Daily Development for
Wednesday, September 2, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

STATUTE OF FRAUDS; PROMISSORY ESTOPPEL: Despite numerous offers to lease and extended discussions, where there is no written agreement to lease, a purchaser who purchases a shopping center in anticipation of signing a lease with a prospective tenant has no claim against that tenant if such lease does not actually come about; similarly, promissory estoppel theory will not bind the parties.

FC Stangl, III v. Ernst Homes Centers, 948 P2d 356 (Utah App. 1997).

Ernst went through extensive negotiations with Stangl, including preparation of several proposed offers to lease (none of which were finally acceptable) and extensive discussions over the phone. During these negotiations Stangl purchased a defunct shopping center with the intent of having Ernst as the anchor tenant. Stangl proceeded without having a final executed contract with Ernst because Ernst had posited an early movein date that required that Stangl get started with required tenant improvements. The parties did not reach final agreement on the terms of the lease, although Stangl thought that they had, and Stangl argued that in fact Ernst had promised that it would execute a lease. Ultimately, Ernst elected not to occupy the property. Stangl sued, claiming that he had purchased the property solely based upon Ernst representation's that it would lease the anchor space, and therefore that Ernst was responsible for Stangl damages based upon the theory of promissory estoppel.

The trial court agreed and held that despite the Statute of Frauds, promissory estoppel was an available theory of recovery. The trial court held that there was reasonable basis for Stangl to rely on Ernst occupancy because Ernst had promised to execute a lease..

On appeal: Held: Reversed. The Utah Supreme Court held that the language of the applicable Statute of Frauds is clear: "every contract for the leasing of a longer period than one year... shall be void unless the contract or some note or memorandum thereof is in writing subscribed by the party by whom the lease or sale to be made."

The court noted that promissory estoppel "is historically rooted as the substitute for consideration [and] is applied where the promisor intended abandonment of an existing right on his part." The court stated, however, that a party is not bound by an oral promise to execute a lease in the future. The only exception to this rule arises where the promisor's conduct clearly manifests an intention that it will not assert the Statute of Frauds where it will be bound by the oral agreement. As examples of the exception, the court pointed to a case where a party repeatedly assured his bargaining counterpart that "we have a deal," knowing that the counterpart then would proceed to take actions in reliance on that assurance.

Here, the trial court found that Ernst's representations that it intended to execute a lease in the future likely did mislead Stangl into making some form of economic commitment regarding the shopping center. But there was no lease in existence that Ernst had agreed to sign, and indeed it was clear that there were still ongoing and incomplete negotiations when Ernst finally informed Stangl that it was not going to proceed further. In the eyes of the court, this was far different from the precedent cases in which one party assured another that "we have a deal."

Comment 1: The court is in control of the facts we learn and the "spin" to be placed upon them, but granting the facts to be as the court characterizes them, it appears to be correct to conclude that Stangl should not reasonably have believed that Ernst was committed to any particular agreement.

Comment 2: Regardless of whether technically Stangl had the right to believe there was a commitment to a particular contract, there were other facts, not cited as significant by the court, but which it reported, that might have driven the case in another direction of Stangl had emphasized them. The court points out that six months before Ernst called off the negotiation, and long before Stangl bought the shopping center, Ernst had placed the project on "internal hold" and had lost much of its corporate enthusiasm for it. In fact, the employee who spearheaded the project resigned from the company at about the same time that Ernst finally withdrew from the Stangl deal.

Although perhaps Ernst had no duty to inform Stangl that its original enthusiasm for the deal had waned, it would appear that any representations to Stangl that Ernst remained enthusiastic and anxious to move in on the early date planned were knowingly misleading and amounted to fraud, an entirely distinct basis for estoppel. Its conduct in actively pursuing negotiations on a project that "corporate central" had no intention of carrying out might also be viewed as constructive fraud. There is a thin line here we can't expect a corporation to display its corporate decision making process "warts and all" to its bargaining counterparts. But at the same time, a corporation ought not knowingly to lead those counterparts to spend money to prepare themselves to carry out a contract that the corporation has no intention of ever signing.

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