In first year contracts in law school, we learned how much agreement there must be to have an enforceable contract. The Ninth Circuit Bankruptcy Appellate Panel confronted the same question in a case where the buyer and seller had agreed on the price but not much else.
The bottom line: There was no contract.
The chapter 7 trustee circulated a flier advertising the sale of a business that include three buildings. A potential buyer contacted the trustee indicating an interest. To aid in related litigation, the trustee asked the buyer to make “formal offer.”
The buyer sent a one-page letter to the trustee entitled “Letter of Offer.” The letter said the buyer “was interested” in the property and that the letter should be considered as “a formal offer with the intent to purchase the three buildings . . . for a total cash purchase price of $1.458 million.”
The buyer’s letter asked the trustee “to contact our office to discuss possible contingencies and further terms of agreement.”
The trustee responded with a letter accepting the offer to sell the property for $1.458 million and filed a motion to approve the sale. At the sale hearing, the buyer objected, claiming there was no binding contract.
Bankruptcy Judge Natalie M. Cox of Las Vegas approved the sale but made no finding about whether there was an enforceable contract. You guessed it. The buyer refused to close.
The trustee later sold the property for $108,000 less than the buyer’s offer and sued the buyer for the shortfall. Judge Cox granted summary judgment in favor of the buyer, finding there was no enforceable contract.
The trustee appealed to the BAP but lost again in a per curiam, nonprecedential opinion on November 17.
Under Nevada law, the BAP said, the parties must agree on “all material terms of a contract.” The Nevada Supreme Court provided a nonexclusive list of material terms, including subject matter, price, payment terms, quality and quantity.
The BAP said that the payment terms were incomplete. Although the buyer made a “cash” offer, would the buyer pay in 30 days or 10 years, the BAP asked?
“While the Trustee might have expected [the buyer] to pay the full purchase price in a lump sum at closing, there was no agreement about the closing date and no agreement to make full payment at that time,” the BAP said.
There was also no meeting of minds regarding quality. The parties never discussed the condition of the property nor remedial actions, the BAP said. Likewise, they never discussed the buyer’s inspection of the property, an important term because the buyer had not seen one of the three buildings.
The BAP said that “the absence of . . . material terms discussed above defeats the Trustee’s argument that there was an enforceable contract.”
Attempting to salvage the appeal, the trustee claimed there was an “agreement to agree.” The BAP responded by citing the Ninth Circuit for having said that an “agreement to agree on contract terms at a later date is not a binding contract in Nevada.”
The trustee also contended that the missing terms were merely conditions precedent that could be negotiated after formation of the contract. The BAP said there was no authority for the idea that conditions precedent are not material terms.
The BAP upheld Judge Cox’s grant of summary judgment in favor of the buyer.
In first year contracts in law school, we learned how much agreement there must be to have an enforceable contract. The Ninth Circuit Bankruptcy Appellate Panel confronted the same question in a case where the buyer and seller had agreed on the price but not much else.
The bottom line: There was no contract.
The chapter 7 trustee circulated a flier advertising the sale of a business that include three buildings. A potential buyer contacted the trustee indicating an interest. To aid in related litigation, the trustee asked the buyer to make “formal offer.”
The buyer sent a one-page letter to the trustee entitled “Letter of Offer.” The letter said the buyer “was interested” in the property and that the letter should be considered as “a formal offer with the intent to purchase the three buildings . . . for a total cash purchase price of $1.458 million.”
The buyer’s letter asked the trustee “to contact our office to discuss possible contingencies and further terms of agreement.”
The trustee responded with a letter accepting the offer to sell the property for $1.458 million and filed a motion to approve the sale. At the sale hearing, the buyer objected, claiming there was no binding contract.
Bankruptcy Judge Natalie M. Cox of Las Vegas approved the sale but made no finding about whether there was an enforceable contract. You guessed it. The buyer refused to close.