Phillips & Easton Supply Co., Inc. v. Eleanor Intern., Inc.

• Decision Date: 14 July 1973
• Docket Number: No. 46945,46945
• Citation: 512 P.2d 379,212 Kan. 730
• Parties: PHILLIPS AND EASTON SUPPLY CO., INC., Appellee, v. ELEANOR INTERNATIONAL, INC., Appellant.
• Court: Kansas Supreme Court

Page 379

512 P.2d 379

212 Kan. 730

PHILLIPS AND EASTON SUPPLY CO., INC., Appellee, v. ELEANOR INTERNATIONAL, INC., Appellant.

No. 46945.

Supreme Court of Kansas.

July 14, 1973.

Syllabus by the Court

1. In order for parties to form a binding contract, there must be a meeting of the minds as to all the essential terms thereof.

2. The fact that the parties contemplate the subsequent execution of a formal instrument as evidence of their agreement does not necessarily imply they have not already bound themselves to a definite and enforceable contract.

3. Assuming that the essentials of a contract are agreed on, the controlling question of whether a binding contract was entered into depends upon the intention of the parties and is a question of fact.

4. The evidence allowed to support damages for breach of contract is the best evidence obtainable under the circumstances of the case to show the natural and ordinary consequences of the breach and which will enable the court or jury to arrive at a reasonable estimate of the loss which resulted.

5. In an appeal from a judgment awarding damages for breach of a contract to purchase a commercial building and lease the same back to the vendor the record is examined and it is held: (1) A binding agreement was entered into by the parties; (2) No prejudicial error resulted from the exclusion of certain evidence; and (3) The award of damages is affirmed as modified.

Albert L. Kamas of Render, Kamas & Kelly, Wichita, argued the cause and was on the brief for appellant.

Thomas C. Triplett of Martin, Pringle, Schell & Fair, Wichita, argued the cause and was on the brief for appellee.

FROMME, Justice:

This action was brought for specific performance of a contract to purchase a commercial building and lease it back to the vendor under a long term lease arrangement and in the alternative for damages for breach of the contract. The case was tried to the court, specific performance was denied but a judgment for damages was entered in the amount of $62,040.00. The defendant appeals from that judgment.

Plaintiff Phillips and Easton Supply Co., Inc. (Phillips) owned the commercial building in question and conducted its business therefrom. Phillips is a corporation owned and managed by Donald M. Joseph as president and majority stockholder. Joseph acquired the company in 1970 through a real estate broker by the name of Clarence Offenstein. The building which housed Phillips was subject to a small business administration loan slightly in excess of $48,000.00 and in the fall of 1971 the business was experiencing some financial difficulties from lack of operating capital.

Defendant Eleanor International, Inc. (Eleanor) is a real estate investor corporation organized in 1971 by John Sowers and Paul Polishuk. Sowers and Polishuk owned all of the stock of the corporation. They arranged with Isaac N. Goodvin, as agent, to package real estate acquisitions under agreements to purchase commercial buildings from businesses such as Phillips and lease them back to the respective vendors under long term lease-back agreements.

Offenstein, the real estate broker, and Goodvin, the agent of Eleanor, had previously worked together on a purchase and lease-back of another business in Wichita for Eleanor. They decided to pool their efforts and arrange such a deal between Phillips and Eleanor. Offenstein talked with Joseph and Goodvin talked with Sowers and Polishuk. Interest in such a transaction was indicated by both parties and on September 29, 1971, Offenstein composed a letter addressed to Eleanor, which letter was signed by Joseph, whereby Phillips offered to sell its building to Eleanor free of all liens for $190,000.00 cash. The letter suggested a proposed lease-back arrangement for a term of fifteen years with two ten year options of renewal at an annual rental of 12% 'net net net' based on the purchase price. The letter stated that the offer would remain open for five days from its date. A space was provided at the bottom for an acceptance of the offer to be signed by an officer of Eleanor.

This letter was hand delivered by Offenstein. Thereafter Polishuk, Goodvin and Offenstein discussed its contents and certain changes were suggested by Goodvin and Polishuk. Offenstein telephoned Joseph from Eleanor's offices and outlined the proposed changes. Joseph indicated these changes would be agreeable. Thereafter a letter was prepared in Eleanor's offices on Eleanor's stationery and given to Offenstein for hand delivery to Joseph. The letter was dated October 7, 1971, and was addressed to Phillips for the attention of Joseph. The body of the letter reads as follows:

'In responce to your letter dated September 29, 1971, we wish to recommend two changes. We are counterproposing a sale price of $180,000.00 and we also request a change be made in the option terms of the lease to include only one 5-year term.

