29 F.

3d 821
29 Fed.R.Serv.3d 560

MEREX A.G.; Merex Corporation and Peter C. Lachmann,

Plaintiffs-Appellants,
v.
FAIRCHILD WESTON SYSTEMS, INC., Defendant-Appellee.
No. 1817, Docket 93-9286.

United States Court of Appeals,

Second Circuit.
Argued June 14, 1993.
Decided July 14, 1994.

Daniel J. O'Callaghan, New York City, for plaintiffs-appellants.

Roy A. Klein, Old Bethpage, NY, for defendant-appellee.
Before: McLAUGHLIN and JACOBS, Circuit Judges, and WEINSTEIN,
Senior District Judge.*
McLAUGHLIN, Circuit Judge:

Merex A.G. ("Merex") appeals from a judgment entered in the United States
District Court for the Southern District of New York (Mary Johnson Lowe,
Judge ) dismissing its complaint seeking damages under an oral commission
agreement. Merex argues, among other things, that the district court abused its
discretion by declaring the jury verdict on its promissory estoppel claim
advisory only, under Federal Rule 39(c), and by waiting until Merex rested its
case before announcing this ruling.

We hold that the Seventh Amendment did not guarantee Merex the right to a
jury trial on its promissory estoppel claim. We also hold that the district court
acted within its discretion when it declared the jury advisory. Accordingly, we
affirm.

BACKGROUND

In the early 1980s, defendant Fairchild Weston Systems, Inc. ("Fairchild")

planned to sell several multi-million dollar military surveillance systems to the
Peoples' Republic of China (the "PRC"). Lacking the necessary Asian
connections, Fairchild engaged Merex, a German brokerage company, to
introduce Fairchild to representatives of the PRC and to broker the sale. The
dispute now centers on how Fairchild was to compensate Merex for its
middleman services.

Merex initially offered to work for a commission, calculated as a percentage of

the sale price. According to Merex's president, Gerhard Mertins, a
representative of Fairchild orally promised Mertins in the summer of 1982 that
Fairchild would pay Merex an eight-percent (8%) commission on Fairchild's
direct sale to the PRC.

Merex's proposed commission arrangement was not acceptable to Fairchild's

executives, however; apparently, they were reluctant to deal directly with the
PRC. Fairchild insisted that the parties structure the deal in a sale/resale format
so that Fairchild would sell five systems to Merex, and Merex would then resell
the systems (as Fairchild's exclusive distributor) to the PRC. Merex would thus
assume the risk of collecting payment from the PRC, and would be
compensated by charging the PRC a mark-up on the resale.

Negotiations among the three parties under this sale/resale format broke down
in April, 1984. Shortly thereafter, Fairchild renewed the negotiations with the
PRC--without Merex. Five months later, despite its earlier misgivings about
dealing with the PRC, Fairchild consummated a direct sale to the PRC of two
surveillance systems. The deal, of course, did not include Merex. When
Fairchild refused to pay Merex for its prior services, Merex sued Fairchild in
the district court, alleging an oral promise by Fairchild to pay Merex a
commission on any direct sale to the PRC. Merex's complaint sought damages
under theories of breach of contract, quantum meruit, and promissory estoppel.
The complaint also sought a declaration of Merex's rights under the alleged
commission agreement. Merex demanded a jury trial on all issues.

The jury trial began on April 13, 1992. Following Merex's case-in-chief, Judge
Lowe granted, in part, Fairchild's motion for judgment as a matter of law. See
Fed.R.Civ.P. 50(a). Judge Lowe found that, without a writing, both Merex's
claims for breach of contract and quantum meruit were barred by New York's
Statute of Frauds. See Merex A.G. v. Fairchild Weston Systems, Inc., 810
F.Supp. 1356 (S.D.N.Y.1993). Judge Lowe also dismissed Merex's claim for a
declaratory judgment, and no issue is made of this. Characterizing the
remaining promissory estoppel claim as "equitable," Judge Lowe then ruled

that she would let it go to the jury, but only for an advisory verdict.
Fed.R.Civ.P. 39(c). Merex, 810 F.Supp. at 1358 n. 2.
8

After Fairchild completed its case, the case went to the advisory jury, which
returned a verdict in favor of Merex on the promissory estoppel claim. Judge
Lowe rejected the jury's advice, however. After issuing findings of fact and
conclusions of law, see Fed.R.Civ.P. 52(a), the court entered judgment for
Fairchild, dismissing Merex's complaint.

