Citation

501 F.3d 945 (8th Cir. 2007)

One-Sentence Takeaway

A binding contract is not formed by a preliminary agreement which sets forth the terms of a potential future agreement.

Summary

Plaintiff commercial real estate developer and Defendant movie theater operator exchanged letter of intent that outlined the terms that would be controlling Defendant’s opening of a movie theater at Plaintiff’s new commercial mall development.  That letter specifically provided that the terms described therein were going to be controlling if a subsequent agreement was executed between the parties.  After Defendant informed plaintiff that he had no plans to open the movie theater at Plaintiff’s mall, Plaintiff sued Defendant for, inter alia, breach of express and/or implied contracts.

The Court ruled against Plaintiff by finding that there was not implied or express contract formed between the parties.

“To establish an express contract . . . a definite proposal and absolute and unconditional acceptance must exist . . . Additionally, a meeting of the mind must occur at every point, with nothing left open for future agreement.  A contract is not formed if the parties contemplate that something remains to be done to establish contractual arrangements or if elements are left for future arrangement.  An informal agreement may be binding, despite the parties’ intentions to enter a formal agreement at a later time, only if the later formal agreement contains no new provisions not contained in or inferred form the prior informal agreement.”

Here, there was no express agreement.  The letter of intent specifically stated that it “shall not be construed as either a lease agreement or an option to lease.”  Moreover, Defendant had told Plaintiff on several occasions that it needed to obtains its board of directors’ approval before it could enter into any commitments.

As for Plaintiff’s breach of implied contract claim, “[a]n implied contract is one that arises from mutual agreement and intent to promise, when the agreement and promise have simply not been expressed in words.  An implied contract arises where the intention of the parties is not expressed but where the circumstances are such as to show a mutual intent to contract.  The determination of the parties’ intent to make a contract is normally a question of fact.  Such intent is to be gathered from objective manifestations — the conduct of the parties, language used, or acts done by them, or other pertinent circumstances surrounding the transaction.  No implied contract can exist where there is an express agreement between the parties relative to the same subject-matter.”

The Court explained that the letter of intent between the parties was not an express contract, and neither can it support an implied contract.  “A contract cannot be implied if it is against the declaration of the party to be charged or against the intention of the parties . . . Here, the letter of intent explicitly states that no binding agreement exists until a definitive agreement is executed by the parties.  Finding an implied contract in the present case would contradict the parties expressed intent as reflected in the plain language of the letter of intent.”

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