Court Opinion

ID: 9503313
Source: CourtListenerOpinion
Date Created: 2023-08-06 19:41:11.648066+00
Date Added: 2024-06-11T09:03:23.092621
License: Public Domain

KISTLER, J.,
concurring in part and dissenting in part.
This case arises out of an increasingly common practice in real estate sales. The parties signed a letter of intent setting out the principal terms of a proposed sale of real property. The letter of intent made clear that it did not impose a binding obligation on either party to go through with the sale. It did, however, impose a binding obligation on defendant, for a period of 60 days, not to solicit or enter into a sale agreement with anyone other than plaintiff. Although defendant breached that promise, the majority holds that plaintiff cannot recover expectation damages for defendant’s breach. That is so even though the jury implicitly found (and there is evidence to support its finding) that defendant would have gone through with the sale to plaintiff at the agreed-upon price if defendant had honored the 60-day, nonsolicitation *356provision. The majority cites no authority in support of its holding, and both the case law and the commentary lead to precisely the opposite conclusion. I respectfully dissent from the decision denying plaintiff her expectation damages.1
The relevant facts are straightforward. Plaintiff had sold real property that she owned for $3.9 million. She needed to invest the proceeds of that sale in similar property within a fairly brief period of time in order to defer recognizing the gain that she had realized on the sale. See 26 USC § 1031 (permitting sellers to defer recognizing gain from property sales if they identify like-kind property within 45 days of the sale and complete the exchange within 180 days). Plaintiff was interested in purchasing property that defendant owned, and she and defendant entered into a letter of intent on March 14, 2003, to establish “the principal terms of the purchase.” The letter made clear that it was not a binding agreement. Rather, the parties intended that it would serve only “as a basis for the preparation of a binding Purchase and Sale Agreement.” As noted, however, defendant expressly agreed to be bound in one respect. Defendant “agree [d] that it will not seek nor enter into a letter of intent or purchase agreement for sale of the Property with any third party for a period of sixty (60) days” from the date that the parties signed the letter of intent.
Defendant breached that promise when it entered into an agreement, within 21 days of signing the letter of intent, to sell the property to someone other than plaintiff. For the purposes of determining the damages resulting from that breach, it is important to recognize that not only was there evidence from which the jury could have found that plaintiff would have gone forward with the proposed sale if defendant had dealt only with her, but there was also evidence from which the jury could have found that, if defendant had honored the 60-day, nonsolicitation provision, it would have sold the property to plaintiff in accordance with the terms set out in the letter of intent. Specifically, defendant’s *357president, Dermis Sivers, testified that defendant had wanted to sell the property quickly so that defendant could complete a “1031 exchange” of its own — a deal that had to be closed soon after the end of the 60-day, nonsolicitation period. According to Sivers, defendant was so eager to close its own 1031 exchange that it would have gone through with the sale of the property to plaintiff for $5.28 million — the price on which the parties had tentatively agreed in the letter of intent.
In light of that testimony, as well as the other evidence introduced at trial, the jury reasonably could have found three critical facts. See Northwest Natural Gas Co. v. Chase Gardens, Inc., 333 Or 304, 310, 39 P3d 846 (2002) (explaining that appellate courts must uphold jury verdicts unless there is “no evidence” to support the elements of a claim). First, although defendant had no legal obligation to go through with its proposed sale to plaintiff, defendant in fact would have gone through with the sale to plaintiff if it had complied with its promise to deal only with plaintiff dim-ing the 60-day period. Second, the parties would have agreed on all the material elements of the sale, as stated in the letter of intent. See Povey v. Chow, 146 Or App 760, 764, 934 P2d 528 (1997) (listing material elements of land sale contracts). Finally, defendant was on notice that, if plaintiff did not purchase defendant’s property, she would suffer a substantial tax loss because of her inability to defer recognizing the gain from her earlier sale.2 In short, there was evidence to support the jury’s finding that, if defendant had honored the nonsoli-citation provision, it would have sold its property to plaintiff, and she would not have suffered over $900,000 in tax losses. Put differently, there was evidence to support the jury’s award of over $900,000 in expectation damages to plaintiff.
Despite that evidence, the majority holds as a matter of law that plaintiff may not recover the expectation damages that defendant’s breach caused. The majority’s holding appears to rest solely on the following proposition: Because *358defendant “declined * * * to assume the risks of injury inherent in a completed contract of purchase and sale,” it “cannot now be saddled with those very same liabilities.” 343 Or at 353. The majority effectively transforms the parties’ lack of final agreement on the sale of the property into a disclaimer of liability for breaching a provision on which they did agree.
The primary problem with the majority’s reasoning is that the letter of intent does not contain a disclaimer of liability. No provision in that letter purports either to define or limit the measure of plaintiffs damages for a breach of the nonsolicitation provision. More specifically, no provision in the letter states that defendant will not be liable for plaintiffs expectation damages should defendant breach the non-solicitation provision. The provision stating that the letter of intent is not a binding agreement to sell land is just that: It limits the scope of the parties’ agreement; it does not limit, the scope of their remedies for a breach of a provision on which they did agree. The majority errs in reading into the unambiguous terms of the letter of intent a limitation on liability that the parties did not include. See Yogman v. Parrott, 325 Or 358, 361, 937 P2d 1019 (1997) (in construing a contract, courts may not insert what the parties have omitted).
