Channel Home Centers, Grace Retail Corporation v. Grossman (1986)


– Grossmans (in partnership with baker) were in the process of purchasing of Cedarbrook Mall…Baker was equitable owner. Tri Star was the malls leasing agent…at the end of this deal, Baker would become both the legal and equitable owners- upon closing in Feb, 1985
o Revitalize mall thru an “aggressive leasing program”
– Nov. 1984, Grossman contacted Channel informing them of the availability – they met and loosely discussed terms of the lease.
– Dec, 7th, president of Channel visited the mall – intended to lease the unit.
o ***Grossman MADE Channel write a letter of intent (L.O.I.) so Grossman could secure financing because Channel was a “respected” name in the biz.***
o Dec, 11th, in response, Channel submitted a detailed L.O.I., which included provisions as withdrawing the store from the rental market, and to only negotiate with Channel.
 Grossman signed the L.O.I and returned it that day.
– Both parties initiated there agreements (L.O.I. included).
 Approval by Channels parent company
 Approval by Channel of the title
 Frank Grossman obtaining all necessary permits and zoning variances for erections of Channels sign.
– Jan. 11th, Frank Shea, esquire, submitted a 41 page lease with instructions
 Grossman followed the instructions and returned the form
– Jan. 21st – he got the pertinent zonings for the pylon designs and wrote in letter “we look forward to executing the lease agreement in the very near future.”
– Jan. 22nd, Grossman was contacted by “Mr. Good Buys” to obtaining the spot of land that was intended for Channel.
– Feb. 6th, Grossman notified Channel that negotiations terminated as of this date – due to failure to submit a mutually acceptable lease w/in the 30 day period.
– Feb. 7th, Grossman and Mr. Good Buys executed a lease for a lot more money.
– Defendant
o Contends that he agreed with Channel orally that a draft lease be submitted w/in 30 days.
o A promise to negotiate in good faith is only enforceable if the parties have in fact reached an agreement on the underlying transaction.
o Channel lacked consideration as well.
– Plaintiff
o Detailed marketing plans, building plans, delivery schedules were prepared and materials deemed necessary for the store were purchased.
 Grossmans also applied for zoning permission for the signs.
– The L.O.I., coupled with surrounding circumstances
– Arguing that this document, L.O.I., is enforceable as a mutually binding obligation to negotiate in good faith and that Grossman breached this good faith by unilaterally terminating the negotiations and entering into a lease agreement with Mr. Good Buys.
o Breached “withdraw that store from the rental market and only negotiate the above described leasing transaction complete.”

Procedural History

– Appellate court reversed the lower court’s decision holding that there was an enforceable agreement.


– Can an agreement to negotiate in good faith meet the conditions of enforceability of a contract?


– Maybe – must prove more, remanded for more fact finding.


1. Whether both parties manifested an intention to be bound by the agreement.
2. Whether the terms of the agreement are sufficiently definite to be enforced.
3. Whether there was consideration.


1. The agreement contains an unequivocal promise by Grossman to withdraw the store from the rental market and to negotiate the proposed leasing transaction with channel to completion – both parties intended the promise to be binding on good faith.
– Both parties initiated procedures directed toward satisfying the lease contingencies – (details in fact component under headings.)
2. Grossman’s promise to withdraw the store from the rental market and only negotiate the above described leasing transaction to completion – viewed in context of the L.O.I is sufficiently definite to be enforced, provided that channel submitted sufficient legal consideration in return.
3. Defendant – no money or thing of value was given to Grossman to convert an agreement into an enforceable contract.
Court- due to Grossman needing Channels recognition to obtain appropriate financing, that channels execution and tender of the L.O.I conferred a bargained for benefit on Grossman which was valid consideration for Grossman’s return promise to negotiate in good faith.


– Remanded to lower court.
1. L.O.I. shows that there was intention to bind the agreement, we do not hold that evidence requires this conclusion, at trial, evidence will decide this issue.
2. Whether or not there was an oral agreement to forward a drafting of the lease within 30 days – at trial, the court did not allow the L.O.I.


 No general duty to negotiate in good faith.
 Restatement 205, L.O.I. imposes duty of good faith where naturally it doesn’t exist.
Good Faith
• Good faith doesn’t require one side to reveal bargaining strategy or reservation price to be of use to other side or refrain from taking advantage of other opportunities.
• Objection to recovery of expectation damages is that because no agreement was reached a court can’t know what agreement would have been reached and there is no way to measure lost expectation.
• If plaintiff can prove defendant’s bad faith prevented completion of contract then they are liable for loss and plaintiff should get damages.

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