Ragosta v. Wilder

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                NO. 88-464


Louis W. and Sylvia V. Ragosta               Supreme Court

     v.                                      On Appeal from
                                             Orange Superior Court
Allen S. Wilder, Jr.
                                             May Term, 1990


Hilton H. Dier, Jr., J.

Richard I. Burstein and Michael J. Andrews, Law Clerk (On the Brief),
  Randolph, for plaintiff-appellees

Peter J. Monte of Young, Monte & Lyford, Northfield, for defendant-appellant



PRESENT:  Allen, C.J., Peck, Gibson, Dooley and Morse, J.



     PECK, J.   Defendant appeals from a judgment ordering him to convey to
plaintiffs a piece of real property known as "The Fork Shop."  Defendant
argues that the court improperly found that a binding contract existed and
that it misapplied the doctrine of equitable estoppel.  He also contends
that the ruling cannot be upheld under promissory estoppel principles since
the court failed to examine the extent to which enforcement of defendant's
promise to sell was required to prevent injustice.  Because the trial
court's ruling cannot stand on contract or equitable estoppel grounds and
because the court's analysis of promissory estoppel is inextricably bound in
its contractual analysis, we reverse and remand the cause for further pro-
ceedings consistent with the principles expressed herein.
     In 1985, plaintiffs became interested in purchasing "The Fork Shop"
from defendant but preliminary negotiations between the parties were
fruitless.  In 1987, plaintiffs learned that defendant was again
considering selling the "The Fork Shop," mailed him a letter offering to
purchase the property along with a check for $2,000 and began arrangements
to obtain the necessary financing.  By letter dated September 28, 1987,
defendant returned the $2,000 check explaining that he had two properties
"up for sale" and that he would not sign an acceptance to plaintiffs' offer
because "that would tie up both these properties until [there was] a
closing."  In the letter, he also made the following counter-offer:
          "I will sell you the Fork Shop and its property as
          listed in book 35, at page 135 of the Brookfield Land
          Records on 17 April 1972, for $88,000.00- (Eighty-eight
          thousand dollars), at anytime up until the 1st of
          November 1987 that you appear with me at the Randolph
          National Bank with said sum.  At which time they will
          give you a certified deed to this property or to your
          agent as directed, providing said property has not been
          sold."

On October 1st, the date plaintiffs received the letter, they called
defendant.  The court found that during the conversation plaintiffs told
defendant that "the terms and conditions of his offer were acceptable and
that they would in fact prepare to accept the offer."  Defendant assured
plaintiffs that there was no one else currently interested in purchasing
"The Fork Shop."
     On October 6th, plaintiffs informed defendant that they would not close
the sale on October 8th as discussed previously but that they would come to
Vermont on October 10th.  On October 8th, defendant called plaintiffs and
informed them that he was no longer willing to sell "The Fork Shop."  The
trial court found that, at that time, defendant was aware plaintiffs "had
processed their loan application and were prepared to close."  Plaintiffs
informed defendant that they would be at the Randolph National Bank at 10:00
a.m. on October 15th with the $88,000 purchase price and in fact appeared.
Defendant did not.  Plaintiffs claim they incurred $7,499.23 in loan closing
costs.
     Plaintiffs sued for specific performance arguing that defendant had
contracted to sell the property to them.  They alleged moreover that
defendant knew they would have to incur costs to obtain financing for the
purchase but assured them that the sale would go through and that they
relied on his assurances.
     The trial court concluded that defendant "made an offer in writing
which could only be accepted by performance prior to the deadline."  It
concluded further that defendant could not revoke his offer on October 8th
because plaintiffs, relying on the offer, had already begun performance and
that defendant should be estopped from revoking the offer on a theory of
equitable estoppel.  It ordered defendant to convey to plaintiffs "The Fork
Shop" for $88,000.  This appeal followed.
                                    I.
     Plaintiffs claim that defendant's letter of September 28, 1987 created
a contract to sell "The Fork Shop" to them unless the property was sold to
another buyer.  Rather, defendant's letter contains an offer to sell the
property for $88,000, which the trial court found could only be accepted
"by performance prior to the deadline," and a promise to keep the offer open
unless the property were sold to another buyer.  Defendant received no
consideration for either promise.  In fact, defendant returned plaintiffs'
check for $2,000 which would have constituted consideration for the promise
to keep the offer open, presumably because he did not wish to make a firm
offer.  Thus, the promise to keep the offer to sell open was not enforceable
and, absent the operation of equitable estoppel, defendant could revoke the
offer to sell the property at any time before plaintiffs accepted it.  See
Buchannon v. Billings, 127 Vt. 69, 75, 238 A.2d 638, 642 (1968) ("an option
is a continuing offer, and if supported by a consideration, it cannot be
withdrawn before the time limit" (emphasis added)).
    Plaintiffs argue that the actions they undertook to obtain financing,
which were detrimental to them, could constitute consideration for the
promise to keep the offer to sell open.  Their argument is unconvincing.
Although plaintiffs are correct in stating that a detriment may constitute
consideration, they ignore the rule that "[t]o constitute consideration, a
performance or a return promise must be bargained for."  Restatement
(Second) of Contracts {71(1)(1981).  "A performance or return promise is
bargained for if it is sought by the promisor in exchange for his promise
and is given by the promisee in exchange for that promise."  Id. at { 71(2).
Plaintiffs began to seek financing even before defendant made a definite
offer to sell the property.  Whatever detriment they suffered was not in
exchange for defendant's promise to keep the offer to sell open.
     The trial court ruled that the offer to sell "The Fork Shop" could only
be accepted by performance but concluded that in obtaining financing,
plaintiffs began performance and that therefore defendant could not revoke
the offer to sell once plaintiffs incurred the cost of obtaining financing.
Section 45 of the Restatement (Second) of Contracts provides that "[w]here
an offer invites an offeree to accept by rendering a performance and does
not invite a promissory acceptance, an option contract is created when the
offeree tenders or begins the invited performance or tenders a beginning of
it."  However, "[w]hat is begun or tendered must be part of the actual
performance in order to preclude invalidation under this Section."  Id. at
comment f.
     Here, plaintiffs were merely engaged in preparation for performance.
The court itself found only that "plaintiffs had changed their position in
order to tender performance."  At most, they obtained financing and assured
defedant that they would pay; plaintiffs never tendered to defendant or even
began to tender the $88,000 purchase price.  Thus, they never accepted
defendant's offer and no contract was ever created.  See Multicare Medical
Center v. State Social Service, 114 Wash. 2d 572, 584, 790 P.2d 124, 131
(1990) ("under a unilateral contract, an offer cannot be accepted by prom-
ising to perform; rather, the offeree must accept, if at all, by perform-
ance, and the contract then becomes executed"). (FN1)
                                    II.
     Defendant claims next that the court was not justified in applying
equitable estoppel in this case.  We agree.
            One who invokes the doctrine of equitable estoppel
          has the burden of establishing each of its constituent
          elements.  Four essential elements must be established:
          first, the party to be estopped must know the facts;
          second, the party being estopped must intend that his
          conduct shall be acted upon or the acts must be such
          that the party asserting the estoppel has a right to
          believe it is so intended; third, the latter must be
          ignorant of the true facts; and finally, the party
          asserting the estoppel must rely on the conduct of the
          party to be estopped to his detriment.

