August 28, 1995
Appeal of
HOWARD NETTLETON
Under Contract to Lease
PSBCA No. 3454
APPEARANCE FOR APPELLANT:
Andrea Conklin, Esq.
APPEARANCE FOR RESPONDENT:
Harold E. Durham, Esq.
OPINION OF THE BOARD
Appellant, Howard Nettleton, has appealed the denial of his claim for the cost of certain improvements to a building he constructed in Yelm, Washington. Appellant contends that the improvements were done pursuant to an agreement by the United States Postal Service, Respondent, to lease the premises and to include payment for the improvements in the rent. Appellant has not shown that Respondent agreed to lease Appellant’s building or to pay Appellant for improvements he made to the building and therefore deny Appellant recovery.
A hearing was held, and the parties submitted briefs and reply briefs. Only entitlement is at issue.
FINDINGS OF FACT
1. In 1990 and 1991, Respondent sought offers to lease space for a carrier annex in Yelm, Washington. Appellant offered a building he owned, but the advertisement did not result in a lease, and Respondent canceled the project. (Transcript of Hearing, page (“Tr.”) 17-18, 294; Appeal File, Tab ("AF") 10, 11, 12; Appellant’s Exhibits (“AX”) 8, 9, 15; Prehearing Statement (Stipulation), paragraph (“Stip.”) 1, 2, 3).
2. In late 1991, Appellant learned that Respondent had not leased space in Yelm and contacted Respondent’s real estate representative, Mr. Gransbury, who was also a contracting officer, about leasing Respondent a building Appellant would build in Yelm (Tr. 19-21, 143, 145, 268, 292-296, 332, 341, 344-45; AF 16; AX 1-4; Stip. 4).
3. In several telephone conversations, Appellant and Mr. Gransbury discussed generally what type of building Respondent would be able to use as a carrier annex. On February 28, 1992, Appellant sent Mr. Gransbury a one-page sketch of a proposed building layout, which Appellant characterized at the hearing as a “rough detail of what I thought the building should look like.” (Tr. 19-23, 43-44, 164, 295-296; AF 8; AX 10; Stip. 5). Appellant’s cover letter read, in its entirety, “Following is a proposed building layout. If you have questions or suggestions, please call or fax.” (AF 8). Mr. Gransbury understood the sketch to explain what type of building Appellant intended to build and to have been sent so that Appellant could see if it would be the type of building the Postal Service might be interested in leasing (Tr. 299).
4. In subsequent conversations with Appellant, Mr. Gransbury acknowledged that the layout was generally consistent with Postal Service requirements (Tr. 21-23, 164-65, 300; AX 10).
5. After receiving what Appellant considered Mr. Gransbury’s “approval” of the layout, Appellant began site work on March 8, 1992, and on March 9, he ordered a standard metal building to be fabricated based on the sketched layout (Tr. 23-25, 108-109; AF 15; AX 11; Stip. 6). Mr. Gransbury told Appellant that once the foundation and walls were in, Respondent could discuss leasing the building if the requiring activity, the Postal Service’s Seattle Division, was still interested in establishing a carrier annex in Yelm (Tr. 26-27, 277, 295). Appellant substantially completed the building by the middle of May (Tr. 27).
6. Near the end of May, Mr. Gransbury and a number of other Postal Service officials visited the building. During the visit, Respondent’s officials mentioned a number of features that would have to be changed or added if the facility were to be used as a postal facility. (Tr. 27-29). Among the visitors to the building was Mr. Overfield, Respondent’s manager of field maintenance, whose duties included reviewing buildings being considered for lease to determine if they met the operational requirements of the Postal Service (Tr. 200, 206). At Mr. Gransbury’s request, Mr. Overfield prepared a list of additions to Appellant’s building that would be needed before Respondent could use it as a carrier annex (Tr. 206, 211-214, 237-238, 278-279, 281). Mr. Overfield also hand-drew locations of a mail vestibule, windows, drinking fountain, bulletin boards, and custodial room on a floor plan of the building (Tr. 97, 249-250, 280-281). The list, dated May 26, 1992, and entitled “Yelm Carrier Annex Requirements,” and the sketch were sent to Appellant on June 2, 1992 (Tr. 29-30; AF 7, 13; AX 5, 6).