Merex now appeals.

DISCUSSION
10

Merex raises a host of arguments on appeal; we find only one worthy of serious
consideration.

11

Merex challenges the district court's decision to treat the verdict on its
promissory estoppel claim as merely advisory. Merex believes that promissory
estoppel is a legal claim, not an equitable one, and argues that the Seventh
Amendment guaranteed Merex a jury trial on that issue. Alternatively, Merex
argues that even if Merex was not entitled to a jury trial as a matter of right, the
district court nevertheless abused its discretion under Rule 39(c) by waiting
until mid-way through trial before telling the parties that the verdict would not
be binding. We address these arguments in turn.

I. The Seventh Amendment and Promissory Estoppel

12
13

The Seventh Amendment provides that "[i]n suits at common law, where the
value in controversy shall exceed twenty dollars, the right of trial by jury shall
be preserved." U.S. Const. amend. VII. As Justice Story explained for the
Supreme Court in 1830, the phrase "suits at common law" is not limited to
"suits, which the common law recognized among its old and settled
proceedings"; rather, the phrase embraces all "suits in which legal rights were to
be ascertained and determined, in contradistinction to those where equitable
rights alone were recognized, and equitable remedies were administered."
Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 447, 7 L.Ed. 732 (1830). Thus, "it has
long been settled that the right [to a jury trial] extends beyond the common-law
forms of action recognized" at the time the Seventh Amendment was adopted
in 1791. Curtis v. Loether, 415 U.S. 189, 193, 94 S.Ct. 1005, 1007, 39 L.Ed.2d
260 (1974) (Seventh Amendment entitled plaintiff to jury trial in suit for
violation of Title VIII of the Civil Rights Act of 1968).

14

To decide whether the Seventh Amendment's right to a jury trial extends to a

cause of action born subsequent to the Amendment's adoption, we apply a
twofold, historical analysis: "The standard test is to determine first whether the
action would have been deemed legal or equitable in 18th century England, and
second whether the remedy sought is legal or equitable in nature. The court
must balance the two, giving greater weight to the latter." Germain v.
Connecticut Nat'l Bank, 988 F.2d 1323, 1328 (2d Cir.1993). See
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 2790, 106
L.Ed.2d 26 (1989); Tull v. United States, 481 U.S. 412, 417-18, 107 S.Ct.
1831, 1835-36, 95 L.Ed.2d 365 (1987).
A. The Nature of the Right

15

Although "promissory estoppel" per se was unknown to the courts of 18thcentury England, see John D. Calamari & Joseph M. Perillo, Contracts Sec. 6-1,
at 272 (3d ed. 1987), its modern uses have historical antecedents in both law
and equity.

16

The modern doctrine of promissory estoppel may be invoked in two situations.

First, and most traditionally, the doctrine allows for the enforcement of a
promise in the absence of bargained-for consideration. See Restatement
(Second) of Contracts Sec. 90 (1981) ("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."); see, e.g.,
Schmidt v. McKay, 555 F.2d 30, 36 (2d Cir.1977). This is known as the theory
of detrimental reliance.

17

Promissory estoppel has also become increasingly available to provide relief to

a party where the contract is rendered unenforceable by operation of the Statute
of Frauds. See Restatement (Second) of Contracts Sec. 139(1) ("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 the action
or forbearance is enforceable notwithstanding the Statute of Frauds if injustice
can be avoided only by enforcement of the promise."); see, e.g., Philo Smith &
Co., v. USLIFE Corp., 554 F.2d 34, 36 (2d Cir.1977) (per curiam); see
generally Jeffrey G. Steinberg, Note, Promissory Estoppel as a Means of
Defeating the Statute of Frauds, 44 Fordham L.Rev. 114 (1975).

