Specific Offer Sheets May Constitute Binding Contracts

Recently, the Michigan Court of Appeals decided U.P. Hydro v. Artibee, 2016 Mich App LEXIS 2428 *6. This decision has caused confusion regarding offers with attached contingencies.  The Court considered whether an offer of sale containing a defined price, identifiable land, and two conditions precedent was enough to create an enforceable contract if the conditions precedent were not met. U.P. Hydro offered to sell Defendants a plot of land on the condition that a survey and legal description were to be created and considered satisfactory to both parties. Defendants agreed to complete the survey and legal description, but were unable to draft a description which satisfied U.P. Hydro. Plaintiff then elected to terminate its offer and served Defendants with a notice to quit.

Plaintiff argued that its offer letter was merely an invitation to enter into further negotiations, and that the contractual obligation to sell was contingent upon mutual agreement on the survey and land description. Neither of those conditions were met. The Court of Appeals decided that Defendants’ contract with U.P. Hydro was valid and enforceable. A contract was made through the initial offer by Plaintiff and subsequent signing of the offer letter by defendant, and the failure to meet the conditions precedent was no longer relevant because Plaintiff did not act in good faith by refusing Defendant’s survey and land description.

The court differentiated between conditions which did not occur because of unforeseeable events, and conditions which could not occur because of a party’s action in preventing a condition from occurring. The court found that the latter had occurred, and that Plaintiff refused the survey and land description because of a change of heart regarding the sale of the land. The invitation to enter into  the agreement was sufficient to create a contract, and  Plaintiff’s decision to not agree to the subsequent survey was merely an attempt to get out of the contract.

This article was written by Nezar Habhab, Law Clerk.

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