Hoffman v. Red owl stores: The rest of the story

Hastings Law Journal

Volumn 61, Issue 4, 2010, Pages 801-858

  Whitford, William C ^a   Macaulay, Stewart ^a  

^a UNIVERSITY OF WISCONSIN LAW SCHOOL   (United States)

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EID: 77952356686     PISSN: 00178322     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (501)

1. For a discussion of the history of the problem, see i E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 3.26 (3d ed. 2004).
2. See id.
3. See, e.g., Hill's, Inc. v. William B. Kessler, Inc., 246 P.2d 1099, 1101 (Wash. 1952) (bending the usual rules that allow an offer to dictate what will constitute an acceptance);
4. Davis v. Jacoby, 34 P.2d 1026, 1030 (Cal. 1934) (finding acceptance by performance when it seemed an offer had been revoked before notification of acceptance);
5. Kearns v. Andree, 139 A. 695, 698 (Conn. 1928) (awarding restitution for services that provided no benefit to the defendant when a contract was too indefinite to be enforced).
6. 133 N.W.2d 267 (Wis. 1965).
7. The doctrine of promissory estoppel is widely viewed as having been created by the famous section 90 of the first Restatement of Contracts, published in 1930.
8. See RESTATEMENT OF CONTRACTS § 90 (1930). A Restatement section does not automatically become law, but today most if not all jurisdictions have case law adopting the doctrine of promissory estoppel.
9. See 3 ERIC MILLS HOLMES, CORBIN ON CONTRACTS § 8.12 (rev. ed. 1996) ("All American jurisdictions... adopt and apply a theory of promissory estoppel grounded in section 90 of the Contracts' Restatement."). Hoffman was the first case to adopt the principle of promissory estoppel as the law of Wisconsin.
10. See 133 N.W.2d at 275. As slightly amended by the
11. RESTATEMENT (SECOND) OF CONTRACTS, published in 1981, the section now reads: 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. The remedy granted for breach may be limited as justice requires.
12. RESTATEMENT (SECOND) OF CONTRACTS §90 (1981).
13. Hoffman was immediately recognized as a significant case, one that framed the problem of protecting precontractual reliance in terms of promissory estoppel, whereas it had been framed as an issue of a duty to bargain in good faith in other countries.
14. See Charles Knapp, Contracts, in 1966 ANN. SURV. AM. L. 138, 138-43 (1967).
15. See, e.g., IAN AYRES & RICHARD E. SPEIDEL, STUDIES IN CONTRACT LAW 454 (7th ed. 2008);
16. GERALD E. BERENDT ET AL., CONTRACT LAW AND PRACTICE 313 (2d ed. 2007);
17. BRIAN A. BLUM & AMY C. BUSHAW, CONTRACTS: CASES, DISCUSSION, AND PROBLEMS 348 (2d ed. 2008) (note case);
18. THOMAS D. CRANDALL & DOUGLAS J. WHALEY, CASES, PROBLEMS, AND MATERIALS ON CONTRACTS 223 (5th ed. 2008);
19. JOHN P. DAWSON ET AL., CONTRACTS: CASES AND COMMENTS 284 (9th ed. 2008);
20. E. ALLAN FARNSWORTH ET AL., CONTRACTS: CASES AND MATERIALS 230 (7th ed. 2008);
21. BRUCE W. FRIER & JAMES J. WHITE, THE MODERN LAW OF CONTRACTS 78 (2d ed. 2008) ("A critic of the decision might challenge it as follows: 'must the law save every fool, however gullible?'");
22. LON L. FULLER & MELVIN ARON EISENBERG, BASIC CONTRACT LAW 576 (7th ed. 2001);
23. ROBERT W. HAMILTON ET AL.. CONTRACTS: CASES AND MATERIALS 581 (2d ed. 1992);
24. JAMES F. HOGG ET AL., CONTRACTS: CASES AND THEORY OF CONTRACTUAL OBLIGATION 269 (2008) (note case);
25. FRIEDRICH KESSLER ET AL., CONTRACTS: CASES AND MATERIALS 223 (3d ed. 1986) (note case);
26. CHARLES L. KNAPP, NATHAN M. CRYSTAL & HARRY G. PRINCE, PROBLEMS IN CONTRACT LAW: CASES AND MATERIALS 134 (6th ed. 2007) (note case);
27. STEWART MACAULAY, JOHN KIDWELL 4 WILLIAM WHITFORD, CONTRACTS: LAW IN ACTION 390 (2d ed. 2003);
28. IAN R. MACNEIL & PAUL J. GUDEL, CONTRACTS: EXCHANGE TRANSACTIONS AND RELATIONS 679 (3d ed. 2001);
29. ARTHUR ROSETT & DANIEL J. BUSSEL, CONTRACT LAW AND ITS APPLICATION 661 (6th ed. 1999);
30. ROBERT E. SCOTT & JODY S. KRAUS, CONTRACT LAW AND THEORY 287 (4th ed. 2007);
31. ROBERT S. SUMMERS & ROBERT A. HILLMAN, CONTRACTS AND RELATED OBLIGATIONS: THEORY, DOCTRINE, AND PRACTICE 96 (4th ed. 2001).
32. It also appears in IAN R. MACNEIL, CONTRACTS: INSTRUMENTS FOR SOCIAL COOPERATION: EAST AFRICA-TEXT, CASES AND MATERIALS 530 (1968).
33. Kg, STEVEN J. BURTON & ERIC G. ANDERSEN, CONTRACTUAL GOOD FAITH: FORMATION, PERFORMANCE, BREACH, ENFORCEMENT § 8.3.2.2, at 343-45, (1995);
34. Avery Katz, When Should an Offer Stick? The Economics of Promissory Estoppel in Preliminary Negotiations, 105 YALE LJ. 1249, 1254-55 (1996);
35. Juliet P. Kostritsky, Uncertainty, Reliance, Preliminary Negotiations and the Holdup Problem, 61 SMU L. REV. 1377, 1382 (2008).
36. For a good summary of the case law as of 1995,
37. see generally Neiss v. Ehlers, 899 P.2d 700 (Or. Ct. App. 1995).
38. In Neiss, an Oregon Court of Appeals chose to adopt Hoffman and allow recovery. Id.;
39. see Jay M. Feinman, Promissory Estoppel and Judicial Method, 97 HARV. L. REV. 678, 691-92 (1984).
40. Hoffman was also innovative in its application of promissory estoppel doctrine in holding that the court could limit damages to reliance recovery. See 133 N.W.2d at 276-77. This principle is now incorporated in section 90 of the Restatement (Second) of Contracts. See supra note 5. We will ignore this part of the case in this Article, however, because there was no possibility of recovering anything other than reliance damages in the Hoffman case. See infra note 221.
41. Mr. Hoffmann has always spelled his name with two n's, as is made clear in the trial record. Transcript of Trial at 2,
42. Hoffmann v. Red Owl Stores, Inc., No.14954 (Wis. Cir. Ct. Oct. 21, 1963), microformed on File No. 14,900-914,954 C1985/026, Roll CC-159 POS (State Historical Soc'y of Wis.).
43. For unknown reasons, the Wisconsin Supreme Court used only one n, and the case name has been spelled that way ever since. In this Article we will use the correct spelling of the name except when referring to the Wisconsin Supreme Court decision itself.
44. At a reunion dinner of the Wisconsin Law School class of 1968, Professor Whitford happened to be seated with Mr. Thomas Kubasta. Mr. Kubasta has made his career as a lawyer in Wautoma, where most of the events leading up to this litigation occurred and where Joe Hoffmann then lived. In the course of conversation, Whitford told Kubasta about the case that had made Wautoma famous in contracts casebooks and expressed an interest in locating Hoffmann. Though Hoffmann left Wautoma for good in December 1961, Kubasta vowed to do what he could to find somebody in town who knew whether Hoffmann was still alive and, if so, where he lived. After considerable effort Kubasta located the one family still living in Wautoma with whom the Hoffmanns currently exchange Christmas cards. From this contact came an address in St. Joseph, Michigan, and later a telephone call from Whitford to Hoffmann. Hoffmann verified that he was indeed the plaintiff in the famous case, and agreed to be interviewed about it. All our interviews with Hoffmann have been by telephone.
45. Life has been good to Mr. Hoffmann and his family. They have been successful and they are well off. But the events leading up to the case had a significant impact on the course of their lives, so Mr. Hoffmann's ability to remember them in great detail is not surprising. For some years Hoffmann has been aware of the fame of his case in law schools because one of his daughters attended law school and studied the case.
46. Under Wisconsin practice, the parties edit the transcript to produce the document that goes to the supreme court of the state. This version of the transcript is widely available to those who have access to the briefs presented to the Wisconsin Supreme Court. See, e.g., Appellants' Brief at 101-242, Hoffman, 133 N.W.2d 267 (No.14954). A much fuller trial record is available in microfiche through the State Historical Society of Wisconsin. See Transcript of Record, Hoffman, No. 14954 (Wis. Cir. Ct. Oct. 21, 1963), microformed on File No. 14,900-14,954 C1985/026, Roll CC-159 POS (State Historical Soc'y of Wis.). The certified transcript contained in this trial record is the one we have cited as "Transcript of Trial," supra note 9. Page numbers in references to the "Transcript of Record" hereinafter in this document correspond to fuller trial record. See infra note 18.