7. Respondent considered the list and drawing to be informational only and incomplete (Tr. 305). They were intended to show Appellant generally what the Postal Service’s requirements would be if the building were to be used as a carrier annex. Mr. Gransbury thought this would help Appellant develop cost information to prepare an offer to lease the building to the Postal Service (Tr. 305). The list and drawing did not include sufficient detail regarding the requirements that they could have been used for final construction purposes (Tr. 223-224, 231). For example, they did not specify the security requirements of the mailing vestibule (Tr. 224), and the requirements of the standards mentioned in the list-- “Ensure the facility meets Inspection Service, ABC Standards [Handicapped accessibility], energy conservation standards, and all local codes and requirements”--were not provided (Tr. 229, 250). Mr. Overfield’s additions to the floor plan were clearly marked, “no scale” (Tr. 97; AF 7). Respondent did not intend the list to be a basis for any action by Appellant (Tr. 230).
8. Appellant constructed many, but not all of the improvements on the list. Appellant did not understand a few of the requirements and did not know what was included in the standards mentioned in the list. He did not make any effort to comply with any standards other than local codes. (Tr. 32, 35-36, 59-61, 69, 217). Some, but not all of the improvements would have been accepted by Respondent if it had leased the building (Tr. 238-242).
9. At a time not specified in the record, Appellant proposed to Mr. Gransbury that the cost of any improvements, i.e. items added to the building that he would not have added had they not been identified by Respondent in the May 26 list or elsewhere, would be amortized over the term of the lease and included in the rent. Appellant assumed that is how he would be compensated for them. (Tr. 33-36, 45, 50, 164-169, 177, 185; AX 5).
10. On June 19, 1992, Appellant sent Mr. Gransbury a letter “proposing a lease” in which Appellant described the components of the proposed rent for the space, presumably including the amortized cost of the improvements, and a few terms from Appellant's standard lease form (Tr. 35, 102, 116; AF 6; AX 7). Mr. Gransbury understood this to be Appellant’s written proposal expressing interest in negotiating a lease (Tr. 314). This letter was the first written statement of a proposed rent, $.46 per square foot, and the first mention of a term of 5 years for the proposed lease duration. The letter contemplated a written lease to follow in which the precise terms, including rent, would be established.
11. After sending the June 19 letter and getting no response, Appellant made several calls to various Postal Service officials to try to find out when Respondent would enter into a lease for the building (Tr. 37-40). In approximately August of 1992, Appellant was told that Respondent would not lease his building (Tr. 41).
12. No written lease or written contract for the improvements was ever executed by the parties (Tr. 45; RX 6, Admission of Fact 1, 2; Stip. 11, 12).
13. Mr. Gransbury did not intend that his dealings with Appellant would establish a lease and did not believe that he had entered into any agreement to lease Appellant’s building or to pay Appellant for any improvements to the building or that he had any authority to do so (Tr. 216, 271-275, 302-304, 310, 312, 326-28; AF 9; AX 8, 14; Stip. 7). Mr. Gransbury understood Postal Service regulations to require use of a written lease and expected that one would eventually be negotiated if Respondent decided to lease Appellant’s building (Tr. 263, 269, 287-288, 317-318, 320). Although Respondent’s officials knew that Appellant was constructing a building and including at least some of the Postal Service features, they did not know that Appellant believed Respondent had entered into a binding agreement to lease his building, and there is no evidence in the record that Appellant ever told them or anyone of this view until he filed his claim in 1993 (Tr. 213, 244-247; AX 8).
