Coley v. Lang
339 So. 2d 70 (1976)
Rule of Law:
Reliance on a preliminary agreement to agree is insufficient to support a claim for damages under the doctrine of promissory estoppel unless that reliance consists of action or forbearance of a definite and substantial character.
Facts:
- In late August 1972, William M. Coley entered into discussions with Robert L. Lang to purchase the stock, name, and goodwill of Lang's company, International Aerospace Services, Inc. (IAS).
- On September 1, 1972, Coley and Lang signed a 'letter agreement' drafted by Coley's attorney.
- The letter outlined a $60,000 purchase price and payment schedule, and stated that 'on or before September 18, this letter agreement will be reduced to a definitive agreement binding upon all of the parties.'
- The agreement also stipulated that before the sale, Lang would transfer all of IAS's assets and liabilities to a new corporation.
- Pursuant to the letter, Coley attended U.S. Government bid conferences as a representative of IAS.
- On September 18, 1972, Coley informed Lang that the deal would not proceed.
- Lang claimed he missed opportunities to bid on two contracts in reliance on the agreement.
Procedural Posture:
- Robert L. Lang sued William M. Coley in the Circuit Court of Mobile County, a state trial court, seeking specific performance of the alleged stock purchase agreement.
- Lang later amended his complaint to include a claim for damages incurred in reliance on the agreement.
- The trial court denied the request for specific performance.
- However, the trial court awarded Lang $7,500 in damages based on his reliance on the agreement.
- Coley, as the appellant, appealed the trial court's judgment awarding damages to the Court of Civil Appeals of Alabama.
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Issue:
Does a party's reliance on a preliminary letter agreement, which explicitly contemplates a future definitive agreement, give rise to an enforceable claim for damages under the doctrine of promissory estoppel when the final agreement is never reached?
Opinions:
Majority - Holmes, Judge
No. A party's reliance on a preliminary agreement does not give rise to an enforceable claim for damages under promissory estoppel where the reliance is not of a definite and substantial character. The court first affirmed that the 'letter agreement' was not a binding contract because it was merely an 'agreement to enter into an agreement upon terms to be afterwards settled,' which is unenforceable. The court then considered whether damages could be awarded under the doctrine of promissory estoppel, as defined in Restatement (First) of Contracts, § 90. This doctrine requires a promise that induces 'action or forbearance of a definite and substantial character.' Here, Lang's alleged reliance was not substantial. The negotiation period was only eighteen days, from September 1 to September 18. Lang's claim of missing two contract bids was speculative, with no evidence that IAS would have won them. Therefore, Lang's actions did not constitute the 'substantial' forbearance or reliance necessary to invoke promissory estoppel.
Analysis:
This case clarifies the high threshold for applying the doctrine of promissory estoppel to enforce preliminary agreements in business negotiations. The court's decision emphasizes that not all detrimental reliance is legally sufficient; it must be both 'definite and substantial.' By refusing to award damages for speculative losses incurred over a short negotiation period, the ruling reinforces the traditional view that 'agreements to agree' are not binding. This precedent serves as a caution to parties who act on letters of intent or other preliminary documents, indicating that courts are unlikely to provide a remedy unless a final, definitive contract is executed or the reliance is exceptionally concrete and significant.
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