47. There are two books containing "stories" about contract cases that are now widely used as supplementary materials in contracts courses. We have long used one in our teaching:
48. RICHARD DANZIG & GEOFFREY WATSON, THE CAPABILITY PROBLEM IN CONTRACT LAW (2d ed. 2004).
49. A more recent addition to the literature is DOUGLAS BATRD, CONTRACTS STORIES (2007). For discussion of the advantages of what Professor Judith Maute calls "legal archaeology,"
50. see Stewart Macaulay, Contracts, New Legal Realism, and Improving the Navigation of The Yellow Submarine, 80 TUL. L. REV. 1161, 1175- 77 (2006);
51. Judith L. Maute, Response, The Values of Legal Archaeology, 2000 UTAH L. REV. 223, 224-231
52. Professor Robert Scott has attributed what he regards as the "delay" in understanding the law of precontractual reliance "at least in part, to... the unfortunate case of Hoffman v. Red Owl Stores, Inc."
53. Robert E. Scott, Hoffman v. Red Owl Stores and the Myth of Precontractual Reliance, 68 OHIO ST. LJ. 71, 101 (2007).
54. Id. Scott's article is also published as a chapter in BAIRD, supra note 13, at 62.
55. We had to decide whether to write the text as a debate with Professor Scott point by point or to tell the full story in a way that could be understood by a reader not familiar with Scott's work. We think that only a few readers would be interested in a paper focused on an article by another scholar. We hope that our Article will be useful to anyone studying the case or concerned with precontractual reliance.
56. Though in this Article we are critical of Professor Scott's earlier work on Hoffman v. Red Owl Stores,
57. we have been and remain admirers of many of his numerous contributions to contracts scholarship. He is one of the giants of our generation of contract scholars.
58. Professor Farnsworth looked at the American cases in detail in E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 COLUM. L. REV. 217, 221 (1987).
59. He noted, "[A] party that enters negotiations in the hope of the gain that will result from ultimate agreement bears the risk of whatever loss results in the other party breaks off the negotiations." Seventeen years later, in the fourth edition of his textbook, he brought the material up to date.
60. See E. ALLAN FARNSWORTH, CONTRACTS 190 (4th ed. 2004) [hereinafter FARNSWORTH, CONTRACTS].
61. He stated: In recent decades, courts have shown increasing willingness to impose pre-contractual liability. The possible grounds can be grouped under four headings: (1) unjust enrichment resulting from the negotiations; (2) a misrepresentation made during the negotiations; (3) a specific promise made during the negotiations; (4) an agreement to negotiate in good faith. Id. at 192. Farnsworth reported further that "American courts... have... declined to find a general obligation that would preclude a party from breaking off negotiations, even when success was in prospect." Id. at 198. As we have posed the hypothetical situations in the text, none of the four groups identified by Farnsworth are present.
62. Our sources for the facts presented in this Part are primarily the trial record, see supra note 12, and our telephone interviews with Joe Hoffmann, conducted on October 14, 2008; February 10, 2009; and March 25, 2009. We have relied on the trial record wherever possible since that testimony was subject to cross-examination and given closer in time to the actual events. We will cite to our Hoffmann interview notes when we report information obtained solely from these interviews. Copies of our interview notes can be obtained by writing Professor Whitford. We have located Ed Lukowitz, who is alive and living in Green Bay, but he has not been willing to provide us his recollections. We would have liked to interview both him and the other Red Owl officials involved in the case. We tried to trace the latter without success, and it is likely some or all of them are deceased. We know that the lawyers involved in the litigation are all dead. We do have three letters from Gerry Van Hoof, Mr. Hoffmann's lawyer, written not long after the case was decided, and we will cite from them when appropriate. The trial record does not contain the pretrial depositions except to the extent that parts of them were read into the record at trial, and it does not contain the lawyers' closing arguments to the jury. The record contains mostly exhibits, which we will cite by number, and the trial transcript, which we will cite by the transcript page number typed by the court reporter. Scott, when citing to the transcript, cited a handwritten number which is the "record" page. Because not all pages of the record contain this handwritten number, and because the handwritten number is sometimes hard to decipher, we choose to cite to the transcript page. An inevitable consequence is that both Scott and we may at times be citing to the same dialogue from the transcript, but different page numbers will appear in the citations. A transcript of a trial usually reports differences in the accounts of the witnesses about events. The jury found for Mr. Hoffmann, and the Supreme Court of Wisconsin affirmed this decision on the question of liability.
63. See Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267, 275 (1965).
64. As a result, we will report the version most supportive of his case that Red Owl Stores should be held liable. However, where there was important evidence presented countering this version of key events, we will report these differences in footnotes as well.
65. The 1960 population was 1466.1 U.S. DEP'T OF COMMERCE, BUREAU OF THE CENSUS, CENSUS OF POPULATION: 1960, at 51-20 (1961) [hereinafter 1960 CENSUS], available at http://www2.census.gov/prod2/decennial/dccuments/03994195v1p51ch2. pdf
66. It has been reported that Professor Grant Gilmore mentioned to several contracts scholars that Hoffmann was allergic to bread (and implied that was why Hoffmann wanted to get out of the bakery business). See Scott, supra note 14, at 98. If believed, this may lead some scholars to believe that any misrepresentations or breached promises made to Hoffmann were not material because he was going to get out of the bakery business in any event. In fact, Hoffmann was allergic to dust, not bread. Flour is an allergen for Hoffmann, but he was able successfully to accommodate his allergy by wearing a mask and gloves when working with flour. Telephone Interview with Joseph Hoffmann (Oct. 14, 2008).
67. See Transcript of Trial, supra note 9, at 3-4.
68. Id. at 8. It was never Hoffmann's plan that this store would be the ultimate Red Owl franchise. It was too small and lacked off-street parking. Hoffmann had a different site in Wautoma in mind for a Red Owl store if Wautoma had been regarded as an appropriate franchise location by Red Owl. Telephone Interview with Joseph Hoffmann, supra note 20.
69. See Transcript of Trial, supra note 9, at 9;
70. Charlie Luhm Sells His Grocery to Joe Hoffmann, WAUSHARA ARGUS, Feb. 2, 1961, at 1.
71. Transcript of Trial, supra note 9, at 9.
72. Id. at 8-9, 17.
73. Id. at 18.
74. Id. at 20.
75. Id. at 21.
76. Id. at 18.
77. Hoffmann was asked on cross-examination about discussions at this time: "Was there any discussion at any time as to how this $18,000 was to be made up? That is, was it all unencumbered cash or partly to be borrowed cash?" Id. at 91. Hoffmann answered: "I don't believe there was any discussion of that." Id. In discussions of the Hoffman case, some have suggested that Red Owl understood Hoffmann's statement to represent the ability to invest $18,000 in unencumbered cash. See infra note 240. It is clear that this was not Hoffmann's intention. We will later discuss, why we think that it is unlikely that Red Owl relied upon any such understanding. See infra note 240 and accompanying text,
78. Transcript of Trial, supra note 9, at 18-19.
79. Id. at 19-20.
80. Id. at 21.
81. See id. at 18.
82. See id. at 18-20.
83. See id. at 20; see also infra p. 811 fig.1.
84. Ed Wrysinski Buys Red Owl from Joe Hoffman, WAUSHARA ARGUS, June 15, 1961, at 1. Reprinted with permission from the Waushara Argus.
85. See Transcript of Trial, supra note 9, at 21.
86. For example, Hoffmann ruled out Ripon, which had a 1960 census population of 6163. See id. at 120;
87. 1960 CENSUS, supra note 19, at 51-116
88. Transcript of Trial, supra note 9, at 23.
89. The 1960 census population was 2578.
90. See 1960 CENSUS, supra note 19, at 51-114 Chilton is located in an agricultural area and does not have a substantially larger summer population.
91. See Transcript of Trial, supra note 9, at 22-23.
92. See id. at 23-24, 26-27.
93. See id. at 26.
94. See id. at 28.
95. See id. at 27-28.
96. See id. at 28.
97. Id. at 29.
98. Id.
99. See id.
100. See id.
101. See id. at 30.
102. See id.
103. See id. Lukowitz provided a different account of these events: He testified that he had heard nothing from headquarters and told Hoffmann that he could give Hoffmann no particular advice with respect to exercise of the option. Id. at 188. He advised Hoffmann to use his own judgment. Id. He testified that Hoffmann had expressed concern that A & P would purchase the lot if Hoffmann allowed the option to expire, so that the lot could not be obtained again later. Id. at 187-89. Lukowitz's testimony was corroborated by the testimony of Harold Carlson, a Red Owl official from headquarters, who said that he asked Hoffmann at a September 27th meeting why he had put down money on the lot when there was not yet a deal, and that Hoffmann replied that he was concerned that A & P would buy the lot if he did not exercise the option. Id. at 309.
