ariz. 10, 712 P.2d 923 (1986). A performance or return promise is bargained for if sought or given in exchange for the promise of the other party. Restatement § 71(2). Monetary gain is not always required as consideration. Carroll. The facts clearly show that Diethrich made his promise of a fair and equitable severance agreement to Schade with the expectation that Schade would fulfill his promise to resign and to continue work on the Congress. Schade's promises were consideration to Diethrich for two reasons. First, Schade's resignation enabled Diethrich to avoid the bitter debate that might have ensued with Schade's supporters on the Foundation's board over the sudden firing of an outstanding employee. Second, Schade's promise to continue work helped ensure the success of the Congress, one of Diethrich's projects. According to Schade, Diethrich's promises of severance pay were what induced him to submit his resignation and then continue working. [8] Thus, Schade and Diethrich each bargained for and supplied the requisite consideration. See Hirsch v. Associated Amusement Machine Operators, 205 Misc. 105, 127 N.Y.S.2d 82 (1953) (submission of employee's resignation sufficient consideration for the promise to pay severance benefits); Twohy v. Harris, 194 Va. 69, 72 S.E.2d 329 (1952) (employee's promise to remain in employ of defendant employer valid consideration for the promise to pay severance benefits). We thus find in the Diethrich-Schade agreement two of the requisites of making a contract  a bargain, consisting of promises exchanged, and consideration. Diethrich argued and the court of appeals agreed, however, that the agreement was nevertheless unenforceable for lack of certainty. The parties agree that the details of a fair and equitable severance package were unresolved when they concluded their agreement on the night of November 17, 1982. However, this was the only provision of a multi-term agreement that was uncertain and left for later resolution. We believe that the requirement of certainty is not so much a contractual validator as a factor relevant to determining the ultimate element of contract formation  the question whether the parties manifested assent or intent to be bound.
The requirement of reasonable certainty of terms arises from the inescapable fact that the uncertainty of the promises may indicate that a proposal or acceptance was not intended to be understood as a binding offer or acceptance. Restatement § 33(3). It follows that reasonable certainty is important as a factor in determining whether the parties intended to make a binding offer and acceptance. Id. Thus, with regard to Diethrich's assertion that his arrangement with Schade was merely an agreement to agree, evidencing no intent to be bound, we turn again to the Restatement: The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. Restatement § 33(3). ... But the actions of the parties may show conclusively that they have intended to conclude a binding agreement, even though one or more terms are missing or are left to be agreed upon. In such cases courts endeavor, if possible, to attach a sufficiently definite meaning to the bargain. Id. comment a (emphasis added). The Restatement attempts to report settled principles of law. Section 33 is no exception. Its description of the operative facts sufficient to create a contract were enunciated by the United States Supreme Court as early as 1891. Joy v. City of St. Louis, 138 U.S. 1, 11 S.Ct. 243, 34 L.Ed. 843 (1891), involved a contract under which a railroad company claimed the right to use a certain portion of tracks constructed by another  the Wabash company. The first company based its claim upon a contract which provided in part that the Wabash company shall permit, under such reasonable regulations and terms as may be agreed upon, other railroads to use its right of way through the park, ... upon such terms, and for such fair and equitable compensation to be paid to it therefor, as may be agreed upon by such companies. Id. at 5-6, 11 S.Ct. at 246 (emphasis added). The Wabash company's successors challenged a federal circuit court's decree upholding the enforceability of this provision. Like Diethrich, the company claimed that the agreement was an agreement to agree  not sufficiently definite to be enforced by a court of equity. Id. at 29, 11 S.Ct. at 250. Soundly rejecting this argument, the Supreme Court stated: Paragraph 9 [the provision at issue] is imperative. It provides that the [Wabash Company] shall permit other railroads to use its right of way. This is to be done under such reasonable regulations and terms as may be agreed upon, and upon such terms and for such fair and equitable compensation ... as may be agreed upon by such companies. Not only are the regulations and terms to be reasonable, but the compensation is to be fair and equitable. Although the statement is that the compensation is to be such as may be agreed upon by such companies, yet the statement that it is to be fair and equitable plainly brings in the element of its determination by a court of equity. If the parties agree upon it, very well; but if they do not, still the right of way is to be enjoyed upon making compensation, and the only way to ascertain what is a fair and equitable compensation therefor is to determine it by a court of equity. Such is, in substance, the agreement of the parties. The provision cannot be construed as meaning that, if the parties do not agree, there is to be no compensation, and that, because there can in