14. Appellant never discussed with Mr. Gransbury the exact specifications of his building or of the additions Appellant believed Respondent had requested. Matters such as materials, quality of construction, dimensions, mode of construction and a timetable for completion of the building and the additions were discussed only briefly, if at all. The rent for the basic lease, the rent increment due to the additions, the duration of the lease, and the terms required by Postal Service regulations to be included in a lease (RX 11, Handbook RE-1, Sections 321-323, 325, 326) were not discussed. Appellant never provided a legal description of the property which would have been a required element of any lease. (Tr. 77, 99-103, 305, 307, 312, 316; RX 3, Admission of Fact 10). There was no meeting of the minds on the basic elements of a lease or agreement to lease.
15. Appellant knew that any lease of the building would be subject to final agreement on lease terms (RX 3, Admission of Fact 9; RX 5; RX 6, Admission of Fact 5). Appellant also knew that his building probably did not conform in every respect to Respondent’s requirements, but he believed that if the parties signed a lease, he would then go through the building with Respondent’s representatives and bring everything up to Respondent’s requirements, e.g. adding more lights (Tr. 78-79). Appellant believed that if Respondent had been willing to talk about the cost of the improvements, they could have reached a mutually agreed-upon price to be amortized in the rent (Tr. 101-102).
16. In constructing two similar buildings on his site, Appellant lined up potential tenants before building, but he did not obtain from them a written agreement to lease the space upon completion (Tr. 34, 138-141, 144). He considered a person who had indicated an interest in leasing space to be a “prospective tenant” until a lease was signed, and he always considered Respondent a prospective tenant (Tr. 145).
17. On February 3, 1993, Appellant submitted a claim to Respondent for the cost of the improvements Appellant completed in order to comply with what he understood to be specific postal requirements and for the rent from August, 1992, that he claims he would have received had Respondent leased the building (AF 5; RX 5, 5a, 5b).
18. Respondent denied the claim, and Appellant filed this appeal. Appellant has dropped his claim for lost rentals and now seeks only the cost of the improvements allegedly performed at the instance of Respondent (AF 2‑4).
DECISION
Appellant concedes that there was no written lease or written agreement to lease, but he contends that Respondent, through Mr. Gransbury’s actions, entered into an oral express contract or an implied-in-fact contract with Appellant whereby Respondent agreed that if Appellant constructed a building on his site and included certain additions or changes to his standard building, Respondent would lease the building for use as a carrier annex. Alternatively, Appellant argues that Respondent is estopped to deny that it committed to lease the building because Appellant built the building and added the features identified by Respondent in reliance on Mr. Gransbury's assurances that Respondent would lease the building. Appellant seeks payment of his cost of the additions and changes to the building that he contends he would not have made if he had not thought Respondent was going to lease it.
Respondent argues that there was no agreement, express or implied-in-fact, that Respondent would lease the building. It argues that, in any event, although Mr. Gransbury was a contracting officer, he had no actual authority to enter into a lease with Appellant for this building or to commit to pay for any improvements because there was no approval of a lease or authorization of funds by the requiring activity, the Seattle Division, and because there was never a written instrument. It argues that, therefore, there can be no contract or estoppel found.
Appellant has not alleged or argued that there was an independent agreement by Respondent to pay for the Postal Service features added to the building. The only agreement alleged is what Appellant contends was Respondent’s agreement to lease the building and include in the rent the amortized cost of the additions. Therefore, Appellant’s cost of the improvements may be recovered, if at all, only as damages for Respondent’s breach of an obligation to lease the building, and it is Appellant’s burden to show such an obligation existed.
In order for Appellant to establish the existence of either an oral express contract or an implied-in-fact contract obligating Respondent to lease his building, Appellant must show, among other things, a mutuality of intent to contract, offer and acceptance, and that Mr. Gransbury had actual authority to bind Respondent. See H.F. Allen Orchards v. United States, 749 F.2d 1571, 1575 (Fed. Cir. 1984) cert. denied 474 U.S. 818 (1985); Penn-Ohio Steel Corp. v. United States, 354 F.2d 254, 267-69 (Ct. Cl. 1965); Dattel Realty Co., PSBCA No. 2066, 89-2 BCA ¶ 21,874; Edward K. Dilworth, ADA Contractors, Inc., PSBCA No. 1248, 84-1 BCA ¶ 17,050. Appellant must establish a meeting of the minds regarding the lease of his building by showing a “definite offer and an unconditional acceptance.” See Russell Corp. v. United States, 210 Ct.Cl. 596, 608, 537 F.2d 474, 481-482 (1976) cert. denied 429 U.S. 1073 (1977); Edwards v. United States, 22 Cl.Ct. 411, 420 (1991). He has not done so.