104. Id.
105. See id. at 191.
106. See Transcript of Record, supra note 12, Ex. 40.
107. Transcript of Trial, supra note 9, at 192.
108. See id at 291.
109. See id.
110. See id. at 292-293
111. See Transcript of Record, supra note 12, Ex. 39.
112. Hoffmann testified to this fact. See Transcript of Trial, supra note 9, at 152-54, 168-69. This point is critical to one of the important differences between our account and Professor Scott's. Scott acknowledges Hoffmann's payment of the outstanding mortgage on the bakery building in midSeptember. See Scott, supra note 14, at 78, 79 n.39 ("Hoffman paid off the $7500 mortgage on the bakery building, reducing his cash on hand in the bank to $2500."). However, later in his article he overlooks this payment and states that in the September 27th statement Hoffmann misrepresented the bakery building as clear of liens, causing Red Owl to be misled as to the resources available to Hoffmann for investment in a franchise. See id. at 81 ("The problem [Red Owl had], in essence, was that... contrary to Hoffman's initial representations, the [bakery] building had been mortgaged. When it became clear that the building was not unencumbered and thus could not provide a major portion of Hoffman's equity contribution, the financing plan had to be revised." (footnote omitted)). In the middle of October, after the September 27th financial statement that Scott describes as misleading, Hoffmann remortgaged the bakery building for $7500. See Transcript of Trial, supra note 9, at 151-52. He did this because he thought that this is what Lukowitz wanted. Hoffmann, still thinking that a Chilton store would be opened soon, was "getting his money together." See infra note 115. In concluding that Hoffmann had misled officials about his assets in the September 27th meeting, Scott was apparently misled by Red Owl's cross-examination of Hoffmann. David Fulton, Red Owl's lawyer, suggested to Hoffmann that the bakery building had been encumbered at the time of the September 27th financial statement, yet was wrongly listed on that statement as unencumbered. Transcript of Trial, supra note 9, at 104-05. Hoffmann did not correct Fulton and appeared to agree with him. On redirect, however, Hoffmann's lawyer had Hoffmann correct this misstatement. He testified that he had paid off the mortgage on the bakery building, as stated in the text. The building then remained unencumbered for a few weeks that included the September 27th financial statement. Id. at 150-55. Hoffmann testified that he had checked with the bank the morning of his redirect "to make sure." See id. at 169. Apparently, Hoffmann had himself been unclear about this important fact at the time of his cross-examination. The trial took place nearly two years after the events happened.
113. See Transcript of Record, supra note 12, Ex. 39.
114. It is not explained in the transcript why $3600 in cash was expected, when the financial statement prepared at the same time listed $2500 in the bank.
115. Transcript of Record, supra note 12, Ex. 39; see Transcript of Trial, supra note 9, at 293.
116. Transcript of Record, supra note 12, Ex. 39.
117. Id.
118. Id.
119. Reymund so testified. See Transcript of Trial, supra note 9, at 295.
120. Id at 33.
121. See Transcript of Record, supra note 12, Ex. 39.
122. See id.; Transcript of Trial, supra note 9, at 57, 104, 171.
123. Hoffmann repeatedly testified that he originally contemplated an investment of "approximately" $18,000 in cash, that Red Owl's representatives, particularly Lukowitz, knew that, and that they knew that some of that would come from a loan from his father-in-law. See, e.g.. Transcript of Trial, supra note 9, at 10, 91-93. Hoffmann also made clear, as reported in the text above, that he did not contemplate sale of the bakery building. Presumably Hoffmann intended that the $18,000 would come from his cash savings, reported as $10,000 in his first financial statement, see supra note 57 and accompanying text, and the $7500 loan from his father-in-law mentioned in the first financial plan, see supra p. 815 tbl.1.
124. See Transcript of Trial, supra note 9, at 58.
125. See id. at 298.
126. See Transcript of Record, supra note 12, Ex. 39.
127. See id.
128. See Transcript of Trial, supra note 9, at 63.
129. See id. The monthly rent would be based on one percent of the building cost, but an annualized six percent return on the land cost. Id. At the end of ten years, Hoffmann was to have an option to renew the lease or buy the building and land. Id.
130. Id. at 57.
131. Id. Shirley Hoffmann corroborated the essence of this critical conversation in her testimony. See id. at 261. Lukowitz was never asked about this telephone conversation by either lawyer at trial. During this period Shirley was regularly listening into Hoffmann's long-distance calls, as Hoffmann was often overtired, especially on Thursdays through Saturdays when he worked so hard preparing for weekend sales. See id. at 258. Shirley testified that Joe and Lukowitz talked two to three times per week. Id. at 263.
132. There had been some interchange between Lukowitz and Red Owl management on this issue prior to Lukowitz's telephone call to Hoffmann. A teletype dated October 9th from Lukowitz to Mr. Hall, a Red Owl officer, stated: "Joe Hoffman of Wautoma has cash with no strings attached.
133. He is going to rent his building to another baker for $200 per month." Transcript of Record, supra note 12, Ex. 10 (emphasis added);
134. see Transcript of Trial, supra note 9, at 211. Evidently, Red Owl management was unwilling to go along with this plan.
135. See Transcript of Trial, supra note 9, at 58-59.
136. See id. at 87.
137. See id. at 57.
138. See id. 197-198
139. See id. at 58-59; see also infra p. 818 fig.2.
140. Grimm's obligation was secured by a chattel mortgage payable to Tasty Bakery, a corporation wholly owned by Joe and Shirley Hoffmann. See Transcript of Record, supra note 12, Ex. 8.
141. See Transcript of Trial, supra note 9, at 59.
142. Technically, the investor leased the building to Hoffmann, who then sublet it to Grimm. See id. at 59-62.
143. This valuation was based on an appraisal that Hoffmann had obtained in the spring of 1961. See id. at 140.
144. New Owner at Wautoma Bakery, WAUSHARA ARGUS, NOV. 9, 1961, at 1. Reprinted with permission from the Waushara Argus.
145. Telephone Interview with Joseph Hoffmann, supra note 20.
146. See id.
147. Id.
148. Id.; Telephone Interview with Joseph Hoffmann (Feb. 10, 2009).
149. Telephone Interview with Joseph Hoffmann, supra note 97.
150. However, there was extensive discussion at trial about Red Owl's inability to produce a later telegram from headquarters to Lukowitz, raising the possibility that in his current recollection Hoffmann has confused this later telegram for the earlier memorandum discussed in the text above. We have discounted that possibility because of our interviews with Hoffmann, as described above. The later missing telegram is discussed infra notes 128-130 and accompanying text.
151. Telephone Interview with Joseph Hoffmann, supra note 97.
152. Hoffmann does not recall why there was no mention of the missing memorandum at trial. At one point, Hoffmann's lawyer (Van Hoof) asked Lukowitz: "Isn't it true that the amount of money that the Red Owl stores felt was needed for working capital was continuously increased because of experience with other stores?" Transcript of Trial, supra note 9, at 227. An objection to the question was sustained, and Lukowitz never answered the question. Id. This is the only point in the transcript in which there is reference to a policy change at Red Owl that might have adversely affected Hoffmann's chances of obtaining a franchise.
153. Telephone Interview with Joseph Hoffmann (Mar. 25, 2009).
154. See Transcript of Trial, supra note 9, at 62-63.
155. See Transcript of Record, supra note 12, Ex. 12 (letter from Lukowitz to Carlson, dated November 9, 1961). The letter related a conversation with Joe Hoffmann about the relative merits of Chilton and another small Wisconsin town (Kewaunee) as a site for Hoffmann's store. Id. This passage of the letter could be read as consistent with an understanding by Lukowitz that there was a commitment to put Hoffmann in a store somewhere, but that sentiment was not stated expressly. See id. The letter could also be read as showing Lukowitz's understanding that Red Owl officials had not yet made a binding commitment to Hoffmann.
156. See id. Ex. 13 (letter from Lukowitz to Keshenberg, dated November 21, 1961). In midOctober Hoffmann had accompanied Lukowitz to meet this builder, who had worked with Red Owl before. See Transcript of Trial, supra note 9, at 207 (testimony of Lukowitz).
157. See Transcript of Trial, supra note 9, at 62-63.
158. See id.
159. See id.
160. See id. at 63.
161. See id. at 64. Frank Walker, the manager of the Franchise Department, made a brief appearance but did not participate in the substantive discussions at this meeting. See id. in. Telephone Interview with Joseph Hoffmann, supra note 97.
162. Id.
163. Transcript of Trial, supra note 9, at 64. On Red Owl's objection, the court ordered the second sentence of the quote stricken from the record. Id. at 65.
