Nelson v. Elway

Supreme Court of Colorado, En Banc · 1995 · Contracts

Contractspromissory estoppelmerger clausesstatute of fraudspart performancecivil conspiracysummary judgmentconditional promise

Facts

Nelson owned two financially troubled car dealerships and negotiated through his broker, Pico, to sell them to Elway and Buscher. The parties discussed an unsigned "Service Agreement" under which Nelson would receive $50 per vehicle sold for seven years, but the signed March 16 buy-sell agreements for Metro Auto did not include that term and contained merger clauses. GMAC later required that Nelson receive no sale proceeds as a condition of financing and approval, and defendants then declined to execute the Service Agreement. Nelson sued for breach of contract, promissory estoppel, civil conspiracy, and other claims after the sale closed without the side agreement.

Issue

Whether summary judgment for defendants was proper on Nelson's civil conspiracy and breach of contract claims, and whether promissory estoppel could proceed based on the alleged oral Service Agreement. More specifically, the court addressed whether merger clauses barred reliance on the oral agreement, whether part performance removed the oral agreement from the statute of frauds, and whether reliance on a promise expressly conditioned on GMAC approval could be reasonable.

Rule

To prove civil conspiracy in Colorado, a plaintiff must show two or more persons, an object to be accomplished, a meeting of the minds, an unlawful overt act, and damages proximately caused; liability cannot be imposed without allegations that the defendants committed or participated in an unlawful overt act. A final integrated written contract with clear merger clauses bars extrinsic evidence of prior agreements that would add to or contradict the writing. An oral agreement not performable within one year is barred by the statute of frauds unless there is substantial part performance fairly referable to no theory other than the oral agreement. Under Restatement (Second) of Contracts sections 90 and 91, reliance on an expressly conditional promise before the condition occurs is unreasonable as a matter of law, so promissory estoppel does not apply.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Dana Mercer negotiated to sell a catering business to Ridge Lantern Hospitality, LLC. During negotiations, Ridge Lantern's manager told Dana, "We will pay you a five-year consulting fee if First Mesa Finance approves the acquisition," and Dana then signed away certain management rights before any approval was given. First Mesa later refused approval, and Ridge Lantern declined to pay the consulting fee.

If Dana sues on promissory estoppel for the unpaid consulting fee, which is the strongest argument for Ridge Lantern?

Explanation. Under the majority rule, reliance on an expressly conditional promise before the condition occurs is unreasonable as a matter of law. Sections 90 and 91 work together: a promisor is not bound to perform until the stated condition occurs. Because the consulting-fee promise was expressly conditioned on lender approval, promissory estoppel does not apply before approval occurred.