The Law

Contract by Telephone Not Complete by Ron Davis An oral agreement for the purchase of a Texas shopping center has obviously not met the criteria for an enforceable sales contract. The shopping center is located in Addison, and it had become marketable upon default by the borrower that operated the facility. The note that secured the property had a face value of $16.8 million, and the estimated value of the property was $19.1 million. That difference in values presented an opportunity for a purchase of the note at a big discount. A potential buyer learned of the sale, contacted the note holder and made an offer. Negotiations began, and the two parties agreed to a proposed purchase price of $14.3 million. By telephone, the potential buyer discussed the deal with an official of the note holder. The potential buyer said that, during the telephone call, he was told, “Congratulations. The Investment Committee has approved the proposed purchase of the note by you.” The potential buyer said he replied, “I agree to it. I have no problems with it. I accept it.” From that point, however, the deal soured. The day after that conversation, the potential buyer sent the note holder a purchase/sales agreement containing numerous provisions that the two parties had not yet discussed or agreed upon. Meanwhile, the defaulting borrower asked for a renewal of negotiations to refinance the note. And ultimately, the two parties did in fact agree to refinance. That meant the note was no longer for sale. The potential buyer reacted as expected. He sued for breach of an oral contract. And a lengthy trial began, ending with a verdict favoring the potential buyer. The court awarded him $2.49 million. An appeal followed. The original note holder contended that there is no evidence of an offer, acceptance, or a “meeting of the minds” on the essential terms of a sales agreement with the potential buyer. Instead, the note holder argued, there were only continued negotiations of a deal, with no trace of a formal written contract. In fact, under Texas law, a buyer’s offer “must be reasonably definite in its terms.” And it must sufficiently cover the essential details of the proposed transaction that, “with an expression of assent, there will be a complete and definite agreement on all those essentials.” In other words, the parties must agree to the same thing, in the same sense, at the same time. A Texas appeals court ruled that the two parties never reached that type of agreement. Explained the court, “Reviewing all the evidence, we cannot conclude there is even a scintilla of probative evidence that the parties ever formed a valid contract…. We reverse the trial court’s judgment and render judgment that [the potential buyer] take-nothing on its claim.” (Principal Life Ins. Co. v. Revalen Development, LLC, 2012 WL 172178 [Tex.App.-Dallas] Decision: February 2012 Published: March 2012