164. See id. at 65.
165. Hoffmann's cash position at this time reflected a series of transactions he had engaged in since mid-October. On October 11, 1961, Hoffmann had borrowed $13,500 from the local Wautoma bank, secured by an additional $6000 chattel mortgage on his bakery equipment and a renewed $7500 mortgage on the bakery building, because Lukowitz had instructed him to "get his money together." See id. at 154-55, 169-70; see also Scott, supra note 14, at 79 n.44. As a consequence, when he sold the bakery building, he needed to use $7500 of the proceeds to repay the bank. Before the $13,500 bank loan, Hoffmann had $2500 in cash resources. With the extra $2500 netted from the sale of the bakery building, he now had over $18,000 in cash. However, the bakery equipment was now encumbered by a chattel mortgage of $13,500 ($7500 originally, plus an additional $6000 when he took out the October loan). See Transcript of Record, supra note 12, Ex. 42. When Hoffmann left Wautoma in early November, he apparently paid off the loan secured by chattel mortgage, since the second financial plan, drafted a few weeks later, indicated that Hoffmann then possessed only $4600 in cash. See infra p. 821 tbl.2. The assumption that he used cash to pay off the Wautoma bank loan also explains why the Chilton bank was willing to loan $8000 secured by the bakery equipment (reflected in the second financial plan), something they presumably would not have done if the Wautoma bank still possessed a chattel mortgage in the bakery equipment.
166. This "profit" was effectively a loan from the builder. See supra note 80 and accompanying text. The amount of this loan had been increased by $1000 between the September and November plans, and it was to be increased further in subsequent plans. See infra p. 825 tbl.3.
167. See Transcript of Record, supra note 12, Ex. 32. The bakery equipment was now valued at $17,500, rather than the September valuation of $19,500. Throughout the record there is no indication of how valuations were obtained for the bakery equipment, nor is there any detailing of how much bakery equipment would be transferred to the Chilton store. Hoffmann always intended to include some of his bakery equipment in the sale of his Wautoma business to his employee. See Telephone Interview with Joseph Hoffmann, supra note 97.
168. Other reasons for the difference in the total investment required by the plans are the reduced value of the bakery equipment and noninclusion, for unexplained reasons, of bakery inventory in the second plan. See Transcript of Record, supra note 12, Ex. 32.
169. The bakery equipment (at $17,500) was now also listed as part of Hoffmann's equity contribution to the franchise, as well as $4600 in cash. Id. Since Hoffmann effectively used accumulated cash and part of the proceeds from the sale of the bakery building to pay off an encumbrance on the bakery equipment for preexisting debt, see supra note 115, it was certainly appropriate to consider at least part of the bakery equipment as "equity."
170. Transcript of Trial, supra note 9, at 107. Hoffmann testified that he regarded the plan as requiring more money than the September plan, presumably because in September and early October he did not expect to sell his bakery building, despite what the September plan had said. Id. The September plan called for $26,100 in cash investment, assuming that proceeds from the sale of the bakery building would be invested. See Transcript of Record, supra note 12, Ex. 39. So in terms of cash, the November plan, calling for only a $24,100 cash investment, represented a reduction, reflecting the sale of the bakery building for less than its appraised value. See id. Ex. 32.
171. See Transcript of Trial, supra note 9, at 310-12. The letter was read into the transcript but not submitted as an exhibit. This is the only time, so far as we can tell, that Carlson or anybody else from Minneapolis communicated directly with Hoffmann, other than at the three meetings Hoffmann had with Minneapolis officials. At all other times, the headquarters officials communicated with Lukowitz, asking him to tell Hoffmann anything that needed to be said. Hall, the other Red Owl headquarters official at the November meeting, testified that they had encouraged Hoffmann to come up with some additional money and asked whether the father- in-law might contribute more. Id. at 320-321
172. Id. at 206.
173. See id. Fixtures included shelving, freezer cases, and the like. This was important because Red Owl's standard finance plan contemplated that Red Owl would finance eighty percent of the fixture cost for a new store with a five-year loan. Reducing the cost of the fixtures would reduce Red Owl's investment in a new franchise in Chilton, as well as the size of the periodic payments (on the fixtures loan) that Hoffmann would have to make once a franchise opened. The idea of used fixtures was obviously discussed during the Minneapolis meeting, as the proposed financial plan drafted there listed the fixture cost as $20,000 and the size of the fixture loan from Red Owl at $16,000. In the September plan, the estimated fixture cost had been $30,000 and the estimated fixture loan was $24,000. See Transcript of Record, supra note 12, Ex. 37.
174. Transcript of Record, supra note 12, Ex. 43.
175. 125- See id.
176. Transcript of Trial, supra note 9, at 69-70.
177. Id. at 70.
178. See id.
179. Telephone Interview with Joseph Hoffmann, supra note 97.
180. At the end of the trial, Red Owl put its house counsel, Richard Johnson, on the stand to testify about bis unsuccessful search for the telegram. See Transcript of Trial, supra note 9, at 346-47. But none of the other Red Owl witnesses who could have been the author of the telegram (most likely, Carlson or Hall) were asked about the telegram or denied that it existed. Lukowitz confirmed discussing with Hoffmann the need for an additional $2000 at this meeting, but he said that he did not recall whether he had received a telegram from Red Owl headquarters. See id. at 215, 231.
181. Id. at 70.
182. Id. at 71.
183. See id. at 71, 77.
184. See id. at 71-73. On cross-examination Hoffmann indicated that his $13,000 would consist of $5000 cash, $6000 profit on the sale of the land, and a $2000 loan, secured by the bakery equipment, from his old bank in Wautoma. Id. at 108.
185. Lukowitz, remaining enthusiastic about granting a franchise to Hoffmann, drafted a $26,100 plan that would raise the additional funds by having the builder buy the lot for an additional $2000, so that Hoffmann would make a $6000 "profit" on the sale of the lot. See id. at 72; see also Transcript of Record, supra note 12, Ex. 33. The only communications from headquarters in the record indicate that no decision had been reached on this plan. See id. Exs. 13, 14.
186. Hall, Red Owl's credit manager, sent a telegram to Lukowitz, dated January 16, 1962, asking for the father-in-law's name (Simon Vanden Heuvel), so that Hall could prepare an agreement to such effect. Transcript of Record, supra note 12, Ex. 47. Such an agreement was later drafted and forwarded to Lukowitz to obtain a signature. See Transcript of Trial, supra note 9, at 220-21; see also Transcript of Record, supra note 12, Ex. 47.
187. Telephone Interview with Joseph Hoffmann, supra note 97.
188. See Transcript of Trial, supra note 9, at 219, 285 (testimony of Lukowitz). It is not clear whether Lukowitz had the agreement along at the time of his meeting with Hoffmann, though the agreement was drafted. See Transcript of Record, supra note 12, Ex. 46. It was first shown to Hoffmann when he met with headquarters officials in Appleton to receive their final proposal. See infra note 144.
189. According to Lukowitz, Hoffmann stated that be did not want Lukowitz to meet with his father-in-law. See Transcript of Trial, supra note 9, at 282. Hoffmann testified that his father- in-law had an unexpected meeting and could not make the scheduled meeting with Lukowitz. See id. at 351. We believe that Hoffmann's testimony on this point is the more credible.
190. See Transcript of Record, supra note 12, Ex. 20. Hoffmann testified that he had told Lukowitz that, in return for putting up $13,000, his father-in-law wanted to be a partner. Transcript of Trial, supra note 9, at 90. Lukowitz indicated that this would be okay and that he was sure a deal could now be put together. Id. at 73, 90. But Lukowitz suggested that Hoffmann "not go into the partnership bit with the front office." Id. at 90 (testimony of Hoffmann). The record does not indicate why Lukowitz may have thought that the front office people might object to the partnership plan.
191. See Transcript of Trial, supra note 9, at 73.
192. See id.
193. 143- See Transcript of Record, supra note 12, Ex. 34. The $34,000 refers to the cash to be contributed exclusive of the bakery equipment. See infra p. 825 tbl.3.
194. See Transcript of Record, supra note 12, Ex. 34. Hoffmann testified that this was the first time he had learned of Red Owl's demand that his father-in-law agree to make his $13,000 a gift. See Transcript of Trial, supra note 9, at 80-81, 354-57. Apparently, Hoffmann also was not informed that Red Owl would have accepted an agreement from the father-in-law subordinating the loan, though Red Owl officials testified that they would have accepted the latter, and telegrams exchanged with Lukowitz in the days preceding this meeting made that clear. See id. at 326-28 (testimony of Hall); Transcript of Record, supra note 12, Ex. 17. In a pretrial deposition, Hoffmann had appeared to acknowledge seeing these telegrams, but at trial he denied seeing them. Transcript of Trial, supra note 9, at 356-358
195. See Transcript of Record, supra note 12, Ex. 34. The plan also presumed used fixtures and provided for a fixture loan from Red Owl of only $14,000. This further reduced Red Owl's investment in the franchise when compared to the second plan. See supra note 123.
196. From Hoffmann's perspective, the final plan was also a substantial increase from the first plan, after one accounts for the sale of the bakery building for less than market value and the reduced valuation on the bakery equipment. See supra note 118 and accompanying text.
197. Recall that this "profit" was effectively a loan to Hoffmann from the builder. See supra note 80 and accompanying text.
198. See Transcript of Trial, supra note 9, at 76-77.
199. Transcript of Record, supra note 12, Ex. 35. Hoffmann testified that before sending this letter, he telephoned Hall, a Red Owl official with whom he met in Minneapolis but who had not been at the Appleton meeting, and asked whether it would be possible to put Hoffmann into a smaller store.
200. Transcript of Trial, supra note 9, at 79-80. Hall said that it was "this store or none."
201. See id.
202. According to Hoffmann, Hall also said that "this thing has gotten a little goofed up," and said that the people in Green Bay (which would mean Lukowitz) had been "severely reprimanded."