Fairly read, the terms of the letter of intent provide no support for the majority’s decision. Beyond that, the majority’s decision is at odds with the weight of authority, which would not preclude plaintiff, as a matter of law, from recovering her expectation damages. One of the leading decisions on the issue is Venture Associates v. Zenith Data Systems, 96 F3d 275 (7th Cir 1996). In that case, the plaintiff had proposed to buy a subsidiary of the defendant corporation. Id. at 276-77. The parties signed a letter of intent that stated, as the letter of intent does here, that it did not create a binding obligation to go through with the sale. Id. at 277. The letter of intent did, however, impose a binding obligation on the parties to negotiate in good faith toward a final agreement.3 Id. As negotiations wore on, the defendant became *359concerned about the plaintiffs solvency and eventually abandoned the negotiations on that basis, selling the subsidiary to a third party. Id. at 278-79. The plaintiff sued, arguing that the defendant had breached its duty to negotiate in good faith and seeking expectation damages based on the terms in the letter of intent. Id. at 278.
Faced with the question whether the plaintiff could recover expectation damages at all, given the parties’ lack of a final agreement, Judge Posner, writing for the majority, held that it could. He reasoned:
“Damages for breach of an agreement to negotiate may be, although they are unlikely to be, the same as the damages for breach of the final contract that the parties would have signed had it not been for the defendant’s bad faith. If, quite apart from any bad faith, the negotiations would have broken down, the party led on by the other party’s bad faith to persist in futile negotiations can recover only his reliance damages — the expenses he incurred by being misled, in violation of the parties’ agreement to negotiate in good faith, into continuing to negotiate futilely. But if the plaintiff can prove that had it not been for the defendant’s bad faith the parties would have made a final contract, then the loss of the benefit of the contract is a consequence of the defendant’s bad faith, and, provided that it is a foreseeable consequence, the defendant is liable for that loss — liable, that is, for the plaintiffs consequential damages.”
Id. at 278 (emphasis added). Judge Posner explained that,
“The difficulty, which may well be insuperable, is that since by hypothesis the parties had not agreed on any of the terms of their contract, it may be impossible to determine what those terms would have been and hence what profit the victim of bad faith would have had. But this goes to the practicality of the remedy, not the principle of it.”
Id. at 278-79 (citation omitted; emphasis in original).4
*360In his treatise on contracts, Farnsworth agrees with Judge Posner that, in principle, an injured party is entitled to expectation damages even if, as a practical matter, there may be difficulties of proof in such cases. E. Allan Farnsworth, 1 Farnsworth on Contracts, § 3.26b at 397 (3d ed 2004). Farnsworth observes, however, that the concern that plaintiffs can never prove damages in this type of case may be overstated. As he notes, the difficulty of proving expectation damages in this type of case
“may not be insuperable, because parties do not usually make agreements to negotiate until the negotiations are well advanced, so that what remains to be negotiated may be no more extensive than if the parties had made an agreement with open terms. In a growing number of decisions courts have indicated a willingness to consider awarding damages based on expectation.”
Id.5 Burton and Andersen reach the same conclusion, reasoning that “when the parties have worked out many of the principal economic terms of their final contract in detail, there is no obstacle to allowing expectation damages based on the bargain tentatively agreed to, but never consummated.” Steven J. Burton & Eric G. Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement, § 8.4.2.3 at 365 (1995). See also Melvin Aron Eisenberg, The Emergence of Dynamic Contract Law, 88 Cal L Rev 1743, 1809 (2000) (arguing that, if a breaching party wants to avoid paying expectation damages, it should offer evidence that the deal would have broken down even absent the breach); Charles L. Knapp, Enforcing the Contract to Bargain, 44 NYU L Rev 673, 723 (1969) (“In some cases, * * * the main terms of performance * * * may have been so agreed upon * * * that an expectation remedy can be computed with as much certainty as is usually required.”).
*361Thus, in Evans, Inc. v. Tiffany & Co., 416 F Supp 224, 240 (ND Ill 1976), the court awarded the plaintiff expectation damages after finding that those damages were sufficiently certain and that the parties would have reached a final agreement had the defendant not breached its duty to negotiate in good faith. Similarly, in Milex Products v. Alra Laboratories, 237 Ill App 3d 177, 603 NE2d 1226, 1235-37 (1992), the court awarded the plaintiff expectation damages, including lost profits, for the defendant’s breach of its duty to negotiate in good faith, finding that those profits were within the parties’ contemplation and not too speculative. In Walters v. Marathon Oil Co., 642 F2d 1098, 1100-01 (1981), the Seventh Circuit, applying Indiana law, held that the plaintiff could recover its lost profits even though the plaintiff had raised only a promissory estoppel argument; the court reasoned that the plaintiffs reliance damages were insufficient to compensate it for the defendant’s misconduct and that the amount of the damages was sufficiently certain.6
Following the majority of courts and commentators, I would hold that a jury may award expectation damages on a proper evidentiary showing. I also would hold that, given our limited standard of review, plaintiffs evidentiary showing in this case sufficed; that is, we cannot say that there was “no evidence” from which the jury could have found that plaintiff had proved her right to recover expectation damages. See Northwest Natural Gas Co., 333 Or at 310 (stating that standard of review).7 The Court of Appeals correctly held that, on this record, plaintiff was entitled to recover her expectation damages for defendant’s breach.
*362It may be that, in many cases, a jury will find as a matter of fact that, even if the parties had honored a non-solicitation provision, they still would not have entered into an agreement to sell the property. Alternatively, even if there were evidence that the parties would have reached some agreement, the terms of that agreement may be too speculative to permit a jury to calculate expectation damages with reasonable certainty. In this case, however, the evidence permitted the jury to find that defendant would have entered into an agreement to sell the land to plaintiff if it had honored the nonsolicitation provision. Moreover, the evidence of the terms that the parties would have reached was sufficiently certain to uphold the jury’s award. There is no basis in principle or in law to deny plaintiff the full extent of the damages that the jury awarded her. I respectfully dissent from the majority’s contrary holding.
Durham and Walters, JJ., join in this opinion.

