Express Language Requiring Signed Contract Trumps Contrary Oral Agreement And Acts
September, 2007
In Jordan Panel Systems Corp. v. Turner Construction Co., N.Y.L.J. Sept. 24, 2007 at 18 (App. Div., 1st Dept.), the First Department affirmed Defendant’s motion to dismiss the Complaint, which asserted causes of action for breach of contract, promissory estoppel and recovery in quasi contract. Id. at 18. Plaintiff claimed that Defendant revoked an oral award of a subcontract after Plaintiff had already commenced performance, but Defendant countered that its written preliminary terms expressly required a fully executed written sub-contract before it will be bound, even if work on the subcontract had commenced. Id. The Appellate Court held that Defendant’s oral representations did not amount to a waiver of its requirement for a fully executed written sub-contract before Defendant was bound to award the sub-contract and that Plaintiff could not have reasonably relied on those oral representations in light of this unambiguous condition precedent. Id. at 27. However, the Court also expressed its disapproval of Defendant’s dealings with Plaintiff, stating that it would likely have reached a very different result if the case called for the application of equitable principles. Id. The Court rendered its decision on purely contractual grounds, despite the claim of promissory estoppel, because the written condition precedent precluded application of equitable principles to contract formation.
Defendant Turner sent a preliminary term sheet dated July 11, 2003, to Plaintiff Jordan regarding a potential sub-contract for the design and construction of a hangar and technical operations facility for Jet Blue Airways at John F. Kennedy International Airport. Id.. at 18. The term sheet required Jordan to sign a written sub-contract binding it to the terms thereof first and reserved Turner’s right to not sign that sub-contract and not be bound to award the sub-contract to Jordan until October 31, 2003. Id. At that time, if Turner had not executed the sub-contract, Jordan had the right to notify Turner in writing of Jordan’s intent not to be bound by the sub-contract. Id. In this latter event, neither party would have any liability to the other including work already performed. Id. Neither party ever signed the proposed sub-contract. Id.
Jordan alleged that on July 14, 2003, Turner’s representatives orally advised Jordan that Jordan was awarded the sub-contract and directed Jordan to proceed with the design aspect in order to meet the time strictures of the project. Id. Jordan promptly began design work and met with representatives of Turner as well as other entities involved in the project on July 22, 2003. Id. At that meeting, no indication was given to Jordan contrary to the oral award of the sub-contract. Id. Notwithstanding, Turner informed Jordan two days later that Jordan’s involvement in the project was terminated and that the sub-contract was being awarded to another company. Id.
This action ensued and Turner moved to dismiss pursuant to CPLR 3211(a)(1) and (7), based on documentary evidence and failure to state a cause of action, respectively. Id. The trial court granted the motion, dismissing the Complaint in its entirety, and Jordan appealed. Id.
In affirming the dismissal, the Appellate Division reiterated that parties to an agreement are free to limit their consent to be bound to that agreement until it is reduced to writing and fully executed. Id. (citation omitted). Freedom of contract, the Court stated, includes the “[f]reedom to avoid oral agreements.” Id. (quoting R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d at 75) (alterations in original). It determined that “Jordan’s position, if adopted, would destroy that freedom.” Id. The Court noted that Jordan is a sophisticated business entity and refused to impose a contract upon Turner based on circumstances that Turner advised Jordan would not bind Turner. Id. The Court “[thought] it preferable to allow sophisticated parties operating in the business world to decide when and how they wish to enter into legally enforceable contracts.” Id.
In light of Turner’s unequivocal intent not to be bound to the sub-contract clearly set forth in its preliminary terms, the Court found that the oral statements by Turner’s representatives did not constitute a waiver of the requirement for a fully executed written sub-contract. Id. In so finding, the Court distinguished between a condition precedent requiring a written contract with a writing that would simply memorialize an existing contract and determined that the limiting language in Turner’s preliminary terms constituted the former. Id. It was uncontested that no express waiver of this condition precedent occurred. Id. The Court also found that there was no implied waiver, because the preliminary terms containing this condition precedent expressly ruled out the circumstances relied upon by Jordan to support an implied waiver. Id. However, the Court refused to rule out the possibility that in another case, there could be actions so inconsistent with the type of limiting language at issue that an implied waiver could occur. Id.
In affirming the trial court’s dismissal of the equitable estoppel and quasi contractual causes of action, the Appellate Court somewhat peremptorily explained its refusal to apply equitable principles to form a contract, even though these causes of action call for equitable relief. Relying on its analysis of the contract cause of action, the Court simply stated that Jordan could not reasonably have relied upon Turner’s oral representations or acts in the face of the condition precedent clearly setting forth Turner’s intent not to be contractually bound. Id. at 27.
There was a dissent to the decision by Justice McGuire. He would have found that Turner’s actions and statements subsequent to the preliminary terms created a question of fact, at the very least, whether Turner had waived the condition precedent to contract formation. Id.
Learning Point: Reliance upon equitable principles for enforcement of an oral agreement is a risky proposition when there are express and unambiguous written limitations to the parties’ consent to form a contractual relationship. Before a party wishing to enforce an oral agreement despite such language commences performance or otherwise acts to its detriment, it must comply with or obtain an express waiver of those written limitations. Otherwise, that party risks the loss of the benefit it sought through the agreement in the first place, uncompensated expenses, and having to pursue litigation, which, as this case demonstrates, presents slim chances for success in New York’s First Department.
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