203. See id. Hall testified that he did not remember this telephone call. He denied ever telling Hoffmann that Lukowitz had been reprimanded, and he also denied ever actually reprimanding Lukowitz.
204. Id. at 323-324
205. Transcript of Trial, supra note 9, at 334.
206. Id.
207. Id. at 355.
208. Id. Hoffmann did not testify about why he was unwilling to ask his father-in-law to make a gift. In response to our questions in our interviews with him, Hoffmann stated that it is possible that his wife's siblings would have been concerned if the money had been designated as a gift, but he does not remember that being an explicit concern at the time.
209. Telephone Interview with Joseph Hoffmann, supra note 97. We asked the questions because at trial Hoffmann's lawyer had asked Hoffmann's wife, Shirley, about her siblings.
210. Transcript of Trial, supra note 9, at 251. In response to an objection to the question's relevance, Hoffmann's lawyer suggested that making the $13,000 a gift would raise issues about equity in the distribution of the estate among siblings.
211. Id. at 255-56.
212. The trial judge nonetheless sustained the objection and so we learn nothing about Shirley's siblings from the transcript, though in fact she had several.
213. Id. at 256.
214. 154- Telephone Interview with Joseph Hoffmann, supra note 97.
215. There was some testimony to this effect at trial as well. On cross-examination of Hoffmann, Red Owl's lawyer tried to establish that Hoffmann understood that if he had accepted the $34,000 plan, Red Owl would "put you in the store."
216. See Transcript of Trial, supra note 9, at 127. Hoffmann responded, "They had told me numerous times, on different figures, they were ready to go ahead. If I said 34,000 I don't know where it would have went. They had definitely told me a number of times previous to that 26,000 would be sufficient."
217. Id. at 128. Immediately after this answer, Red Owl's attorney ended the cross-examination.
218. Id.
219. Telephone Interview with Joseph Hoffmann, supra note 97.
220. Id.
221. See id.
222. See id.
223. Id.
224. Id.
225. Id. The job went to Ed Wrysinski, Hoffmann's former employee who had purchased the Wautoma grocery store from him.
226. Id.
227. See id.
228. Id. 165. Id.
229. See id.;
230. Telephone Interview with Joseph Hoffmann, supra note 20.
231. Telephone Interview with Joseph Hoffmann, supra note 20.
232. Id.
233. See id.
234. Id.
235. Id.
236. Id.
237. Id.
238. See Transcript of Trial, supra note 9, at 1.
239. Telephone Interview with Joseph Hoffmann, supra note 102.
240. See Transcript of Trial, supra note 9, at 1.
241. 177- See id.
242. Id at 364, 378.
243. Id. at 380.
244. See id. at 272. Van Hoof did not contest this determination.
245. Id. at 274-275
246. Id.
247. ("It is our position that as a matter of law... a contract is necessary in order to form the foundation for any recovery, on any theory, by the plaintiffs in this action.... I maintain that the plaintiffs cannot establish a case on the basis of estoppel or on any theory other than the contract theory....").
248. Id. at 239.
249. Id.
250. Id.
251. Id. at 236-237
252. Id. at 237-239 The judge also denied Van Hoofs motion to amend the complaint to add the corporation as a party.
253. This theory of loss was made clear in the judge's charge to the jury.
254. See id. at 376.
255. Id. at 270.
256. See id.
257. See id. at 370.
258. One of the oddities of the case is that the charge used the term "representation," though the case is now understood to be based on promissory estoppel. The difference between the term "representation" and the term "promise," if any, is not a matter that concerned the trial judge or litigants. The parties at several places throughout the trial exhibited an understanding that Hoffmann's noncontract theory was based on estoppel. Van Hoof (Hoffmann's counsel) called the theory "estoppel in pais
259. Id. at 277.
260. By the time of Red Owl's motion for judgment notwithstanding a verdict, their attorney (Fulton) was referring to the theory as promissory estoppel, and citing standard authorities (for example, Corbin on Contracts) on this theory.
261. See Defendants' Outline Brief on Motions After Verdict at 3, in Transcript of Record, supra note 12. The essence of his argument was that to constitute a "promise" for purposes of promissory estoppel, the promise must be definite enough that it could form a contract if there were acceptance, consideration, etc.: The Court satisfied itself that no contract resulted from the negotiations between the parties and we submit that for the same reasons it should conclude that the essentials of a Promissory Estoppel have not been proved. Even under the more liberal view, there must be at least a definite and specific promise such as would be sufficient for a contract. That point was simply never reached under the undisputed evidence of this case! This is nothing more or less than a case of continuing negotiations with modifications and changes accepted by the plaintiff himself for whatever reason, but which ultimately failed to ripen into a contract.
262. Id. at 9-10.
263. Transcript of Trial, supra note 9, at 372.
264. Scott implicitly criticizes this part of the charge, on the ground that what he calls the "subjective/objective test of reasonable reliance" is normally limited to fraudulent misrepresentation.
265. See Scott, supra note 14, at 87. Perhaps, however, the trial court's instruction can be defended as consistent with conventional objective theory: "[Objective manifestations of intent of the party should generally be viewed from the vantage point of a reasonable person in the position of the other party."
266. JOSEPH M. PERILLO, CALAMARI AND PERILLO ON CONTRACTS 24 (6th ed. 2009).
267. In Beers v. Atlas Assurance Co., the court said: "[I]t is what the parties manifest to each other that controls and not an undisclosed secret intent." 253 N.W. 584, 589 (Wis. 1934);
268. see also Wayne Barnes, The Objective Theory of Contracts, 76 U. CTN. L. REV. I I 19,1130 (2008) (
269. "Subjective, internal equivocations or doubts are of no consequence to the parties' contractual affairs and thus cannot create havoc in the parties' reasonable expectations."). Ed Lukowitz, Red Owl's agent, knew about the level of Joe Hoffmann's business experience, his financial situation, and, most importantly, that the bakery provided the livelihood for Hoffmann's family. We do not think that the jury was instructed about Hoffmann's uncommunicated, subjective understandings about Lukowitz's reassurances. An abstract "reasonable person" in Hoffmann's position would not be somebody who was experienced in negotiating franchise contracts, and is not likely to have viewed Ed Lukowitz's assurances with any greater skepticism than Hoffmann did. In fact, we think that Hoffmann was above average in his sophistication as compared with other businesspeople in Wisconsin small towns. And Lukowitz did business with small-town Wisconsin businesspeople on a daily basis.
270. Transcript of Trial, supra note 9, at 375-376
271. We omit the first two questions, which were answered by the court. The first question was whether the parties initiated negotiations looking to the establishment of a Red Owl Store in Chilton (answered yes), and the second was whether the parties had mutually agreed on all of the details so as to have reached a final agreement thereon (answered no).
272. Id. at 369.
273. Id. at 369-370
274. Id. at 370.
275. Id. at 372.
276. Id. at 372-73.
277. The reason for the date was Van Hoofs concern that Hoffmann had not fulfilled the final condition that his father-in-law's $13, 000 be a gift.
278. See id. at 359-360
279. By inserting the date, the court intended to limit the question to conditions negotiated prior to the final meeting in Appleton, when Hoffmann testified he fint learned of the gift requirement.
280. Id. at 375-377
281. Id. at 379.
282. Transcript of Record, supra note 12, at 42-48.
283. The Wisconsin Supreme Court decision in Hoffman also reports this posttria] order.
284. See 133 N.W.2d 267,272 (Wis. 1965).
285. Telephone Interview with Joseph Hoffmann, supra note 102.
286. Letter from G. H. Van Hoof, Attorney for Joseph Hoffmann, to Ian R. Macneil, Professor, Cornell Law School (July 10, 1965) (on file with the Hastings Law Journal). We were later provided with a copy of the letter by Mr. Van Hoof.
287. Appellants' Brief, supra note 12, at 40-52.
288. Id. at 35-39
289. The brief justified the relevance of the source of funds in this way: The make-up of the $18,000... was important because of the necessary relationship between borrowed and unborrowed capital to the success of any business,... since the share of the profits of a small town grocery might well not be sufficient to support a man with a large family and an operator without adequate personal income would not likely be a successful one---[I]t would not be to the interest of either Hoffman or Red Owl for this particular agency to either fail or be so undercapitalized as to be unable to furnish adequate service to the public and to merchandise competitively.
290. Id. at 42-43.
291. Id. at 41.
292. Id. at 54.
293. Id. at 54-59. At trial Hoffmann had offered the testimony of Wrysinski, the employee who had purchased the grocery, about his profits earned over the summer of 1961, the peak retail season in Wautoma. The testimony was offered on the theory that one could imply that the fair market value would have been higher in June if profits were imminent. However, Wrysinski did not present any evidence about what his net profits were, but rather only evidence about his gross receipts for that period.
294. See Transcript of Trial, supra note 9, at 142-150
295. Appellants' Brief, supra note 12, at 49-52 (citation omitted).
296. Respondents' Brief at 8, Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267 (Wis. 1965) (No.14954)
297. Id. at 9-10.
298. The brief did stress that many details of a proposed franchise had been agreed upon, such as the used fixtures, downplaying in that way the degree to which the deal was incomplete.