Appellant’s submission to Mr. Gransbury of the rough sketch of a building layout on February 28, 1992 (Finding 3), could not be considered a “definite” offer to lease. There was no Postal Service solicitation for rental space outstanding; the February 28 transmittal was not identified as an offer; the drawing was only a sketch and none of the essential terms of a lease were included; and the cover letter asked only for comments or suggestions. Mr. Gransbury’s “approval” of the sketch (Finding 4) was not an agreement, “unconditional” or otherwise, to lease the building when constructed and could not reasonably be so understood. Respondent’s May visit to the building and the subsequent May 26 general list of carrier annex requirements (Finding 6) did not evidence any agreement. The list and attached drawing, again, were general only and incomplete (Finding 7). There were no words of agreement associated with the list, and Appellant and Mr. Gransbury had never addressed specific design requirements, exact rent,[1] a schedule for delivery of the building, duration of a lease or required lease provisions (Findings 6, 14).
Additionally, it is clear that Respondent’s officials did not intend by their dealings to enter into a lease with Appellant and did not believe that a contract had been formed (Findings 3, 4, 7, 13). Moreover, Appellant's June 19, 1992 letter (Finding 10), proposing a lease and mentioning for the first time a rent of $.46 per square foot was unmistakably an offer to negotiate a lease, see Cas Mar Associates, Inc., PSBCA No. 990, 1981 WL 7679, December 2, 1981, which demonstrates that Appellant also understood there was no agreement to lease in place. Appellant testified that he assumed that he would be paid for the improvements through a rent increment (Finding 9), but he has not presented evidence that Mr. Gransbury ever agreed.
Because there was never a meeting of the minds on the essential terms for a lease, there was no express contract and no implied-in-fact contract to lease Appellant’s building. See Shorthaul Trucking Co., PSBCA No. 1046, 1985 WL 16706, June 18, 1985; Vitro Corp. of America, ASBCA No. 14,448, 72-1 BCA ¶ 9287.
Also, both Appellant and Mr. Gransbury intended that their discussions would not create a lease but that a written lease would eventually be negotiated that would establish the agreement for the building (Findings 13, 15). Appellant’s June 19 offer contemplated that a written lease spelling out the essential terms of the lease would follow, and Mr. Gransbury understood Respondent’s regulations to require that a lease be in writing and contain certain required clauses. Mr. Gransbury believed that a written lease would be required before Respondent would be bound (Findings 10, 13, 15). See American General Leasing, Inc. v. United States, 587 F.2d 54, 57-58 (Ct. Cl. 1978); Edwards v. United States, 22 Cl.Ct. 411, 420 (1991). Appellant’s efforts to get Respondent to sign a lease after he received no response to his June 19 lease proposal (Finding 11) confirm his understanding that a written lease was necessary, and requiring a written lease was consistent with Appellant’s practice for commercial tenants. Although Appellant proceeded with construction of other buildings based on potential tenants’ oral expressions of interest, his commercial leases were always in writing (Finding 16), reflecting his understanding of the need for a writing to establish a binding lease. See F&B Realty, PSBCA No. 2529, 91-2 BCA ¶ 23,788.
Therefore, because the parties contemplated the lease would be accomplished by execution of a written lease, no oral express contract or implied-in-fact contract was established. See American General Leasing, Inc. v. United States, 587 F.2d 54, 57-58 (Ct. Cl. 1978); Essen Mall Properties v. United States, 21 Cl.Ct. 430 (1990); Pacific Gas & Electric Co. v. United States, 3 Cl. Ct. 329, 339 (1983)(citing De Matteo Construction Co. v. United States, 600 F.2d 1384, 1388 (Ct. Cl. 1979))(“[I]n negotiations where the parties contemplate that their contractual relationship would arise by means of a written agreement, no contract can be implied.”).