Fisher v. Poole, 142 Vt. 162, 168, 453 A.2d 408, 411-12 (1982) (citations
omitted).
     Equitable estoppel is inapplicable here because there were no facts
known to defendant but unknown to plaintiffs.  Plaintiffs cannot have acted
on an understanding that defendant would definitely convey the property to
them.  On its face, defendant's offer stated only that he would convey the
property to plaintiffs if he did not convey it to another party first.  The
trial court acknowledged that if defendant had sold "The Fork Shop" to
another party, plaintiffs would not have been entitled to relief.  Thus,
plaintiffs had no assurance that defendant would definitely convey the
property to them even if on October 1st defendant told them that there was
no one else interested in buying the property at that time.  Moreover,
plaintiffs engaged in obtaining financing for the purchase even before
defendant made any offer to them whatsoever.  They understood, at the time
they obtained financing for the transaction, that they were assuming a risk
that they would be unable to purchase the property in question.  Since the
plaintiffs had not tendered performance and did not establish the elements
for the application of equitable estoppel, defendant was entitled to
withdraw his offer when he did.
                                   III.
     In the course of analyzing the case under part performance and
equitable estoppel theories, the trial court cited promissory estoppel
principles.  It noted "Plaintiffs relied on the conduct of the Defendant to
their detriment when they prepared for and tendered performance" and
concluded that defendant's conduct induced plaintiffs to begin performance
by obtaining financing.
              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.

Restatement (Second) of Contracts { 90(1)(1981).  This principle is distinct
from part performance since the action or forbearance involved need not con-
stitute part performance.  While the court's order cannot be upheld under a
part performance theory, its ruling may be appropriate on promissory estop-
pel grounds.  We cannot affirm the order on those grounds, however, because
the trial court, in ruling that the promise must be enforced, erroneously
relied on a part performance theory.  Cf. Price v. Price, 149 Vt. 118, 122,
541 A.2d 79, 82 (1987)(order must be reversed and remanded where court may
have relied on inappropriate considerations for it ruling).  Under
promissory estoppel, plaintiffs are entitled to enforcement of defendant's
promise only if the promise induced them to take action "of a definite and
substantial character," and if "injustice can be avoided only by enforcement
of the promise." Stacy v. Merchants Bank, 144 Vt. 515, 521, 482 A.2d 61, 64
(1984)(emphasis added)(citing Restatement (Second) of Contracts { 90).
     On remand the court shall consider the case under promissory estoppel
only and determine what remedy, if any, is necessary to prevent injustice.
In making this determination the court should consider the fact that
plaintiffs incurred the expense of obtaining financing although they could
not be certain that the property would be sold to them.
   Because we reverse, we do not address defendant's claim that specific
performance was an inappropriate remedy or plaintiffs' claim that they are
entitled to the interest which has accrued on the purchase price since the
date of the trial court's decision.
     Reversed and the cause remanded for further proceedings consistent with
the principles expressed herein.



                                        FOR THE COURT:



                                        _______________________________
                                        Associate Justice



FN1.    Because defendant specified that the manner of acceptance would be
performance, plaintiffs' argument that they accepted defendant's offer over
the telephone must fail.  In fact, plaintiffs admitted in their depositions
that they were very worried that the property would be sold to someone else
prior to closing.  Thus, they should have understood that they had no
enforceable contract until closing.