299. Id. at 24-26.
300. Id. at 27.
301. Hoffmann's brief also made various arguments that the evidence supported the jury's verdict on damages with respect to the Wautoma grocery, and hence that the verdict in this respect should not have been overturned.
302. See id. at 28-31.
303. Id. at 27-28.
304. Hoffman, 133 N.W.2d at 275,277.
305. The court noted that one of our predecessors as a teacher of contracts at the University of Wisconsin Law School, the legendary William Herbert Page, had stated in his 1933 annotations to the Restatement of Contracts: "The Wisconsin cases do not seem to be in accord with this section [section 90] 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."
306. Id. at 273
307. (quoting WILLIAM H. PAGE, WISCONSIN ANNOTATIONS TO RESTATEMENT OF CONTRACTS 53 (1933))-
308. Id. at 275.
309. Id. at 274.
310. Id. at 276-277
311. Id. In the course of its opinion on this issue, the court opined that damages in promissory estoppel could be limited to recovery of reliance expenditures.
312. See id.
313. At the time of the decision, this statement was also precedent setting, although it is settled law today.
314. See RESTATEMENT (SECOND) OF CONTRACTS, §90 (1981) ("The remedy granted for breach may be limited as justice requires.") That sentence was not in section 90 of the first Restatement of Contracts. It is ironic that this case has influenced the development of the law on this point as well, since nobody has ever contended that Hoffmann had a possible claim for expectation damages-that is, lost profits from the Chilton store that was never established. For a recent article discussing remedies under promissory estoppel,
315. see Marco J. Jimenez, The Many Faces of Promissory Estoppel: An Empirical Analysis Under the Restatement (Second) of Contracts, 57 UCLA L. REV. 669 (2010).
316. For discussion of a recent federal decision applying Wisconsin law and allowing expectation damages in facts similar in many respects to Hoffman v. Red Owl Stores,
317. see infra note 300.
318. See Letter from G. H. Van Hoof to Ian R. Macneil, supra note 203.
319. Id.
320. Telephone Interview with Joseph Hoffmann, supra note 20.
321. Letter from G. H. Van Hoof to William C. Whitford (Mar. 21, 1970) (on file with the Hastings Law Journal), quoted in 1 MACAULAY, KIDWELL &
322. WHITFORD, supra note 6, at 403-04.
323. The record contains a stipulation by the parties settling the lawsuit, indicating that stipulation was reached on November 9,1965.
324. See Stipulation and Order for Dismissal, in Transcript of Record, supra note 12.
325. See Hoffmann, 133 N.W.2d at 275-276
326. Letter from G. H. Van Hoof to William C. Whitford, supra note 225.
327. Telephone Interview with Joseph Hoffmann, supra note 97.
328. Before that, Hoffmann purchased the option on the Chilton lot. Hoffmann also sought and received reassurance from Lukowitz before making this investment.
329. Transcript of Trial, supra note 9, at 57.
330. See id. at 115-16.
331. Hoffmann pointed out that Red Owl's ability to take over the store was clearly implied by their projected guarantee of his lease on the Chilton store.
332. See id.
333. This point was also emphasized in Hoffmann's brief to the Wisconsin Supreme Court.
334. See Respondents' Brief, supra note 211, at 9-10.
335. At trial, Frank Walker, Red Owl's Franchise Department manager, testified that he tried to persuade Hoffmann that he would have complete control over the additional $8000 that Red Owl was asking him to borrow. "It's your money---Joe, if after a reasonable length of time these funds aren't used give them back; give it back to the bank---" Transcript of Trial, supra note 9, at 333. But Walker also testified that the funds were intended to provide Hoffmann some cushion should the store not be immediately profitable.
336. Id.
337. Since Red Owl would be both directly (for inventory, and on the fixtures' financing) and indirectly (as guarantor on the lease) a major creditor of Hoffmann, they would benefit directly from the expenditure of the funds. And if Hoffmann invested the additional $8000 in ongoing costs before the store failed, he would remain liable on the loan and have nothing to show for the extra investment.
338. See supra note 153.
339. Telephone Interview with Joseph Hoffmann, supra note 102.
340. Scott speculates that Lukowitz would have earned a commission if the deal had gone through.
341. See Scott, supra note 14, at 93.
342. There is nothing in the record to support that speculation, but it could be true (and we have heard the same assumption made by other contracts teachers). Lukowitz was a divisional manager in charge of over eighty franchises in upper Michigan and Wisconsin.
343. Transcript of Trial, supra note 9, at 172.
344. Whether or not he received a commission for each new franchise, it is likely that he received bonuses based on overall sales within his division. But the addition of a small store in Chilton is not likely to have had a great impact on overall sales.
345. Id.
346. The most important officials appear to be Walter Hall, the credit manager, who met with Hoffmann at the Minneapolis meeting in November 1961, and Frank Walker, an assistant vice president and manager for the Franchise Department. The evidence suggests that both Hall and Walker examined the Hoffmann file during October and advised that Hoffmann would need to sell the bakery.
347. See Transcript of Record, supra note 12, Ex. 11 (telegram from Carlson to Lukowitz indicating that Walker had examined the file);
348. see also id.
349. Exs. 9,10 (letter and telegram, respectively, from Lukowitz to Hall about Hoffmann's financial situation). But there is no evidence in the record that either of these officials had told Lukowitz that sale of the bakery was "the only hitch." Lukowitz told Hoffmann he had been so informed, however, and it is possible there had been a phone call not in the record to such effect .
350. Cf. Transcript of Trial, supra note 8, at 57. Any telegrams or other written communication to such effect would likely have been turned up in discovery and introduced at trial.
351. Transcript of Trial, supra note 9, at 188
352. This is Hoffmann's current assessment of Lukowitz's testimony. Telephone Interview with Joseph Hoffmann, supra note 20.
353. This argument was noted by the Wisconsin Supreme Court.
354. See Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267,275 (Wis. 1965). This was not an argument made in Red Owl's brief, but perhaps it was made at oral argument. We do not have a transcript of the argument.
355. In comments on Hoffman v. Red Owl Stores in the contracts casebook that he coedits, Scott makes explicit his assumption that this was Red Owl's principal concern: If a franchisee uses borrowed money as the source of his investment in the franchise, his poor performance risks only his lender's money, not his own. Red Owl therefore regarded a substantial equity contribution from its franchisees as the key to a successful franchise---Although the amount of unencumbered cash Hoffman was supposed to supply was never precisely identified by Red Owl officials, they reasonably would have assumed that by stating he could contribute $18,000, Hoffman meant that he could and would supply his own cash in setting up the business and would not rely on money lent by others.
356. SCOTT & KRAUS, supra note 6, at 294-295 (4th ed. 2007).
357. See supra note 80 and accompanying text.
358. See supra note 240. Scott assumes the franchisee using borrowed funds "risks only his lender's money, not his own."
359. SCOTT & KRAUS, supra note 6. The text indicates ways in which a franchisee might avoid personal liability to his lender as well as to other creditors.
360. And none of the prospective creditors would have had a secured claim to any of the assets of the Red Owl store if Red Owl took over the business, except for the bakery equipment. Hoffmann says today that it never became clear whether Hoffmann would keep his bakery equipment if Red Owl took over the store.
361. Telephone Interview with Joseph Hoffmann, supra note 102.
362. Bankruptcy filing rates were very low by contemporary standards throughout the 1960s. Total filings were between 100, 000 and 200,000 cases annually.
363. See DAVID T. STANLEY & MARJORIE GIRTH, BANKRUPTCY: PROBLEM, PROCESS, REFORM 25 tbl.3-1 (1971). Wisconsin's per capita bankruptcy filing rate was average for the country.
364. See id. at 28-29 tbl.3-2. By way of comparison, total national bankruptcy filings surpassed one million in the mid-1990s.
365. See NAT'L BANKR. REVIEW COMM'N, BANKRUPTCY: THE NEXT TWENTY YEARS 77 (1997). The great growth in bankruptcy filing rates occurred after enactment of the Bankruptcy Reform Act of 1978.
366. See CHARLES JORDAN TABB, THE LAW OF BANKRUPTCY 39 (1997) (referring to "the exponential growth in the number of bankruptcy cases since the enactment of the 1978 Act").
367. 245- See supra note 97 and accompanying text.
368. See supra note 71 and accompanying text.
369. Red Owl's $26,000 plan, offered in December, asked for an additional $2000 in borrowed funds for promotional expenses. The final plan increased that amount by an additional $8000 for the same purpose.
370. The testimony of Walter Hall, credit manager for Red Owl, supports this interpretation.
371. See Transcript of Trial, supra note 9, at 327 ("I was protecting the investment of Red Owl---").
372. Especially on cross-examination, he was asked why it was important that there be a contribution of equity. See id. He responded by citing the concern that Hoffmann might have cash flow problems in the early period of the franchise, and that requiring equity reduced the need to make payments for debt during this period.
373. Id. at 327-28.
374. He acknowledged that Red Owl would be an important creditor and that one reason to insist that the father-in-law agree to the $13,000 gift was to protect Red Owl's investment.
