Opinion
No. 54850-6-I
Filed: May 23, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of King County. Docket No: 03-2-40781-0. Judgment or order under review. Date filed: 07/30/2004. Judge signing: Hon. Mary E. Roberts.
Counsel for Petitioner(s), Thomas C. Mitchell, Attorney at Law, 6324 Broadway, Everett, WA 98203-4837.
Counsel for Respondent(s), Gloria-Rose Esq James, Attorney at Law, 8407 S 259th St Ste 204, Kent, WA 98030-7536.
Taletha and Terry McCorkle signed a contract to lease a sign from Sign-O-Lite, but revoked their offer before receiving notice that Sign-O-Lite accepted it. Sign-O-Lite sued the McCorkles for breach of contract because the contract contained an irrevocability clause. The trial court agreed and entered summary judgment against the McCorkles. On appeal, the McCorkles argue that the contract's irrevocability clause is unenforceable because there was no consideration for it and in light of RCW 62A.2A-205. We agree that there was no consideration to support the McCorkles' promise not to revoke. We also conclude that the McCorkles should not have reasonably expected Sign-O-Lite to take substantial action in reliance on their offer, so the irrevocability clause is not enforceable based on detrimental reliance. We reverse and remand for entry of summary judgment against Sign-O-Lite.
FACTS
Appellants Taletha and Terry McCorkle own a floral design company. Respondent 2949, Inc., operates a commercial signage company called Sign-O-Lite Signs. On February 21, 2003, the McCorkles signed a pre-printed form contract provided by a Sign-O-Lite sales representative. In the contract, the McCorkles agreed to lease commercial signage that would be designed, manufactured, and installed by Sign-O-Lite. On February 26, 2003, the owner of Sign-O-Lite signed the contract, but did not send it to the McCorkles. On February 28, 2003, the McCorkles notified Sign-O-Lite that they were canceling the contract. Nevertheless, on March 19, 2003, the McCorkles received a letter dated March 11 from Sign-O-Lite notifying them that the company accepted their contract offer.
The McCorkles continued to avoid the contract, and Sign-O-Lite brought this breach of contract action arguing that paragraph 23 of the contract made the McCorkles' offer irrevocable. That paragraph states: Acceptance by the Owner [Sign-O-Lite] must be by an executive officer of the Owner. This Agreement shall not be binding upon the Owner after execution by the Advertiser(s) [the McCorkles] and this Agreement shall constitute an irrevocable offer by the Advertiser(s) to the Owner for a period of sixty (60) days from the date of execution by the Advertiser(s). The execution of the Agreement by a sales representative of the Owner is in no way acceptance by the Owner.
(Emphasis added.)
In light of this irrevocability clause, a district court judge granted summary judgment in Sign-O-Lite's favor and awarded Sign-O-Lite approximately $11,000 plus interest, attorney fees, and costs. The Superior Court affirmed the judgment, and we granted discretionary review.
The contract allowed the McCorkles to be released from the contract for one-third of the total rental payments required, as long as Sign-O-Lite had not yet begun manufacturing the sign. The trial court relied on this provision when determining damages.
DISCUSSION
In reviewing a trial court's decision to grant summary judgment, we consider all facts and reasonable inferences in the light most favorable to the nonmoving party. Absent a genuine issue of any material fact, the moving party is entitled to summary judgment as a matter of law. This case raises questions of law, which we review de novo.
Mason v. Kenyon Zero Storage, 71 Wn. App. 5, 8-9, 856 P.2d 410 (1993).
Condor Enters., Inc. v. Boise Cascade Corp., 71 Wn. App. 48, 54, 856 P.2d 713 (1993) (citing CR 56(c); Marincovich v. Tarabochia, 114 Wn.2d 271, 274, 787 P.2d 562 (1990)).
Mains Farm Homeowners Ass'n v. Worthington, 121 Wn.2d 810, 813, 854 P.2d 1072 (1993).