 The majority correctly holds that defendant’s promise not to solicit or enter into a sale agreement for 60 days with a third party was a binding contractual obligation. It also correctly holds that plaintiffs failure to comply strictly with a condition precedent did not bar her from seeking to enforce the nonsolicitation provision. I concur in those parts of the majority’s decision.

 The jury’s verdict does not specify the specific loss for which it awarded plaintiff damages. The amount of the award, however, matches the tax loss that plaintiff suffered as a result of defendant’s breach, and defendant acknowledges in its brief on the merits that the award reflects the tax loss.

 The majority suggests that, if the letter of intent in this case had included a requirement that the parties bargain in good faith rather than a nonsolicitation provision, the result might be different. Given the majority’s holding, however, it is difficult to see a principled basis for that distinction. Under the majority’s reasoning, the provision stating that the .letter of intent does not create a binding *359obligation to go through with the sale would create a disclaimer of liability that would operate equally in both situations.

 Although the Court in Venture Associates recognized in principle that a plaintiff could receive expectation damages for breach of an agreement to negotiate in good faith, it upheld the trial court’s judgment for the defendant based on the trial court’s finding that the defendant had not bargained in good faith. 96 F3d at 280.

 Interestingly, Farnsworth’s views evolved from his early categorical rejection of expectation damages in cases such as this. See E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum L Rev 217, 267 (1987) (arguing against expectation damages but in favor of reliance damages and damages for lost opportunities).

 Although the majority does not cite it, the New York Court of Appeals decision in Goodstein Const. Corp. v. City of New York, 80 NY2d 366, 604 NE2d 1356 (1992), provides support for its position. In reaching its decision, however, the Court of Appeals relied on a position that Farnsworth took in an earlier edition of his treatise on contracts to which he no longer adheres. Compare 80 NY2d at 374 (relying on the first edition of Farnsworth’s treatise) with 1 Farnsworth on Contracts, § 3.26b at 397 (3d ed 2004) (reaching different conclusion). Beyond that, there were alternative grounds for the court’s holding in Goodstein, and the case is better understood as resting on those grounds.

 The majority does not rest its contrary holding on the ground that the consequential damages that the jury awarded were either too speculative or not foreseeable. Rather, it holds that, no matter what the proof, plaintiff could not recover expectation damages.