L.R. Bretz v. Portland General Electric Co.

Citations: 882 F.2d 411; 9 U.C.C. Rep. Serv. 2d (West) 213; 1989 U.S. App. LEXIS 11972; 1989 WL 89952Docket: 87-4206

Court: Court of Appeals for the Ninth Circuit; August 14, 1989; Federal Appellate Court

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L.R. Bretz filed a diversity suit against Portland General Electric (PGE) for breach of a contract concerning the sale of PGE's stock in the Beartooth Coal Company. The United States District Court for the District of Oregon granted PGE summary judgment, concluding that the correspondence between Bretz and PGE did not meet Montana's statute of frauds requirements. Bretz initially offered $2 million for the Beartooth stock in a letter dated late summer 1983, requesting specific representations from PGE. PGE responded with a revised offer and a disclaimer indicating that management had not yet discussed the terms. Bretz acknowledged this revised offer and made some adjustments in his follow-up letter on August 10, 1983, which outlined a detailed acceptance procedure. In a subsequent response on August 23, PGE indicated that Bretz's $2 million offer was insufficient and proposed a counter-offer of $2,750,000, inviting Bretz to resubmit his offer. On August 29, Bretz amended his offer to reflect the new price and stated that a contract existed. The following day, believing a contract was in place, Bretz entered into an agreement with a third party for coal sales. On September 7, 1983, Bretz received a communication from Beartooth, which he interpreted as a breach of contract by PGE.

Bretz initiated a lawsuit against PGE for breach of contract, seeking over $25 million in damages. PGE responded with a motion for summary judgment, contending that the exchange of letters did not constitute an enforceable contract under Montana's statute of frauds. Magistrate Dale concurred, determining the letters indicated only preliminary negotiations rather than a finalized agreement, and ruled that parol evidence could not be used to meet the statute's requirements. He also dismissed Bretz's equitable estoppel claim, citing a lack of evidence showing that PGE's actions caused any detrimental change in Bretz's position. The district court upheld the magistrate's findings and granted PGE's motion.

Bretz argued that an August 23 letter from PGE, alongside prior communications, represented a counteroffer that formed a contract upon his acceptance. He contended that the documents were ambiguous, warranting the use of parol evidence for clarification. The parties acknowledged that the sale of Beartooth stock fell under the statute of frauds, which mandates that writings must collectively include all essential contract elements, including mutual assent. Although parol evidence cannot fill gaps in essential terms, it can clarify ambiguities. In Montana law, the determination of mutual assent relies on the outward actions and expressions of the parties rather than undisclosed intentions. The assessment of whether a valid offer was made depends on the specific facts and circumstances, as well as reasonable inferences drawn by the parties involved.

Courts must determine if a document, given prior negotiations and the parties' expectations, reasonably led its recipient to believe they could finalize a deal through acceptance. The central issue is whether PGE's August 23 letter constitutes an offer or simply invites Bretz to renew his offer. Analysis of the letter and context leads to the conclusion that it was merely an invitation to negotiate further. The letter explicitly states PGE's receptiveness to an offer from Bretz and outlines terms that could enhance the offer's attractiveness. It also references another commitment that PGE must resolve before engaging in a new transaction. Notably, the letter does not make an offer but invites Bretz to resubmit his proposal.

Under Montana law, if a document negates the existence of a contract, it cannot fulfill the statute of frauds requirements. Thus, neither the August 23 letter nor the related documents establish a written contract satisfying the statute, justifying the district court's summary judgment ruling that no enforceable contract existed for the sale of Beartooth stock.

Bretz argues that PGE should be equitably estopped from invoking the statute of frauds, claiming PGE misled him into believing a contract existed, which he relied upon to sell coal from the Beartooth mine. He contends that summary judgment was improper because PGE did not demonstrate that Bretz did not rely on the purported contract or that it acted in good faith. However, the doctrine of estoppel requires caution when a contract is subject to the statute of frauds, as it allows oral statements to substitute for necessary written evidence. To successfully claim estoppel, a contract, either oral or written, must exist. Bretz has not shown he had a contract with PGE at the time of the coal sale. The only evidence he presents is a phone conversation on August 25, where a PGE representative stated that the deal was contingent upon receiving Bretz's letter, indicating that contract formation required this written communication.