I. Is the Irrevocability Clause Enforceable? A. Consideration
An offer may generally be revoked anytime before it is accepted, with two exceptions. First, in construction cases, a subcontractor's oral bid is irrevocable. And second, option contracts are valid irrevocable offers. 'An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.' In this context, an irrevocable offer is called an 'option.' The option itself is a contract and is sometimes called an 'option contract' to distinguish it from the main contract. Option contracts are often necessary because '[a]n offeree may need time to decide whether to accept the offer and, during that time, may need to spend money and effort.'
25 David K. DeWolf Keller W. Allen, Washington Practice: Contract Law and Practice sec. 2.15, at 37 (1998) (citing Restatement (Second) of Contracts sec. 42 (1981)).
See Arango Constr. Co. v. Success Roofing, Inc., 46 Wn. App. 314, 321, 730 P.2d 720 (1986) (citing J. Feinman, Promissory Estoppel Judicial Method, 97 Harv. L. Rev. 678 (1984); Restatement (Second) of Contracts sec. 87(2) cmt. e (1979)).
See Baker v. Shaw, 68 Wash. 99, 103, 122 P. 611 (1912).
Restatement (Second) of Contracts sec. 25 (1981).
1 E. Allen Farnsworth, Farnsworth on Contracts sec. 3.23, at 344 (3d. ed. 2004).
Id.
Id. See also Restatement (Second) of Contracts sec. 87 cmt. a (1981) ('But the [option contract] serves a useful purpose even though no preliminary bargain is made: it is often a necessary step in the making of the main bargain proposed, and it partakes of the natural formalities inherent in business transactions.').
The promise not to revoke must be supported by consideration, even if that consideration is nominal. And while courts are moving toward liberalizing the consideration requirement in option contracts, 'most courts still require a benefit to the promisor or a detriment to the promisee[.]' Options typically benefit the one qualified to exercise the option, known as the optionee. '[I]f the optionee stands to make a substantial gain by exercising the option and the optionor must stand by idly awaiting the decision, it is appropriate that the optionee pay for the privilege.'
Hill v. Corbett, 33 Wn.2d 219, 222-23, 204 P.2d 845 (1949); Farnsworth on Contracts sec. 3.23, at 345; Restatement (Second) of Contracts sec. 87(1)(a) (1981).
See Farnsworth on Contracts sec. 3.23, at 345 (citations omitted); Restatement (Second) of Contracts sec. 87 cmt. b (1981).
1 Richard A. Lord, Williston on Contracts sec. 5:15, at 714 (4th ed. 1990).
Id. at sec. 5:16, at 722.
Id.
Here, paragraph 23 makes the McCorkles' offer irrevocable for a period of time before acceptance, and thus it is an option contract. The district court judge found that the parties' mutual promises constituted adequate consideration to support the option. We disagree. There is no new consideration for the clause. Sign-O-Lite offered nothing to the McCorkles in exchange for their inability to revoke their offer before acceptance. In other words, there is no evidence that Sign-O-Lite bargained for the irrevocability clause. While Sign-O-Lite points out that it promised to do such things as prepare, manufacture, and install commercial signage for the McCorkles, this was the consideration offered for their performance under the contract as a whole. An option contract requires separate consideration, and there is none here. Because insufficient consideration supported the option, the irrevocability clause is unenforceable.
See Restatement (Second) of Contracts sec. 71(1) (1981) ('To constitute consideration, a performance or a return promise must be bargained for.').
B. RCW 62A.2A-205
The McCorkles also argue that the irrevocability clause is unenforceable because it was not accompanied by a separate signature as required by RCW 62A.2A-205. That is Washington's version of the Uniform Commercial Code's (U.C.C.) section 2A-205, and it provides that an irrevocability clause in a contract to lease goods is valid despite a lack of consideration if the clause is separately signed by the offeror: Firm offers. An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period of irrevocability exceed three months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
Sign-O-Lite argues that we may not consider this statute because the McCorkles did not raise it below. At the district court level, the McCorkles did not cite the statute, and they cited a different statute, RCW 62A.2-205, at the Superior Court level. The Superior Court decided that the McCorkles waived their right to raise the statutory argument by failing to present it below. It also ruled that RCW 62A.2-205 does not apply to this case. Finally, on appeal, the McCorkles raise RCW 62A.2A-205, which is identical to RCW 62A.2-205 except that it applies to the lease rather than the sale of goods. It is true that an appellate court may refuse to review any claim of error that was not raised in the court below. RAP 2.5(a). But the McCorkles raised the lack of consideration issue below, and 'a statute not addressed below but pertinent to the substantive issues which were raised below may be considered for the first time on appeal.' Bennett v. Hardy, 113 Wn.2d 912, 918, 784 P.2d 1258 (1990) (citing State v. Fagalde, 85 Wn.2d 730, 732, 539 P.2d 86 (1975)). RCW 62A.2A-205 is pertinent to the issue of consideration, and thus we may consider it on appeal.
