Keystone Land & Development Co. v. Xerox Corp.

94 P.3d 945
CourtWashington Supreme Court
DecidedJuly 22, 2004
Docket74904-3
StatusPublished
Cited by9 cases

This text of 94 P.3d 945 (Keystone Land & Development Co. v. Xerox Corp.) is published on Counsel Stack Legal Research, covering Washington Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Keystone Land & Development Co. v. Xerox Corp., 94 P.3d 945 (Wash. 2004).

Opinion

94 P.3d 945 (2004)
152 Wash.2d 171

Certification from the United States Court of Appeals for the Ninth Circuit in KEYSTONE LAND & DEVELOPMENT COMPANY, Appellant,
v.
XEROX CORPORATION, Appellee.

No. 74904-3.

Supreme Court of Washington, En Banc.

Argued May 11, 2004.
Decided July 22, 2004.

*947 Eric Clayton Frimodt, Inslee, Best, Doezie & Ryder, P.S., Bellevue, for Appellant.

Larry John Smith, Estera Felice Gordon, Graham & Dunn, P.C., Seattle, for Appellee.

CHAMBERS, J.

Keystone Land & Development Company (Keystone) claims Xerox Corporation (Xerox) breached two separate contracts: one to sell its Tukwila facility to Keystone and one to negotiate in good faith a purchase and sale agreement for the facility. The United States District Court for the Western District of Washington granted Xerox's motion for summary judgment and dismissed Keystone's claims under both contracts. Keystone appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed summary judgment dismissal of Keystone's claims under the substantive contract but seeks this court's answers to two certified questions before deciding the remaining issue on appeal.

(1) Will Washington contract law recognize and enforce an agreement, whether implicit or explicit, between two or more parties to negotiate a future contract under the circumstances presented in this case?
(2) If such a contract can exist, what is the proper measure of damages for the breach of a contract to negotiate?

Keystone Land & Dev. Co. v. Xerox Corp., 353 F.3d 1093, 1098 (9th Cir.2003).[1] We do not reach the issue of whether Washington contract law will ever recognize and enforce an agreement to negotiate a future contract but answer the first question, under the circumstances presented in this case, no. We find it unnecessary to reach the second certified question.

FACTS

Xerox decided to sell and leaseback a facility it owned in Tukwila, Washington. Xerox's brokers[2] sent out detailed information packets to prospective buyers, including Keystone, and requested letters of intent containing net purchase price and key deal points. Xerox received many proposals. It was most interested in the proposals received from Keystone and the City of Tukwila and directed its local broker, Kidder, to seek final, best offers from both. Parallel negotiations occurred with Keystone and the City of Tukwila.[3] Keystone claims that the exchange of letters between its broker[4] and Xerox's local broker created two enforceable contracts.[5]

*948 Through Broderick, Keystone responded to the information packet it received and sent a letter to Kidder titled "offer of purchase." Excerpt of Record (ER) at 9-15. Kidder then sent a letter to Broderick and requested a "final and best offer" that would address some "critical issues," including the purchase price, rent, deposit, and closing date. ER at 93. Broderick responded with a letter back to Kidder amending the purchase price and noting the offer to purchase would expire if not accepted on or before April 16, 2001. On April 10, 2001, Kidder replied and noted that "Xerox is prepared to negotiate a Purchase and Sale Agreement with Keystone Development subject to two modifications to your Proposal."[6] On April 13, 2001,[7] Keystone's president acknowledged and accepted the modifications to its proposal. App. Keystone contends that all of the key terms of the substantive agreement were settled by Keystone's acceptance of the April 10, 2001, letter and that Xerox was obligated to prepare a purchase and sale agreement.

ANALYSIS

We begin by distinguishing between three different but similar types of agreements. The first type of agreement is an agreement to agree. An agreement to agree is "an agreement to do something which requires a further meeting of the minds of the parties and without which it would not be complete." Sandeman v. Sayres, 50 Wash.2d 539, 541-42, 314 P.2d 428 (1957). Agreements to agree are unenforceable in Washington. Id. (citing cases).[8]

The second type of agreement is an agreement with open terms. Under an agreement with open terms, the parties intend to be bound by the key points agreed upon with the remaining terms supplied by a court or another authoritative source, such as the Uniform Commercial Code. E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 COLUM. L.REV. 217, 253 (1987) [hereinafter Preliminary Agreements].[9]

The third type of agreement is a contract to negotiate. In a contract to negotiate, the parties exchange promises to conform to a specific course of conduct during negotiations, such as negotiating in good faith, exclusively with each other, or for a specific period of time. Under a contract to negotiate, the parties do not intend to be bound if negotiations fail to reach ultimate agreement on the substantive deal. Preliminary Agreements, 87 COLUM. L.REV., at 263. In contrast to an agreement to agree, under a contract to negotiate, no breach occurs if the parties fail to reach agreement on the substantive deal. The contract to negotiate is breached only when one party fails to conform to the specific course of conduct agreed upon. No Washington court has directly addressed whether a contract to negotiate is independently enforceable.

Under the principle of freedom to contract, parties are free to enter into, and courts are generally willing to enforce, contracts that do not contravene public policy. Preliminary Agreements, 87 COLUM. L.REV. at 267. Xerox does not argue that contracts to negotiate are against public policy. Rather, it argues that, under existing Washington case law, when parties manifest, in any way, that legal obligations shall be deferred until a writing is made, preliminary *949 negotiations and agreements do not constitute a binding contract.

Keystone argues that Washington courts, while not deciding the issue, have implied the enforceability of a contract to negotiate. For example, in Badgett v. Security State Bank, 116 Wash.2d 563, 807 P.2d 356 (1991), borrowers sought to modify an existing loan agreement, and when the bank refused to consider the borrowers' proposal, the borrowers brought suit claiming the bank breached a duty to negotiate modifications in good faith. Id. at 566-67, 807 P.2d 356. In holding the bank was under no obligation to negotiate modifications in good faith, we implied that if there had been an express provision in the loan agreement imposing such a duty, then it would have been enforceable. Id. at 573, 807 P.2d 356 ("[T]he Badgetts are not asking this court to interpret any provision in the loan agreement as imposing a duty on the Bank to consider their proposals....").

Our holding in Badgett

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94 P.3d 945, Counsel Stack Legal Research, https://law.counselstack.com/opinion/keystone-land-development-co-v-xerox-corp-wash-2004.