Centerville Builders, Inc. v. Wynne
683 A.2d 1340, 1996 R.I. LEXIS 245, 1996 WL 614528 (1996)
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Rule of Law:
A bilateral contract requires mutuality of obligation, meaning both parties must be legally bound by reciprocal promises. An agreement is unenforceable if a condition gives either party the unfettered discretion to unilaterally prevent its fulfillment, rendering the promises illusory.
Facts:
- On September 2, 1993, Centerville Builders, Inc. (buyer) signed an 'Offer to Purchase' a property from J. Brendan Wynne (seller) for $565,000 and made a $5,000 deposit.
- The Offer to Purchase contained a condition stating it was 'SUBJECT TO SATISFACTORY PURCHASE & SALES AGREEMENT BETWEEN SELLER AND BUYER.'
- The original offer included a condition requiring the seller to cease negotiations with other parties, but Wynne deleted this condition before signing the document on September 7, 1993.
- Subsequently, Wynne sent an unsigned purchase-and-sale agreement form to Centerville Builders.
- Centerville Builders signed the agreement and returned it to Wynne.
- Wynne requested and received an extension of time to sign the agreement.
- On October 20, 1993, the day the extension expired, Wynne informed Centerville Builders that he wanted 'to get more money' for the property and would put it back on the market.
Procedural Posture:
- The buyer, Centerville Builders, Inc., filed an action for breach of contract and specific performance against the seller, J. Brendan Wynne, in the Superior Court (trial court).
- The seller filed a motion for judgment on the pleadings.
- The Superior Court initially denied the seller's motion.
- The seller then filed a motion for reconsideration.
- Upon reconsideration, the Superior Court reversed its prior decision and granted the seller's motion for judgment on the pleadings, holding the agreement was illusory and unenforceable.
- The buyer, Centerville Builders, Inc., as appellant, appealed the judgment to the Rhode Island Supreme Court.
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Issue:
Does an agreement to purchase real estate constitute an enforceable contract when it is made 'subject to a satisfactory purchase and sales agreement' between the parties, giving each party unfettered discretion to reject the final agreement?
Opinions:
Majority - Per Curiam
No, an agreement to purchase real estate does not constitute an enforceable contract when it is subject to a condition that allows either party to reject the final agreement as 'unsatisfactory.' Such a condition creates an illusory promise because it lacks mutuality of obligation, as performance is dependent on the subjective, unilateral will of the parties. The court reasoned that a bilateral contract requires mutuality of obligation, where both parties are legally bound. The 'satisfactory' condition gave each party unfettered discretion to thwart the sale, making their promises illusory. The seller's deletion of the clause that would have stopped him from negotiating with other parties further demonstrated the lack of a binding commitment. Because no contract was ever formed, the implied duty of good faith and fair dealing did not apply.
Analysis:
This decision reinforces the fundamental contract principle of mutuality of obligation and clarifies the effect of subjective satisfaction clauses in preliminary agreements. It establishes that a condition making a contract contingent on a party's subjective 'satisfaction' renders the agreement an unenforceable 'agreement to agree' if it gives that party unfettered discretion. This holding serves as a strong caution to drafters of real estate offers and letters of intent, indicating that for such documents to be binding, they must contain objective criteria or concrete commitments rather than relying on the purely subjective will of the parties. Future cases involving preliminary agreements will likely scrutinize satisfaction clauses to determine if they create illusory promises.
