Store Properties v. Neal
72 Cal.App.2d 112 (1945)
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Rule of Law:
An agreement to enter into a future contract is not specifically enforceable if it lacks certainty by omitting material terms and expressly makes the final agreement subject to the future approval of both parties.
Facts:
- John W. Neal and Clara B. Neal sent a written proposal to Store Properties, Inc., outlining terms for a 99-year lease on a property in Beverly Hills.
- The proposal specified the lease term, rent schedule, and required the lessee to pay for taxes, insurance, and maintenance.
- The proposal required the lessee to deposit $30,000 as a guarantee for making building improvements costing at least that amount.
- Paragraph 8 of the proposal stated: 'Terms and conditions of the lease not covered by this proposal shall be subject to the approval of both parties.'
- Paragraph 9 stated that if a formal lease was not executed within 30 days, both parties reserved the right to terminate the offer.
- Store Properties, Inc. delivered a written acceptance stating, 'We agree to enter into a lease on the above described property on the terms as set forth above.'
- As required, Store Properties, Inc. deposited $5,000 as evidence of good faith.
Procedural Posture:
- Store Properties, Inc. (plaintiff) sued John W. Neal and Clara B. Neal (defendants) in a California trial court, seeking specific performance of an alleged contract to lease.
- The defendants filed a demurrer to the plaintiff’s second amended complaint.
- The trial court sustained the demurrer, finding that the complaint did not state a valid cause of action.
- Following the sustained demurrer, the trial court entered a judgment of dismissal in favor of the defendants.
- Store Properties, Inc. (appellant) appealed the judgment of dismissal to the California Court of Appeal.
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Issue:
Does a written proposal and acceptance to lease property constitute a specifically enforceable contract when it provides that terms not covered are subject to future mutual approval and reserves the right for either party to terminate if a formal lease is not executed within a specified time?
Opinions:
Majority - Moore, P. J.
No. A written proposal and acceptance does not form a specifically enforceable contract where it contemplates the execution of a future formal lease and leaves material terms open for future negotiation. An agreement cannot be specifically enforced if its terms are not sufficiently certain to make the precise act to be done clearly ascertainable. The court found that the language in the proposal, such as making uncovered terms 'subject to the approval of both parties' and allowing termination if a formal lease 'is prepared and mutually agreed upon' and executed within 30 days, clearly indicated that the parties intended the execution of a formal lease as a condition precedent to a binding contract. The document was merely a preliminary agreement or an 'agreement to agree,' lacking essential terms for a 99-year lease, such as the nature of building construction, provisions for abandonment or insolvency, and the character of repairs. Therefore, it is too 'loose and inexact' to warrant a decree for specific performance.
Concurring - Wilson, J.
No. The documents do not constitute a valid agreement which may be enforced in an action for specific performance. The author concurs in the judgment but explicitly refrains from expressing an opinion as to whether the documents might form the basis of a separate action for monetary damages for nonperformance, distinguishing the high standard for specific performance from the standard for a breach of contract claim.
Analysis:
This case reinforces the legal principle that an 'agreement to agree' is unenforceable, particularly when seeking the equitable remedy of specific performance. The decision highlights the high degree of certainty required for a court to compel a party to perform a contract, which is a stricter standard than that required to sue for damages. It serves as a precedent for distinguishing between a preliminary, non-binding letter of intent and a binding contract that merely anticipates a future, formal memorialization of already-agreed-upon terms. For a contract to be specifically enforceable, the parties' minds must have met on all material terms, leaving nothing significant for future negotiation.
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