that event be no compensation, there is to be no enjoyment of the right of way. In this view, it cannot be said that the court is making an agreement for the parties which they did not make themselves. Id. at 43, 11 S.Ct. at 255 (citations omitted). See also Henderson Bridge Co. v. McGrath, 134 U.S. 260, 275-76, 10 S.Ct. 730, 735, 33 L.Ed. 934 (1890) (holding a promise to do what was right enforceable so long as it was made with contractual intent); Brennan v. Employers' Liability Assurance Corp., 213 Mass. 365, 367, 100 N.E. 633, 634 (1913) (holding that a promise to make it right did not fail for indefiniteness since [j]uries are constantly solving such problems); Noble v. Joseph Burnett Co., 208 Mass. 75, 82, 94 N.E. 289, 289-90 (1911) (upholding the enforceability of a promise to pay a fair and equitable share of the net profits as neither so indefinite nor so impracticable that it cannot be applied with reasonable certainty); 1 A. CORBIN, CORBIN ON CONTRACTS § 95, at 400 (1963) (If the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a just and fair result, even though this requires ... the filling of some gaps that the parties have left); Restatement § 33 comment e (where the parties intend to conclude a contract for the rendition of services and the price is left to be agreed by the parties and they fail to agree, the price is a reasonable price). But see, e.g., Varney v. Ditmars, 217 N.Y. 223, 111 N.E. 822 (1916) (holding a promise to pay a fair share of my profits too vague to furnish a right of action, a result from which Justice Cardozo dissented). We find Diethrich's promise in the present action no less definite than the Wabash Company's promise in Joy. The record strongly supports the trial court's finding (Finding of Fact No. 10) that Diethrich's offer and Schade's acceptance were made with contractual intent. The fact that one of [the parties], with the knowledge and approval of the other, has begun performance is nearly always evidence that they regard the contract as consummated and intend to be bound thereby. 1 A. CORBIN, supra § 95, at 407 (emphasis added). See also Restatement § 34(2) (part performance under an agreement may establish that a contract enforceable as a bargain has been formed). If part performance can furnish evidence of intent to make a contract, then rendition and acceptance of a party's full performance must be an even more compelling basis to enforce that agreement. In this case, both Schade and Diethrich began performing within days of making the contract. Having accepted Diethrich's offer by resigning his former position on November 17, 1982, Schade undertook his newly defined duties for the Congress the next day. According to the terms of his agreement with Diethrich, he continued to perform these duties in support of the Congress through March 6, 1983. Diethrich, for his part, attended the Foundation's board meeting on December 22, 1982 to personally request the appointment of the committee that would formulate Schade's severance package. By these acts the parties clearly manifested their joint understanding that they were bound by their promises. In view of this, it cannot be said that the trial court made an agreement for the parties which they did not make themselves. See Joy, 138 U.S. at 43, 11 S.Ct. at 255; cf. Pyeatte and Edwards, where the facts of each case created doubt as to the parties' intent to be bound. [9] Any requirement of reasonable certainty is satisfied if the agreement that was made simply provides a basis for determining the existence of a breach and for giving an appropriate remedy. Restatement § 33(2). Unlike Joy, moreover, in the case before us the trial court did not need to take upon itself the task of filling the gaps in the parties' agreement and designing an appropriate remedy. It had, instead, the opinion of experts mutually selected by Diethrich and Schade. The Committee to which they turned to recommend a fair and equitable severance agreement was composed of businessmen familiar with personnel practices involving senior executives. Assuming they acted in good faith, Diethrich and Schade impliedly agreed to accept the Committee's recommendation if they found it fair and equitable. Here, as in Joy, if the parties could agree upon what was fair and equitable, then very well; but if they [did] not, then the Committee's recommendation might be agreed upon, but if not, then what was to be fair and equitable compensation ... [would be] determine[d] ... by a court of equity. The parties did not agree upon fair and equitable severance compensation, nor did they agree upon the Committee's recommendation. The trial court found, however, that that recommendation was fair and equitable and adopted it. Finding of Fact No. 15. The trial court's finding was supported by credible evidence, and we, in turn, are bound by the trial court's finding. See Rule 52(a), Ariz.R. Civ.P., 16 A.R.S.; State ex rel. LaSota v. Arizona Licensed Beverage Assn, 128 Ariz. 515, 627 P.2d 666 (1981); Bevins v. Dickson Electronics Corp., 16 Ariz. App. 105, 107, 491 P.2d 494, 496 (1971). We hold that Diethrich and Schade made a bargain for a consideration, that the record supports the trial court's finding that the parties intended to be bound and manifested that intention. We hold, further, that the contract thus formed was capable of enforcement. We affirm that portion of the judgment which awarded Schade damages of $73,500 as the Institute's unpaid portion of severance pay, and $3,500 as other severance benefits.