Nelson v. Elway

Supreme Court of Colorado, En Banc
908 P.2d 102 (1995)

ELI5:

Rule of Law:

Reliance on a promise that is expressly conditional is unreasonable as a matter of law for the purposes of a promissory estoppel claim until the condition has occurred. Merger clauses in a final, written agreement are dispositive as to the intent of the parties and preclude consideration of prior oral agreements.

Facts:

Mel T. Nelson, president of two financially distressed car dealerships, retained broker John Pico to sell them.
Pico began negotiations with John Elway and Rodney Buscher for the sale of the dealerships.
The parties signed a written "Buy-Sell Agreement" for one dealership, Metro Toyota, on March 14, 1991.
To facilitate the sale of the second dealership, Metro Auto, the parties orally discussed a separate "Service Agreement" where Nelson would receive $50 per vehicle sold for seven years.
The oral Service Agreement was expressly conditional on the approval of General Motors Acceptance Corporation (GMAC), the entity financing the entire transaction.
On March 16, 1991, the parties signed a formal, written "Buy-Sell Agreement" for Metro Auto which contained a merger clause stating it was the entire agreement and did not include the terms of the Service Agreement.
At GMAC's insistence, Nelson signed "keeper letters" on April 3, 1991, ceding control of the dealerships after allegedly receiving assurances from Elway and Buscher that the Service Agreement would be honored.
On April 8, 1991, GMAC informed Elway, Buscher, and Pico that it would not finance the deal if Nelson received any proceeds from the sale, thereby disapproving the Service Agreement.
Elway and Buscher subsequently informed Nelson they would not honor the Service Agreement, and the sale of the dealerships closed without it.

Procedural Posture:

Mel T. Nelson filed a complaint in the trial court against John Elway and Rodney Buscher, alleging breach of contract, promissory estoppel, civil conspiracy, and other claims.
The trial court granted summary judgment in favor of Elway and Buscher on all counts.
Nelson, as appellant, appealed to the Colorado Court of Appeals.
The Court of Appeals affirmed the summary judgment on all claims except promissory estoppel, which it reversed, finding a genuine issue of material fact, and remanded to the trial court.
Both parties petitioned the Colorado Supreme Court for certiorari review.

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Issue:

Is a party's reliance on an oral promise that is expressly conditional upon a third party's approval reasonable as a matter of law for the purposes of a promissory estoppel claim, when the third party does not give its approval?

Opinions:

Majority - Chief Justice Vollack

No. When a promise is expressly conditional, any reliance on that promise before the condition occurs is unreasonable as a matter of law and cannot support a claim for promissory estoppel. The court adopted Restatement (Second) of Contracts § 91, which provides that performance of a conditional promise only becomes due upon the occurrence of the condition. Nelson knew the Service Agreement was conditional on GMAC's approval. Therefore, his decision to rely on it by signing the keeper letters before GMAC gave its approval was unreasonable. Furthermore, the breach of contract claim fails because the signed Buy-Sell Agreements contained clear merger clauses that integrated the parties' entire understanding into the written documents, precluding enforcement of any prior oral agreements. The claim also fails under the statute of frauds because the 7-year agreement could not be performed within one year, and Nelson's act of selling the dealerships was not sufficient part performance as it was referable to the written contracts, not the alleged oral one. Finally, the civil conspiracy claim fails because Nelson did not allege any unlawful overt act by Elway or Buscher; negotiating an advantageous business deal is a lawful act.

Dissenting - Justice Lohr

Yes. A jury could find the party's reliance reasonable, as summary judgment is an inappropriate and drastic remedy for resolving disputed factual issues. The reasonableness of Nelson's reliance on the promise is a question of fact for a jury, not a matter of law to be decided by a judge. A jury should hear evidence regarding the nature of the GMAC contingency and the subsequent assurances Nelson allegedly received from Buscher. The majority's rigid application of the merger clause is also improper, as the true intent of the parties regarding integration is a disputed factual issue. Likewise, Nelson raised material issues of fact regarding part performance by alleging he sold the dealerships at a below-market price and took steps to form a new corporation, acts referable only to the oral agreement. Finally, Nelson's allegations were sufficient to create a factual dispute as to whether Elway conspired with Pico to cause Pico to breach his fiduciary duty to Nelson, which would constitute an unlawful act for a civil conspiracy claim.

Analysis:

This decision significantly clarifies the doctrine of promissory estoppel in Colorado by formally adopting Restatement (Second) of Contracts § 91. It establishes a bright-line rule that reliance on a known conditional promise is unreasonable as a matter of law, thereby limiting the scope of promissory estoppel in commercial transactions involving contingencies. This provides greater certainty for contracting parties, as they can make conditional offers without fearing estoppel claims if the conditions are not met. However, it also places a greater burden on promisees to ensure all conditions are satisfied before they change their position in reliance on a promise.

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