375. Id. at 327-330
376. Van Hoofs one effort to ask about these matters was barred by an objection that the trial judge sustained.
377. See supra note 101.
378. Red Owl's annual reports for 1954 to 1971 are in the library of the Minnesota Historical Society. In 1967, Red Owl was acquired by Gamble-Skogmo, Inc.
379. See Bertin C. Gamble: An Inventory of His Papers at the Minnesota Historical Society, http://www.mnhs.org/ubrary/findaids/00479.xml(last visited Mar. 17, 2010). Gamble-Skogmo, Inc. was later merged into Wickes, Inc., which filed for bankruptcy in 1982.
380. See Wickes Inc.- Company History, http://www.fundinguniverse.com/company- historiesAVickes-Inc-Company-History.html (last visited Mar. 17, 2010).
381. RED OWL STORES, INC., 1962 ANNUAL REPORT [hereinafter 1962 ANNUAL REPORT]. The franchises constituted what was called the "Agency Division," headed by Frank Walker during the relevant period. The annual reports say little about this agency division, though they do contain an accounting for the division showing that sales to agency stores grew modestly during the relevant period. The 1962 Report stated: "Further expansion of the Agency Division... for the most part utilizes existing facilities."
382. Id. at 7.
383. It is not clear whether this statement suggests a deemphasis on creating new franchises, but it might.
384. LOEWI & Co., A STUDY OF RED OWL STORES, INC. I (1958) ("[T]he current stepped-up program of opening larger supermarkets in metropolitan centers and closing smaller rural stores was started---The vigorous continuation of this expansion program now underway gives promise of further significant earnings growth in the years ahead.").
385. RED OWL STORES, INC., 1961 ANNUAL REPORT 3. Red Owl sold off its Chicago stores in 1963 and its Denver stores in 1966, in both cases after suffering losses. RED OWL STORES, INC., 1964 ANNUAL REPORT 3; RED OWL STORES, INC., 1967 ANNUAL REPORT 3. In 1961 and 1962, Red Owl was also preparing to purchase Snyder Drugs, perhaps creating an additional drain on capital.
386. See 1962 ANNUAL REPORT, supra note 251, at 3.
387. 254- Hoffmann's brief on appeal emphasized this point. See supra note 214 and accompanying text. Scott points out that the key statement by Lukowitz-that the sale of the bakery was the only thing holding up the deal- was made after Hoffmann's meeting in Chilton with Carlson and Hall.
388. See Scott, supra note 14, at 95.
389. "By that time, Hoffman knew well that their approval, and not Lukowitz's was the key to securing the franchise."
390. Id.
391. But this ignores the fact that Red Owl always communicated with Hoffmann through Lukowitz. Hoffmann's understanding when he sold the bakery was that Lukowitz had checked with Minneapolis headquarters, and officials there had said that the sale of the bakery was the only thing holding up the deal.
392. See Transcript of Trial, supra note 9, at 324 (testimony of Walter Hall).
393. See supra notes 237-238 and accompanying text.
394. Red Owl was a Delaware corporation and hence there was a diversity of citizenship with Hoffmann.
395. See LOEWI & Co., supra note 252.
396. The jurisdictional amount at the time was $10,000, see 28 U.S.C § 1332(a) (1958), and the complaint was for $30,000. Hoffmann sued both Red Owl and Lukowitz, however, and Lukowitz lived and worked in Green Bay. To have removed the case to federal court, Red Owl would have had to get the case against Lukowitz dismissed, which they could have done if they had been willing to admit at the very beginning that all of Lukowitz's actions were within his delegated authority.
397. See WILLIAM A. GREGORY, THE LAW OF AGENCY AND PARTNERSHIP, 20203 (3d ed. 2001) ("If both the existence and the identity of the agent's principal are fully disclosed to the other party, the agent does not become a party to any contract which he negotiates."). If the case had been removed to federal court, the trial would have been in Milwaukee rather than Appleton, which was essentially Hoffmann's home town and where he was working at the time of the trial. And it would have made matters quite a bit more inconvenient for Hoffmann's lawyer, Mr. Van Hoof, whose offices were in Little Chute, a small town near Appleton.
398. Telephone Interview with Joseph Hoffmann, supra note 97.
399. 259- See supra note 82 and accompanying text.
400. See supra notes 82-87, 114-115 and accompanying text.
401. Wis. STAT. 1251. 34 (5)(c) (1965) ("The appendix shall contain... [a]n abridgment of the appeal record, including the transcript, but only so much thereof as is necessary and material to a consideration of the questions involved. The abridgement of the testimony shall be in narrative form with marginal page references to the record."). The narrative summary was in addition to the actual transcript, which was included in the record on appeal. The briefs of both parties cited both the narrative summary from the Appendix and the trial record.
402. See Appellants' Brief, supra note 12; Respondents' Brief,
403. supra note 211.
404. Appellants' Brief, supra note 12, at 15 (one sentence devoted to assurances at this time);
405. Respondents' Brief, supra note 211, at 5 (two sentences).
406. Scott observes that the full trial transcript "paints a very different picture" than does the edited transcript contained in the Appendix.
407. See Scott, supra note 14, at 74-75. On this point we both agree.
408. Id. at 75.
409. See id.
410. Id. at 84.
411. Professor Scott also speculates that the primary problem was Hoffmann's "personal relationship with his father-in-law, who appears to have been a prosperous, but stern, Calvinist---[H]is father-in-law was sufficiently skeptical about Joe's business acumen that he wanted to have some control over his money."
412. Id. at 84-85.
413. In making these comments, Scott makes assumptions about the father-in-law and his relationship with Hoffmann that are not supported by the transcript. There is nothing in the transcript about either topic. Hoffmann's contemporary recollections are quite different from Scott's assumptions. Hoffmann remembers his father-in-law, a farmer himself, as being supportive and proud of his son-in-law's business successes. Hoffmann says today that his father-in-law would have signed the agreement that the $13,000 be a gift if he had been asked, but Joe did not think it was right.
414. Telephone Interview with Joseph Hoffmann, supra note 97.
415. Scott, supra note 14, at 95.
416. See supra notes 237-38, 254-255 and accompanying text.
417. See supra note 236 and accompanying text
418. For example, the first financial plan considered the profit on the sale of the lot as "equity." And the last plan did not consider the father-in-law's $13,000 to be equity, even as Red Owl asked Joe to obtain his father-in-law's agreement that it be a gift.
419. See supra p. 825 tbl. 3.
420. See supra notes 247-248 and accompanying text.
421. Scott, supra note 14, at 73.
422. Scott's view of the Hoffman facts is nicely illustrated by his citation of a recent Seventh Circuit decision as refusing to allow recovery "under similar facts," which validates his conclusion that Hoffman is an "outlier."
423. See id. at 73 n.9. In the case cited,
424. Beer Capitol Distributing, Inc. v. Guinness Bass Import Co., 290 F-3d 877, 880-81 (7th Cir. 2002), the defendant's employee had represented that he would recommend that the plaintiff be appointed the defendant's exclusive distributor for southeastern Wisconsin, and the employee did so recommend. On summary judgment, the trial court found that no agent of the defendant had made any other promise respecting plaintiffs receipt of the exclusive distributorship.
425. Id. Therefore, plaintiff could not recover for precontractual reliance because there was no promise that had been breached.
426. Id.
427. The case stands for the inability to recover for precontractual reliance where the defendant has not breached any promise or representation to the plaintiff. Evidently, this is how Scott views the Hoffman facts.
428. 275- I MACAULAY, KIDWELL & WHITFORD,
429. supra note 6, at 398-401.
430. Id. Others have expressed similar reservations about the opinion in Hoffman.
431. See, e.g., Gregory M. Duhl, Red Owl's Legacy, 87 MARQ. L. REV. 297, 312-13 (2003);
432. Peter Linzer, Rough Justice: A Theory of Restitution and Reliance, Contracts and Torts, 2001 Wis. L. REV. 695,718-719
433. See Transcript of Trial, supra note 9, at 172.
434. One exception to this pattern occurred after the November meeting at the Red Owl headquarters near Minneapolis.
435. See supra note 121 and accompanying text. This exception occurred after all of Hoffmann's critical reliances on Lukowitz's assurances.
436. See supra note 218 and accompanying text.
437. See supra note 219 and accompanying text.
438. See, e.g., FARNSWORTH, CONTRACTS, supra note 17, at 196-197
439. We have earlier noted that the trial judge's charge instructed the jury to interpret the communications as they would be understood by somebody in Hoffmann's life situation.
440. See supra note 192 and accompanying text.
441. Telephone Interview with Joseph Hoffmann, supra note 20. ("When he [Lukowitz] urged me to sell the bakery, I thought he was representing that we had a deal.").
442. From Red Owl's perspective, not even the location of the franchise had been finalized, though Hoffmann may have thought otherwise.
443. See supra notes 102-103 and accompanying text.
444. Red Owl had a standard form contract that dictated many terms, including the terms of the fixtures loan and the trade credit that Hoffmann would receive on the purchase of groceries (seven days' credit).