18

Precedent for the rule that detrimental reliance may render a gratuitous promise
enforceable can be found in "the decisions of the courts of common law from

the very beginnings of the action for assumpsit." 1A Arthur L. Corbin, Corbin
on Contracts Sec. 194, at 193 (1963). See Ames, The History of Assumpsit, 2
Harv.L.Rev. 1, 14 (1888) ("a detriment has always been deemed a valid
consideration for a promise if incurred at the promisor's request"); Restatement
(Second) of Contracts Sec. 90 cmt. a ("enforcement of informal contracts in the
action of assumpsit rested historically on justifiable reliance on a promise"); see
generally Calamari & Perillo Sec. 6-2, at 277; see, e.g., Coggs v. Bernard, 92
Eng.Rep. 107 (K.B. 1703). This would suggest a legal root for the doctrine.
19

On the other hand, as its surname suggests, the doctrine of promissory estoppel
is a direct descendent of equitable estoppel. See Calamari & Perillo Sec. 6-2, at
274, 281; 1 Samuel Williston, Williston on Contracts Sec. 140, at 607-09 (3d
ed. 1957). Although equitable estoppel was ultimately recognized by the courts
of common law, the doctrine was first fashioned in the courts of equity. See 2
Fred F. Lawrence, Equity Jurisprudence Sec. 1046, at 1132 (1929)
("Jurisdiction of equity courts to prevent fraud by the use of estoppel is a 'very
old head of equity.' ") (citation omitted). The most obvious precedents in equity
for promissory estoppel were those cases in which the Statute of Frauds
precluded enforcement of an oral promise to convey land. It was well
established that the Chancellor could grant specific performance of such a
contract where the promisee spent money and made improvements to the land
in reliance on the oral promise. See Joseph Story, Commentaries on Equity
Jurisprudence Sec. 1054 (14th Edition 1918); Lawrence, supra, Sec. 799, at
888-89; see generally Benjamin F. Boyer, Promissory Estoppel: Principle From
Precedents: I, 50 Mich.L.Rev. 639, 655 (1952).

20

Thus, the protean doctrine of "promissory estoppel" eludes classification as

either entirely legal or entirely equitable, and the historical evidence is
equivocal. It is clear, however, that both law and equity exert gravitational pulls
on the doctrine, and its application in any particular case depends on the context
in which it appears. For example, where a plaintiff sues for contract damages
and uses detrimental reliance as a substitute for consideration, the analogy to
actions in assumpsit (law) is compelling. By contrast, when the plaintiff uses
promissory estoppel to avoid a draconian application of the Statute of Frauds,
the pull of equity becomes irresistible.

21

We believe Merex's invocation of the doctrine more closely resembles the latter
than the former. In this case, the alleged commission agreement was certainly
supported by adequate consideration, and, consequently, there is no need to rely
on notions of detrimental reliance. Merex is seeking to use promissory estoppel
to circumvent New York's Statute of Frauds. When promissory estoppel is
utilized in this manner, the claim is more equitable than promissory in nature.

See, e.g., Esquire Radio & Elec., Inc. v. Montgomery Ward & Co., 804 F.2d
787, 794 (2d Cir.1986) ("having reneged on its promise to repurchase Esquire's
spare parts inventories ... Ward is equitably estopped from raising the Statute of
Frauds").
B. The Nature of the Remedy
22

In its prayer for relief, Merex requested $1,680,000 on its promissory estoppel
claim, a sum representing eight percent of the sale price of the two surveillance
systems Fairchild sold to the PRC. Thus, Merex sought to recover expectation
damages under the alleged oral commission agreement. Because expectation
damages for breach of contract are traditionally legal in nature, the pull of law
with its attendant right to a jury trial is distinctly felt. See Atlas Roofing Co. v.
Occupational Safety & Health Review Comm'n, 430 U.S. 442, 459, 97 S.Ct.
1261, 1271, 51 L.Ed.2d 464 (1977) ("suits for damages for breach of contract,
for example, were suits at common law"); Dairy Queen, Inc. v. Wood, 369 U.S.
469, 477, 82 S.Ct. 894, 899, 8 L.Ed.2d 44 (1962) ("As an action on a debt
allegedly due under a contract, it would be difficult to conceive of an action of a
more traditionally legal character.").

23

A claim for money damages, of course, constitutes "legal" relief, for such relief
was "the traditional form of relief offered in the courts of law." Chauffeurs,
Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 570, 110 S.Ct.
1339, 1347, 108 L.Ed.2d 519 (1990) (quoting Curtis, 415 U.S. at 196, 94 S.Ct.
at 1009). But this is not always true. Id. Restitution damages, for example, and
money awarded incidental to the grant of equitable relief are not legal in nature.
Id. at 570, 110 S.Ct. at 1347-48. Furthermore, money damages may constitute
equitable relief where "the court is not awarding damages to which the plaintiff
is legally entitled but is exercising the chancellor's discretion to prevent unjust
enrichment." SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d
Cir.1978) (Friendly, J.) (disgorgement of profits is equitable).