Bretz mailed the August 29 letter to PGE on August 30, the same day he entered into a third-party contract for the sale of coal. Even if the writings and phone call constituted a contract, it was not formed until PGE received the letter, which occurred after Bretz sold the coal. Therefore, no contract existed between Bretz and PGE at that point, and Bretz could not claim equitable estoppel to counter PGE's statute of frauds defense. His reliance on a contract's existence on August 30 was unreasonable since the contract would only form later, and he could not attribute any misrepresentations to PGE. Consequently, the district court's rejection of his attempt to shift losses to PGE was affirmed.

Dissenting, Circuit Judge Boochever argued that extraneous evidence was admissible, suggesting that there were genuine factual disputes regarding the enforceability of the contract and Bretz's estoppel claim. Under Montana law, contracts for the sale of securities fall under the statute of frauds, which requires a writing to indicate that a contract exists. The correspondence between Bretz and PGE clarified the terms of the agreement. PGE expressed receptiveness to Bretz's offer of $2,750,000, and Bretz's acceptance on August 29 amended the price but indicated that a contract was formed. The dissent posited that the August 23 letter could be interpreted as an offer, allowing Bretz to unilaterally close the deal, contradicting the majority's conclusion on the matter.

The August 23, 1983 letter is characterized as a counteroffer because it lacked a stipulation that the proposed $2,750,000 price required PGE's board approval, unlike the earlier August 5 letter. Despite the letter potentially being interpreted as a binding offer, its final sentence—requesting Bretz to resubmit his offer—creates ambiguity regarding its status as either a counteroffer or an invitation to negotiate further. Evidence presented by Bretz indicates that both parties treated the August 23 letter as an offer, establishing a genuine issue of fact.

Additionally, there is a significant factual dispute regarding whether PGE can be equitably estopped from invoking the statute of frauds defense. Bretz provided evidence that PGE communicated, via telephone, that the August 23 letter constituted an offer which would become a contract upon his acceptance. During a call on August 25, Bretz sought clarification on whether the deal was finalized, to which PGE affirmed. There is no indication that PGE informed Bretz of any intention to revoke the offer prior to his acceptance. Under Montana law, the expectations surrounding the conduct of the parties must be evaluated to determine if Bretz reasonably relied on PGE's representations, particularly in light of the nature of a coal mine sale, which would likely lead to Bretz negotiating with third parties for coal. PGE’s failure to demonstrate the absence of a genuine factual issue regarding Bretz's estoppel claim warrants a reversal of the summary judgment.

The excerpt addresses the longstanding doctrinal debate in contract law regarding the determination of a party's assent to an agreement, focusing on the conflict between subjective and objective theories of intent. The objective theory, which favors reliability in contractual commitments, was upheld to prevent parties from undermining clear agreements through subjective interpretations that could allow for opportunistic behavior. The dissent argues that Bretz could interpret the August 23 letter as PGE's acceptance of his indication of agreement; however, this interpretation reinforces that the letter was not a binding offer, as it indicated PGE retained the final power of acceptance. PGE’s swift communication to Bretz following his purported acceptance further clarifies that PGE did not consider a contract to be in effect at that time. The Montana parol evidence rule allows for the introduction of evidence regarding the circumstances of the agreement, including ambiguities and issues of illegality or fraud. Additionally, the majority's assertions about PGE's commitments and willingness to accept Bretz's offer are contested, with the letter not supporting the claim of a prior commitment to Bretz. Despite ambiguities in PGE's communications, the overall conduct of PGE raises questions about the reasonableness of Bretz's reliance on the negotiations.