Appellant has not demonstrated that Respondent is estopped to deny that it agreed to lease the property and pay for the improvements. To establish estoppel, Appellant must show, among other things, that Respondent knew the facts, that Respondent intended that Appellant act upon Mr. Gransbury’s conduct or that Appellant had a right to believe Respondent so intended, that Appellant must have reasonably relied on Respondent’s conduct to his injury, and that Mr. Gransbury was acting within the scope of his authority. See F&B Realty, PSBCA No. 2529, 91‑2 BCA ¶ 23,788 at 119,142 quoting Emeco Indus., Inc. v. United States, 485 F.2d 652, 657 (Ct. Cl. 1973); E. Patti & Sons, Inc., PSBCA Nos. 1024, 1100, 85-2 BCA ¶ 18,144 at 91,078; P.J. Dick Contracting, Inc., PSBCA No. 992, 84‑1 BCA ¶ 16,992, recon. denied 84‑1 BCA ¶ 17,218.
Appellant has not demonstrated that Respondent knew the facts. Although Respondent knew that Appellant was proceeding to construct the building and was including at least some of the Postal Service features, Respondent’s officials did not know that Appellant, as he contends, was constructing the building in reliance on what he understood to be a binding agreement by Respondent to lease the building once it was finished (Finding 13). Respondent’s officials reasonably understood that Appellant was constructing the building for rental purposes and that he wanted to build it to conform to Postal Service requirements because he hoped Respondent would lease it. That they did not know of any reliance by Appellant was reasonable in view of the absence of any formality or specificity regarding what Appellant contends was an agreement to lease and because Appellant never told Respondent that he considered any binding agreement to have been entered into.
Additionally, Appellant has not shown that he reasonably relied on Mr. Gransbury’s conduct. Appellant ordered a standard steel building and began construction after a few general conversations with Mr. Gransbury and Mr. Gransbury’s oral approval of a rough sketch of Appellant’s building layout (Findings 2-5). Appellant did not seek to identify Respondent’s exact requirements for the annex and ignored the security, safety and handicapped access standards stated as applicable to any building to be used by Respondent (Findings 14, 15). If he truly assumed Respondent had promised to lease the building, he would have been expected to pin down Respondent’s requirements. Also, Appellant testified regarding his “assumptions” based on conversations with Mr. Gransbury, but he presented no evidence regarding specific statements of Mr. Gransbury that would support a finding that Appellant’s “assumptions” (reliance) were reasonable (Findings 2, 4-7, 9, 14). Finally, submitting the June 19 proposal, intended to open negotiations, is not consistent with an understanding that an agreement had already been made.
If Appellant did proceed based on an understanding that Respondent had, through Mr. Gransbury’s conduct, committed to lease his building, that reliance was unreasonable. Appellant should not have thought that Respondent had committed to lease his property, and Respondent is not estopped to deny any such agreement.
The appeal is denied.[2]
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
James D. Finn, Jr.
Administrative Judge
Vice Chairman
[1] According to Appellant, he and Mr. Gransbury discussed the cost range and the general requirements for a Postal Service carrier annex in their early conversations. Appellant says he suggested a lease rate of $.35 per square foot which Mr. Gransbury said was a fair price (Tr. 19-21, 118, 183). Mr. Gransbury did not recall ever discussing the cost to build or lease the building or the cost of any additions (Tr. 307, 312). Even if Appellant could demonstrate that Mr. Gransbury accepted Appellant’s rent proposal of $.35 before Appellant erected the building, there would still be no meeting of the minds as Appellant, in his June 19 offer, proposed a rent of $.46 per square foot, substantially more than the $.35 he contends Mr. Gransbury found to be a fair price several months before.