24

In this case, Merex's equitable theory of liability collides with its claim for
legal relief. Specifically, Merex falls back upon the doctrine of promissory
estoppel because the Statute of Frauds renders the oral commission agreement
unenforceable; Merex believes that to apply the Statute would work a fraud in
this case. "Relief in cases within [the Statute of Frauds], therefore, as in all
others of this nature, is not predicated upon enforcing the contract in the teeth
of the statute, but preventing its use to defeat this ulterior equity.... This use of
one of equity's favorite weapons, estoppel, to prevent this particular injustice is
well established." Lawrence, supra, Sec. 786, at 876.

25

In short, plaintiff's reach exceeds its grasp by invoking an equitable theory

(estoppel) to give it the legal relief (expectation damages) that is denied to it by
the Statute of Frauds. This it may not do. To invoke the power that equity
possesses to trump the Statute of Frauds, plaintiff must demonstrate
"unconscionable" injury, i.e., injury beyond that which flows naturally
(expectation damages) from the non-performance of the unenforceable
agreement. See Philo Smith, 554 F.2d at 36. If successful, the plaintiff is not
entitled, as of right, to expectation damages; the court retains the discretion to
award relief to avoid "injustice," and can mold that relief "as justice requires."
Restatement (Second) of Contracts Sec. 139; see, e.g., Arcadian Phosphates,
Inc. v. Arcadian Corp., 884 F.2d 69, 73 (2d Cir.1989) ("Prevailing on a
promissory estoppel claim, however, sometimes entitles a party only to its outof-pocket expenses, rather than to benefit-of-the-bargain damages."); see
generally Mary E. Becker, Promissory Estoppel Damages, 16 Hofstra L.Rev.
131, 147-48 (1987) (observing that there is a "strong case" for awarding
restitution relief instead of contract damages where the Statute of Frauds
renders the contract unenforceable: "If full expectation damages (or specific
performance) were available once there had been reliance, there would be little
left of the statutory bar.").

26

Thus, while we recognize the legal nature of expectation damages generally,

we remain unpersuaded that Merex's prayer for money damages outweighs the
undeniably equitable nature of the promissory estoppel claim as a whole,
particularly where, as here, the measure of damages plaintiff seeks is
inappropriate. Accordingly, we hold that Merex's claim is properly regarded as
equitable rather than legal and, consequently, that Merex was not entitled to a
jury trial on its claim for promissory estoppel. This accords with the weight of
authority. See Nimrod Mktg. (Overseas) Ltd. v. Texas Energy Inv. Corp., 769
F.2d 1076, 1080 (5th Cir.1985) ("Promissory estoppel is an equitable form of
action in which equitable rights alone are recognized. Defendants had no right
to trial by jury....") (citations omitted), cert. denied, 475 U.S. 1047, 106 S.Ct.
1266, 89 L.Ed.2d 575 (1986); C & K Eng'g Contractors v. Amber Steel Co., 23
Cal.3d 1, 151 Cal.Rptr. 323, 328, 587 P.2d 1136, 1141 (1978) ("We conclude
that the trial court properly treated [promissory estoppel] as equitable in nature,
to be tried by the court with or without an advisory jury as the court elected.").
II. Abuse of Discretion under Rule 39(c)

27

Relying exclusively on out-of-circuit authority, Merex alternatively argues that,

even if it was not entitled to a jury trial, the trial court committed reversible
error by declaring the jury advisory after the trial had actually started. We do
not read Rule 39(c), or the cases relied upon by Merex, to compel such a

conclusion.
28

Rule 39(c) provides that "[i]n all actions not triable of right by a jury the court
upon motion or of its own initiative may try any issue with an advisory jury...."
After the breach of contract, quantum meruit and declaratory judgment claims
were dismissed, the only claim surviving in the case was not "triable of right by
a jury." The court "of its own initiative" had the right to try the remaining issue
with an advisory jury. Indeed, absent the consent of the parties, it would be
highly questionable for a court to submit an equitable issue to an advisory jury
for a binding verdict. See Mallory v. Citizens Utilities Co., 342 F.2d 796, 79798 (2d Cir.1965) (error to enter judgment upon advisory jury's verdict in
equitable action for rescission of contract; court must make independent
findings of fact and conclusions of law).