445. Transcript of Trial, supra note 9, at 66-67.
446. There was a draft floor plan, and the contractor who would build the store had been selected.
447. See supra note 87 and accompanying text. There was a formula by which the rent that Hoffmann would pay on the store would be determined.
448. See supra note 80 and accompanying text.
449. Professor Jay Feinman sees the decision in Hoffman v. Red Owl as "problematic."
450. See Jay M. Feinman, The Last Promissory Estoppel Article, 61 FORDHAM L. REV. 303, 315 (1992).
451. He says: Hoffman can hardly be understood on the basis of promissory estoppel doctrine---[I]t may be better understood as a tort case involving negligent misrepresentation of a peculiar kind. It can be best understood, though, as a relational case. The relational analysis would proceed at two levels; it would examine the interactions between the parties, which extended over several years, involved many different issues, and were conducted by several agents of Red Owl, and would then look at the broader setting in which franchisors and their agents employ a variety of techniques to procure franchisees. That kind of analysis, not constrained by notions of promise or reliance, would provide a better understanding of how courts treat such cases and how they should do so. It might well provide a contested understanding; we could argue about the appropriate scope of liability of franchisors for the acts of their agents in particular settings, but at least the argument would proceed from a fuller understanding of the case, and one that is more attuned to the responsibilities that arise from relationships.
452. Id.
453. (footnote omitted). We find much to like about the suggested relational approach in setting the liabilities between franchisors and prospective franchisees. However, we think that when you look at the facts in the context of this case, on quite conventional grounds the jury and the appellate court would have been justified in finding a promise to grant a franchise if Joe Hoffmann would sell the bakery. Consideration of the relational background of the case would further support that conclusion, by justifying interpretation of Lukowitz's statements in the way Hoffmann says he understood them.
454. This is consistent with the view about the meaning of the promise in precontractual reliance cases suggested years ago by Charles Knapp in a famous article. It is what he called a "contract to bargain."
455. See Charles L. Knapp, Enforcing the Contract to Bargain, 44 N.Y.U. L. REV. 673, 684-686 (1969).
456. See supra notes 118, 146 and accompanying text. We have also made clear earlier that there was no issue of Hoffmann not having available any of the resources that he claimed to have at the time he sold the bakery.
457. See supra note 63.
458. Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267, 275, 277 (Wis. 1965).
459. It could also be argued that the Court should have reversed the award to Hoffmann of $1000 for the option on the Chilton lot. At the time Hoffmann committed that money, he did ask for assurance from Lukowitz that it was an appropriate expenditure. Lukowitz knew that Hoffmann was careful with his money and did not want to expend the money unless the franchise was going to be placed in Chilton. Lukowitz purported to (and perhaps did) check with Red Owl headquarters before telling Hoffmann to go ahead.
460. See supra note 54 and accompanying text.
461. On the other hand, at that time Hoffmann had not met with any Red Owl headquarters officials and they had not drafted a first financial plan detailing his investment. In sum, there were some characteristics of an actionable promise at this time, but not as many as there were later at the time of the sale of the bakery. 291.
462. See supra note 226 and accompanying text. These damages had been excluded from the first trial and were estimated by Hoffmann's lawyer to be $6000.
463. See supra note 185 and accompanying text.
464. See Iinzer, supra note 276, at 695 n.
465. See Scott, supra note 14, at 71-72.
466. 294- I FARNSWORTH, supra note I, §3.26, at 379 ("In recent decades, courts have begun to... base liability on a specific promise that has been made in order to interest the other party in the negotiations and that the other party has relied on-----
467. The leading decision in this line is Hoffman v. Red Owl Stores---").
468. Hoffman is also historically significant for using the doctrine of promissory estoppel to frame a new doctrine allowing recovery for precontractual reliance in appropriate circumstances. It did not have to be that way. Others have suggested that a doctrine of good faith be employed as a vehicle for policing precontractual bargaining behavior and allowing recovery for precontractual reliance in appropriate cases, as is done in some European countries.
469. See Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 HARV. L. REV. 401, 403-04 (1964).
470. We suspect that the doctrine would have developed in either doctrinal frame, but there are potential advantages in debating the issues in the terms of promissory estoppel. When it comes to establishing the limits on recovery for precontractual reliance, promissory estoppel tends to focus the debate on whether there was a "promise" and whether the reliance was a foreseeable consequence of the promise. While these terms are vague and require interpretation, they point to considerations that surely should help define the limits on this theory of liability.
471. See, e.g., authorities cited infra note 296.
472. Juliet Kostritsky details this rationale for precontractual liability, citing many other authorities and discussing several cases upholding this view.
473. See Juliet Kostritsky, Uncertainty, Reliance, Preliminary Negotiations and the Holdup Problem, 61 SMU L. Rev. 1377, 1410-38 (2008). For similar reasons, Scott and his frequent collaborator, Alan Schwartz, have argued in favor of recovery of precontractual reliance when there is a "preliminary agreement" that both parties will invest precontractually and one party later reneges.
474. See Alan Schwartz & Robert F. Scott, Precontractual Liability and Preliminary Agreements, 120 HARV. L. REV. 661, 703-04 (2007). There was not an agreement for both parties to invest precontractually in Hoffman v. Red Owl Stores, as Red Owl never made any investment (beyond its expenses in vetting Hoffmann) in the proposed Chilton store. So perhaps Scott would not support recovery in Hoffman even if he accepted our view of the facts.
475. 297- See, e.g., Allan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L.J. 541, 618 (2003) ("An efficient default rule... is simple in form, condition on few states of the world---").
476. See, e.g, Stewart Macaulay, The Real and the Paper Deal: Empirical Pictures of Relationships, Complexity and the Urge for Transparent Simple Rules, 66 MOD. L. REV. 44, 45 (2003) ("Often, however, the paper deal will not reflect the real deal: a writing can be inconsistent with the actual expectations of the parties.");
477. William C. Whitford, The Role of the Jury (and the Fact/Law Distinction) in the Interpretation of Written Contracts, 2001 Wis. L. REV. 931, 947-50 (arguing that a contextualized inquiry better respects each party's autonomy or freedom of contract);
478. see also Jason Johnston, Communication and Courtship: Cheap Talk Economics and the Law of Contract Formation, 85 VA. L. REV. 385, 496-99 (1999) (suggesting that the decision in Hoffman may have been efficient if a contextualized inquiry shows the reliance to have been "pretrade performance" without the defendant disclosing doubts that the deal would go through);
479. Richard Craswell, Offer, Acceptance, and Efficient Reliance, 48 STAN. L. REV. 481, 544-550 (1996) (arguing for case-by-case determination of when recovery of precontractual reliance is "efficient").
480. See Stewart Macaulay, The Reliance Interest and the World Outside the Law Schools' Doors, 1991 Wis. L. REV. 247, 266-267
481. A more recent Seventh Circuit case written by Judge Posner that protects precontractual reliance may be a better vehicle for examining the outer limits of recovery.
482. In Cosgrove v. Bartolotta, 150 F.3d 729, 733-34 (7th Cir. 1998), the plaintiff, an experienced corporate lawyer who was the defendant's family friend, agreed to loan defendant start-up capital and provide defendant with legal services needed to start a new restaurant. Defendant promised to give the lawyer an ownership interest in the restaurant.
483. Id. at 732.
484. Plaintiff assisted defendant in negotiating the lease of the restaurant premises and a loan from a bank, and plaintiff advised defendant on the appropriate corporate structure for the venture.
485. Id.
486. Plaintiff and defendant never worked out the exact terms under which plaintiff would receive a share in the restaurant.
487. Id.
488. Plaintiff was willing and able to make the loan, but he never did this.
489. Id.
490. Defendant obtained financing elsewhere and cut plaintiff out of the deal. Id. The jury found that there was no contract because details respecting the partial ownership interest remained to be negotiated, but it nevertheless awarded plaintiff the value of the partial ownership interest ($117,000) on a promissory estoppel theory.
491. Id. at 731-32-
492. The trial judge overturned this judgment because plaintiff had failed to prove reliance on the promise.
493. Id. at 731.
494. Judge Posner wrote an opinion reinstating the jury's award. Id. at 734-35. The pledge of a loan did not cost plaintiff anything so it was not sufficient reliance to support recovery.
495. Id. at 733.
496. Judge Posner nonetheless found sufficient reliance to support promissory estoppel in the rendering of professional services by the plaintiff, even if performed during what would otherwise have been leisure time.
497. Id. at 733-34.
498. Judge Posner also read Kramer v. Alpine Valley Resort, Inc., 321 N.W.2d 293, 294 (Wis. 1982), as interpreting Hoffman v. Red Owl Stores to allow either reliance or expectation damages.
499. See Cosgrove, 150 F.3d at 734. He affirmed the jury's award of expectation damages although both the Hoffman and Kramer cases themselves awarded only reliance damages.
500. See id. at 734-735
501. Judge Posner's opinion tests the limits of precontractual reliance recovery both because it was not clear that the reliance was very extensive and because he allowed expectation damages. Reliance damages might have been difficult to calculate- should the lawyer be allowed to bill at his usual hourly rate when working outside normal hours for a friend?- but they surely were less than the $117,000 expectation damages awarded.