## Facts

- Calldata, a Grumman subsidiary, negotiated with Cyberchron for Cyberchron to build specialized hardware for a U.S. Marine Corps command-and-control system covered by Grumman’s prime contract.
- A purchase order issued during negotiations included strict weight specifications; Cyberchron did not accept the purchase order terms and objected to the weight requirement.
- Despite the absence of agreement on essential terms, Calldata representatives urged Cyberchron to continue design and production as if the dispute did not exist and represented that the weight issue would be resolved.
- Cyberchron proceeded and incurred substantial labor and materials costs while Calldata knew Cyberchron was spending money in reliance on Calldata’s encouragement to continue.
- Cyberchron sought a progress payment to cover costs and overhead already incurred; no such payment was made.
- While Cyberchron continued work, Calldata pursued alternative suppliers and, on September 25, 1990, terminated the purchase order effective immediately.
- Cyberchron delivered no equipment and received no payment for its partial performance.
- After a bench trial, the district court rejected breach of contract and quantum meruit, denied Calldata’s counterclaim, but awarded Cyberchron $162,824.19 on promissory estoppel for direct labor and materials incurred from July 15 to September 25, 1990, excluding overhead, shutdown expenses, and lost profits.

## Issues

1. Whether Calldata’s statements and conduct during failed negotiations constituted a clear and unambiguous promise that reasonably and foreseeably induced Cyberchron’s continued performance, supporting promissory estoppel under New York law.
2. Whether reliance damages on promissory estoppel may include overhead and what time period of expenditures is compensable as reasonably induced reliance.

## Decision

- The court affirmed the finding of promissory estoppel liability, concluding Calldata’s assurances and pressure to continue performance supported a clear promise, reasonable reliance, and an injustice if Cyberchron were left uncompensated after termination.
- The court agreed that promissory estoppel in these circumstances supports reliance-type recovery rather than expectation damages such as lost profits.
- The court vacated the damages award and remanded because the district court categorically excluded overhead; properly allocable overhead may be recoverable as reliance damages if adequately proven and allocated.
- The court left in place limits tying recovery to the period of reasonable reliance and did not require inclusion of shutdown expenses on the record as described.

## Legal Principles

- Under New York law, promissory estoppel requires: (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance, and (3) injury such that injustice can be avoided only by enforcement of the promise.
- A party may be liable in promissory estoppel where negotiations do not yield an enforceable contract on essential terms, but the party nevertheless induces the other to commence or continue performance.
- Reliance damages are the usual measure in this setting and do not include lost profits.
- Reliance damages may include working overhead when the claimant shows an ongoing business history and can reasonably allocate overhead to the project using its standard accounting practices.
- Reliance damages must be limited to expenditures within the time frame that the promise induced and for which reliance was reasonable.

## Conclusion

The Second Circuit held Calldata liable on promissory estoppel for inducing Cyberchron’s continued performance despite unresolved essential terms, but required a new damages calculation because allocable overhead may be recoverable as reliance damages if proven and properly allocated.


Cyberchron Corp. v. Calldata Sys. Dev., Inc., 47 F.3d 39 (2d Cir. 1995)