29

Merex cites Thompson v. Parkes, 963 F.2d 885 (6th Cir.1992), Bereda v.
Pickering Creek Industrial Park, Inc., 865 F.2d 49 (3d Cir.1989), and AMF
Tuboscope, Inc. v. Cunningham, 352 F.2d 150 (10th Cir.1965), for the
proposition that a trial court abuses its discretion whenever it declares the jury
advisory after the start of trial. Although there are dicta in each case arguably
supporting such a broad rule of law, the reasoning of these decisions does not
suggest a similar result in this case.

30

The Sixth Circuit's decision in Thompson, for example, is starkly different from
our case. There, the trial court declared the jury advisory one week after the
jury had returned its verdict. See Thompson, 963 F.2d at 887. Reversing, the
court proffered at least three reasons why waiting that long constituted an abuse
of discretion in that case.

31

First, the court reasoned that to sanction the practice would permit judges to
exercise "veto power" over jury verdicts with which they disagree. Id. at 889.
Second, the court observed that Rule 39(c) permits the parties to stipulate to a
jury trial even if the claims were not triable as of right by a jury. (In that case,
both sides had requested a jury trial, and neither side had moved to strike the
jury demand or for a directed verdict. Id.) Finally, the court believed that
fundamental fairness and judicial economy required notice of an advisory jury
in advance of trial, so that counsel "may prepare a case appropriate to the trier
of fact." Id. at 889; see also Hildebrand v. Board of Trustees, 607 F.2d 705, 710
(6th Cir.1979) ("Any good trial lawyer will testify that there are significant
tactical differences in presenting and arguing a case to a jury as opposed to a
judge."). While we agree that the foregoing considerations should inform the
trial court's discretion under Rule 39(c), we do not believe Judge Lowe
committed reversible error on the facts of this case.

32

First, and most significantly, Judge Lowe did not wait until the verdict was
returned before deciding that the verdict would be advisory. Accordingly, there
was no danger that the trial judge would veto the jury's verdict. Cf. Thompson,
963 F.2d at 888 (court declared jury advisory after verdict); Bereda, 865 F.2d at
50 (same). 1

33

Nor do we read Rule 39(c)'s provision for "trial by consent" to mandate the
court's acceptance of the jury's verdict in this case. Rule 39(c) provides that the
court, "with the consent of both parties, may order a trial with a jury whose
verdict has the same effect as if trial by jury had been a matter of right."
Fed.R.Civ.P. 39(c) (emphasis added). Thus, when both parties consent, Rule
39(c) invests the trial court with the discretion--but not the duty--to submit an
equitable claim to the jury for a binding verdict. While the litigants are free to
request a jury trial on an equitable claim, they cannot impose such a trial on an
unwilling court. See 5 James Wm. Moore, et al., Moore's Federal Practice p
39.11 (2d ed. 1993) ("Thus in private litigation the court and the parties can
agree to try equitable actions to a jury whose verdict will have the effect of a
common law verdict.") (emphasis in original). Accordingly, even if we were to
accept Merex's argument that Fairchild consented to Merex's demand for a jury
trial of its promissory estoppel claim, such consent would not divest the trial
judge of her discretion to decide the equitable issue.

34

Finally, although Rule 39(c) does not expressly require advance notice to the
parties of the court's intention to treat the jury as advisory, we agree that such
notice is preferable. In the absence of an express statutory mandate, however,
we are not inclined to reverse on this basis alone, at least absent some
demonstrable prejudice to the complaining party. Given the minimal strictures
of federal pleading, it will sometimes not be clear until well into the trial
whether an issue is equitable or legal.

35

Accordingly, we hold that the district court did not abuse its discretion by
declaring the jury advisory after the plaintiff rested its case.

CONCLUSION
36

We have carefully considered all of Merex's many remaining arguments and

find them meritless. The judgment is affirmed.

Honorable Jack B. Weinstein, of the United States District Court for the
Eastern District of New York, sitting by designation

We recognize that the trial judge in AMF Tuboscope declared the jury advisory
"on the eve of trial." 352 F.2d at 155. We note, however, that before reaching
the Rule 39(c) issue, the Tenth Circuit had held that the parties were entitled to
a jury trial as a matter of right. See 352 F.2d at 153. Hence, the trial judge in
that case had no discretion to declare the jury advisory. See 352 F.2d at 155
("We are of the opinion that the Chief Judge abused his discretion, if discretion
he had under the existing circumstances, in denying a jury trial.") (emphasis
added)