RCW 62A.2A-205. The U.C.C. refers to irrevocable offers as 'firm offers.' Farnsworth on Contracts sec. 3.23, at 347.
Under this statute, paragraph 23 of the parties' contract would be valid and enforceable despite its lack of consideration if the McCorkles had separately signed that clause. But because there is no separate signature, the clause is not enforceable under RCW 62A.2A-205.
II. Did Sign-O-Lite Detrimentally Rely on the Offer?
Sign-O-Lite argues that even if insufficient consideration supports the irrevocability clause, the clause is enforceable because Sign-O-Lite detrimentally relied on the McCorkles' offer. Under the Restatement (Second) of Contracts, an option contract that lacks consideration is nevertheless binding if the offeree relied on the offer: An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
On appeal, a respondent may present a ground for affirming the trial court even if it was not presented to that court as long as the record was sufficiently developed to allow the court to consider the argument. RAP 2.5(a).
Restatement (Second) of Contracts sec. 87(2) (1981) (emphasis added).
The requirement for reliance of a substantial character is a higher standard than that found in the Restatement's promissory estoppel rule, which does not specify the level of action or forbearance required to establish detrimental reliance. The 'substantial character' requirement is important because 'circumstances may be such that the offeree must undergo substantial expense, or undertake substantial commitments, or forego alternatives, in order to put himself in a position to accept by either promise or performance.' As illustrations of substantial expense and commitments, the Restatement commentators describe two scenarios: a tenant who spends several thousand dollars to make permanent improvements on a lessor's land in response to a lessor's promise that the tenant would have the option to buy the land, and a poultry farmer who buys and raises 7,000 baby chicks because a buyer offered a blanket arrangement to buy all poultry grown by the farmer.
Restatement (Second) of Contracts sec. 90(1) states: 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.
Id. at sec. 87, cmt e.
Id. at illus. 4.
Id. at illus. 5.
In this case, Sign-O-Lite argues that the McCorkles should reasonably have known that Sign-O-Lite would perform a credit check, a reference check, and examine the details of the McCorkles' offer in order to decide whether to accept the offer. This, Sign-O-Lite argues, constituted action of a substantial character that makes the irrevocability clause binding under the Restatement rule. But 'the mere fact that an offeree incurs a detriment by expending time or money in investigating the offer is not sufficient to make it irrevocable, since the detriment incurred was not requested by the offeror in return for a promise on his part.' And the customary task of checking credit and references is not action of a 'substantial' character, especially when compared to the Restatement's examples of substantial action.
Williston on Contracts sec. 5:15, at 715-16.
Sign-O-Lite's actions in response to the McCorkles' offer were not akin to a tenant spending thousands of dollars, or a farmer buying and raising thousands of chicks in reliance on an offer. The McCorkles notified Sign-O-Lite of their intent to revoke only seven days after they submitted their offer. The McCorkles should not have reasonably expected their offer to induce Sign-O-Light to substantially act in those seven days, nor is validating an otherwise invalid irrevocability clause necessary to avoid injustice in this case. We conclude that no genuine issue of material fact supports Sign-O-Lite's detrimental reliance argument, and we decline to affirm the trial court on that basis.
We reverse and remand for entry of summary judgment in the McCorkles' favor.
We also vacate the trial court's attorney fees and costs award. The trial court can determine on remand whether the McCorkles are entitled to fees and/or costs.
SCHINDLER and APPELWICK, JJ., Concur.