NOT ALWAYS WHEN YOU MIGHT THINK!
A recent Mass Appeals Court decision has drawn a fine distinction between what constitutes a binding contract and what may be considered simply a unilateral promise unsupported by consideration, and therefore not enforceable. The case is Boston Capital Funding, LLC v. BEK Winchester Winning Farm, LLC, et al.
In Boston Capital, the defendant development company sought financing for a major real estate development undertaking. It approached the first financing company with the “exclusive right” to arrange commercial financing for the project. The finance company initiated efforts to obtain the subject financing.
Several months later, having not obtained the necessary financing, the development company approached a second finance company, giving it “exclusive authorization” to act on its behalf, as well as paying the finance company a $2,500 retainer. The second finance company immediately began seeking finance opportunities, and forwent other business in its efforts to do so.
While the second finance company was still working to obtain the sought after financing, the developer informed it that it had obtained the necessary financing via the efforts of the first financing company it had approached. It stated it no longer needed the second financing company’s help.
Whereupon, the second finance company sued the developer for breach of contract regarding its promised “exclusive authorization” to seek and obtain the subject financing.
The Mass Appeals Court granted summary judgment for the developer, finding that the “exclusive authorization” amounted to nothing more than a revocable offer. To have formed an enforceable bilateral contract, the second finance company needed to make an affirmative promise back to the developer at the time of the deal. The Court opined:
With respect to an offer for a unilateral contract, the offeree must perform an act to form a binding contract, and the act operates as the manifestation of mutual assent and consideration….Until the offeree performs the act, thereby providing mutual assent and consideration, the offeror may be revoked at any time.
Mass Appeals Court
Thus, the offeree must make a return promise. The Appeals Court offered the following example of same. In Samuel Nichols, Inc., 25 Mass. App. Ct. at 914, the owner agreed that “[i]n consideration of [the broker’s] listing for sale and undertaking to find a purchaser for the real estate,’ the owner gave the broker sole and exclusive right to sell same.”
The promise by the broker to list the property for sale and undertake to find a purchaser served as consideration for the right to be the exclusive agent, and hence a bilateral contract was formed.
