Summary
adopting RESTATEMENT (SECOND) OF CONTRACTS § 90
Summary of this case from Comm. Benefits Gr. v. McKesson Corp.Opinion
No. 82-1649
Decided December 14, 1983.
Contracts — Promissory estoppel — Elements not satisfied, when — Preliminary negotiations subject to formal approval and acceptance — Failure to exhibit ability to proceed.
APPEAL from the Court of Appeals for Franklin County.
This is a contract-promissory estoppel action by plaintiff-appellee, Dewey A. McCroskey, d.b.a. Northbrook Construction Co., against the defendants-appellants, state of Ohio and the Director of Administrative Services, resulting from the collapse of negotiations for the construction and lease of office space in Bowling Green, Ohio.
In the spring of 1978, McCroskey, along with several other developers, was contacted by the Department of Administrative Services ("department") as to whether he would be interested in constructing a special purpose building in Bowling Green, and leasing that building to the state. During the fall of 1978, McCroskey developed plans in this regard. By the beginning of 1979 it became clear that McCroskey was the sole builder-landlord who remained interested in the project.
In April 1979, McCroskey and the state tentatively agreed on a price per square foot the state would pay if it leased the proposed space and on the duration of the lease. By letter dated April 19, 1979, the Director of Administrative Services sent McCroskey a letter of intent concerning the proposed occupancy. This was followed by letter of May 4 by the proposed lease agreements.
Soon after that time, the department decided not to proceed with the prospective agreement. Notice of the state's decision to cancel was first communicated orally to McCroskey on May 16 and was subsequently confirmed by a letter dated May 18, which McCroskey received on May 21 or 22. On May 16 or 17, McCroskey had placed executed copies of the letters of intent and proposed leases in the mail. They were received by the department on May 21.
On November 24, 1980, McCroskey filed this action in the Court of Claims, alleging that the course of conduct described above amounted to a contract for the construction and leaseback of a building in Bowling Green. Alternatively, he alleged that he was entitled to be compensated for his actual losses under the doctrine of promissory estoppel as the state had induced him to undertake certain actions based upon its promises. The trial court concluded that there was no evidence that the parties had entered into any contract or agreement with each other. The court also held that the state was immune from liability under promissory estoppel when it was carrying out a governmental function. The complaint was dismissed. The court of appeals confirmed the absence of a contract, but, in reversing and remanding, held that there was sufficient evidence upon which one could grant judgment for McCroskey under the doctrine of promissory estoppel.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Messrs. Wilkowski, Bloom Wilkowski, Mr. Keith A. Wilkowski, Mr. R. Kemp Lindsey and Mr. Charles E. Bloom, for appellee.
Mr. Anthony J. Celebrezze, Jr., attorney general, and Mr. Stephen P. Samuels, for appellants.
The issue presented by this case is whether the state of Ohio is obliged under the doctrine of promissory estoppel to compensate Dewey A. McCroskey for his efforts in attempting to arrange the construction and lease of office space to the state. This court concludes that the elements of promissory estoppel have not been satisfied in the instant case. Because of that conclusion, it is unnecessary to consider the state's contention that the doctrine cannot apply against the state.
This court has had occasion to consider what was characterized as "that nebulous doctrine" of promissory estoppel. Talley v. Teamsters Local No. 377 (1976), 48 Ohio St.2d 142, 146 [2 O.O.3d 297]. There, the rule of the Restatement of the Law, Contracts 2d (1973), Section 90, was adopted that:
"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."
Thus, in order for McCroskey's claim to succeed the threshold element of a promise must be met. The state must have made a promise to McCroskey which should have reasonably been expected to induce action. It is significant that the trial court not only found no proof of a contract of any kind between the parties but further found no promises by the state. The court of appeals determined that the state had made such promises but neglected to articulate what they were.
McCroskey alleges that several promises were made to him, all of which induced his detrimental reliance. These promises are supposedly manifested by repeated representations that the state was going to move certain departments from their current quarters, in selecting McCroskey as the developer to build the special purpose building, in agreeing to all the terms of the proposed lease, and in mailing the letter of intent and proposed leases for McCroskey's signature.
None of these alleged representations rises to the level of the sort of promise necessary to invoke promissory estoppel. Whether or not the state promised to abandon its present quarters, it is elementary that the departments involved had to have satisfactory facilities to move into. McCroskey has never demonstrated that he could supply quarters capable of fulfilling the state's requirements. The trial court noted that at the time of the state's withdrawal from the deal McCroskey had neither the required zoning nor the building permit to proceed. Additionally, McCroskey had been unable to submit a proposal which satisfied the state's requirement of one hundred forty-two vehicle parking spaces. Thus, McCroskey had not exhibited the ability to proceed in time to assure continued housing of the state's agencies.
Furthermore, McCroskey's assertion that the state made a promise to him by selecting him as the developer is incorrect. The state approached several potential developers in the Bowling Green area with its requirements. As time went on, each of these other developers withdrew from further consideration. The department never entered into or accepted any bids from McCroskey. Rather, the parties were engaged in the protracted process of negotiating a future arrangement.
This argument of selection is intertwined with the mailings of the letter of intent and proposed leases and the supposed agreement to the terms of the lease. However, any reasonable interpretation of the letter of intent and proposed leases compels the conclusion that these documents merely represent that on the occurrence of future eventualities an agreement would be entered into on behalf of the state. The letter of intent expressly stated that it "* * * is not a contract or legal obligation of the State since, under the law, the only contract the State can enter into would be a lease executed by the Director of the Department of Administrative Services subsequent to the certification of rental funds and approval of the lease, as to form, by the Attorney General of Ohio and the availability of the premises for actual occupancy by the Lessee." The letter of May 4, 1979, referring to the proposed new lease, stated that "* * * NO FUNDS ARE TO BE PROCESSED FOR PAYMENT until the lease is fully executed and notice of occupancy has been given by this office."
It is therefore apparent that there were no promises made by the state which should reasonably have expected to induce reliance by McCroskey. The communications between McCroskey and the department were in the nature of preliminary negotiations subject to formal approval and acceptance. There existed an executory arrangement, the hazards of which were open, obvious and ongoing. McCroskey pursued an opportunity for an advantageous business proposal knowing fully the risks attendant to such ventures. This pursuit required the expenditure of his own time and funds. Now that the deal has fallen through, McCroskey wants the state to absorb responsibility for the risks he undertook. Such a proposition, unaccompanied by an identifiable promise, does not rise to a right of recovery.
Because this court finds no promise made by the state to McCroskey it is unnecessary to consider the additional elements required for promissory estoppel. It is also unnecessary to presently consider the further question of whether the doctrine of promissory estoppel can ever properly operate against the state.
For these reasons, the judgment of the court of appeals is reversed.
Judgment reversed.
CELEBREZZE, C.J., W. BROWN, SWEENEY, LOCHER, HOLMES, C. BROWN and J.P. CELEBREZZE, JJ., concur.