'Upon argeement of the above terms, Eleanor International will provide Escrow and Lease documents for the approval of the Board of Directors of both parties. If you have any additional questions concerning this proposal please feel free to contact me at the above number.

Sincerely,

(Signed) Isaac Goodvin'

After the letter was hand delivered to Joseph, the following acceptance was typed at the end of the letter and signed by Joseph:

'Accepted this 7th day of October, 1971 with the understanding that closing will be effected by October 29, 1971, unless extended by mutual agreement.

Phillips & Easton Supply Company

By D. M. Joseph, President'

The letter with the acceptance was returned to Eleanor's offices by Offenstein. The language of the acceptance was noted and no objection was made. A few days thereafter Goodvin prepared a lease-back agreement between Eleanor, as lessor, and Phillips, as lessee.

The lease-back agreement was a comprehensive written instrument and covers ten pages of the record on appeal. It provides for a leasehold term of fifteen years, an option by the lessee to renew for an additional five years, a monthly rental of $1,800.00 (which would amount to a net annual rental of 12% of the $180,000.00 sale price), a provision for repairs and alterations at the expense of the lessee, a provision for assignment or sublease subject to the approval of lessor, a provision requiring certain insurance and taxes to be paid by lessee (no mention of lease guarantee insurance was made therein), a provision for remedies of the lessor in case of default by or insolvency of the lessee, an eminent domain provision and a miscellaneous provision further defining the corresponding rights and liabilities of the parties.

This lease agreement was delivered to Joseph for his approval. Joseph had the lease reviewed by his attorney and by an insurance agent. Thereafter Joseph obtained an acceptance of terms of the lease from the board of directors of Phillips and informed Offenstein that the lease agreement was acceptable as written. Offenstein relayed word of this verbal acceptance to Goodvin. At this point in time Goodvin met with Joseph and indicated there were no problems with closing the transaction on October 29, as contemplated by the letter of October 7.

Apparently Eleanor needed suitable bank financing to pay for the property and the bank required security in the form of a mortgage on the Phillips property and a policy of insurance to guarantee the rental payments under the long term lease. This type of insurance is referred to as lease guarantee insurance. So Goodvin as agent for Eleanor went to Joseph with the necessary application forms to apply for the lease guarantee insurance. Joseph asked why this application was needed and Goodvin advised him that Eleanor was applying for lease guarantee insurance and Eleanor would pay for the policy charge. The information necessary to complete the application was given by Joseph and he signed the application at the request of Goodvin. This was the first time that lease guarantee insurance had been mentioned by the parties. It was not a requirement in the letter and acceptance of October 7, and it was not included with the other types of insurance required in the lease agreement submitted by Eleanor and approved by Phillips.

During the latter part of October in preparation for closing Joseph obtained a release of the small business administration loan covering the Phillips property. On October 29 Joseph telephoned Goodvin and was informed that there would be some delay in closing because Goodvin had to be out of town. Joseph was told that Polishuk would take over the closing. Later Joseph made a series of telephone calls to contact Sowers and Polishuk. They were unavailable and did not respond to these calls but on November 21, Polishuk wrote a letter to Joseph on Eleanor stationery. The body of the letter reads as follows:

'I am dictating this letter to you on Sunday morning, realizing that you made many telephone calls, trying to reach me yesterday. Please understand that I was not able to take the calls because of other commitments, not disinterest or negligence.

'With Mr. Goodvin in the hospital, I have had to take over many obligations and responsibilities. I am attempting to finalize the banking aspect of our purchase and wish of you to be as patient as possible. I fully realize the need for the funds and promise to conclude this as quickly as possible.

'I have postponed a business trip to Europe because of small acquisitions in Wichita that I am presently trying to complete. I will inform you as soon as possible when we are ready to go to the bank. I will call you on this, this week. Accept again my apologies for the delay. Hope business is good!'

Several days after this letter was mailed a meeting was arranged among Joseph, Offenstein and Polishuk. Polishuk then advised Joseph that Eleanor wanted out of the deal because of the financial weakness of Phillips. Eleanor, apparently, was not able to obtain lease guarantee insurance...