Did Prospective Tenant Make Oral Promise to Lease?

Facts: A representative of a technology services firm toured a vacant building with two prospective owners who were considering buying the property, but only if they could find an appropriate tenant for it. The representative expressed interest in renting the space, but didn't sign a lease or other documents that would obligate the firm to rent the space if the owners went through with the sale.

The owners signed a purchase agreement for the property, but the firm decided that it was no longer interested in the space, and signed a lease for another space. After the owners couldn't find a tenant to replace the firm, they sued it, claiming that the representative's promise to lease the space induced them to buy an expensive building that they otherwise wouldn't have. The owners brought a “promissory estoppel” claim, asking the court to imply “a contract in law where none exists in fact.” In other words, the court could choose to construe the representative's oral promise to lease the space as a contract to do so and hold the firm responsible for breaching the contract.

The firm argued that it had never signed a lease or other documents promising to rent the space, and in fact, the owners knew that its representative had continued to tour other buildings that better accommodated its equipment. The firm acknowledged that its representative had expressed interest via emails and conversations with the owners, but he hadn't taken any actions that would bind it to leasing the space.

The firm asked the court for a judgment in its favor without a trial, arguing that the “statute of frauds” barred the owners' promissory estoppel claim. Specifically, it argued that: (1) it didn't make a clear and definite promise to lease space; and (2) the owners couldn't have reasonably relied on the alleged oral promise for an expensive, long-term lease.

Decision: A Minnesota court denied the firm's request for a judgment in its favor and ordered a trial.

Reasoning: The court noted that a judgment in the owners' favor would be appropriate only if there were no “disputed issues of material fact” that would require a trial to determine them. The court pointed out that the elements of the doctrine of promissory estoppel are: (1) a clear and definite promise was made; (2) that promise was intended to induce another's reliance on the promise, and such reliance occurred; and (3) the promise must be enforced to prevent an injustice to the party who relied on it. The court said that, in this case, there was a genuine dispute of material facts with respect to the owners' promissory estoppel claim.

First, the owners and firm disputed what representations were or were not made to each other regarding: (1) the firm's possible lease of space in the property; (2) the representative's authority to enter into the agreement on the firm's behalf; and (3) the firm's space and technology needs.

Most important, the existence of a clear and definite promise and whether the firm's representative induced the owners to buy the building was in dispute. The owners purchased the building the same day that they met with the representative, but the parties' accounts of that meeting and the representations made, if any, were widely divergent, said the court. The owners contended that the representative claimed to have the authority to enter into the agreement, agreed that the firm's legal department would follow up with a draft lease, and suggested alternative lease terms. But the representative disavowed that he held himself out as being authorized to enter into any lease agreement. Moreover, he stressed that he expressly did not agree that the firm would lease space at the property. The owners and firm also disputed the extent to which the owners reasonably relied on the representative's conversation with them. Because the resolution of those issues directly affected whether the owners had a valid complaint, a trial was necessary to determine the facts.

The court also addressed the firm's argument that, even if the court found that the alleged oral agreement had been made, the statute of frauds barred it from being enforced because, under Minnesota law, contracts that are for a lease of more than one year must be in writing. However, the statute of frauds didn't apply in this case, because there was a dispute as to whether there had been an oral agreement to begin with and a trial was necessary to determine that before the statute of frauds could be applied, the court decided.

• InCompass IT, Inc. v. XO Communications Services, January 2012