Brief Fact Summary.
Plaintiff and Defendant began a business relationship with each other to create a new corporation by merging their prior business.’ The agreement contained two conditions that were required for the agreement to be valid. Before the conditions were satisfied, Defendant terminated negotiations with Plaintiff. Plaintiff brought suit to enforce the agreement. The district court held for Defendant, granting Defendant’s motion for summary judgment, and Plaintiff appealed.
Synopsis of Rule of Law.
Parties to a contract must clearly understand the nature of the contract and intend to be bound by the terms in the contract for the contract to be enforceable.
Plaintiff, Arnold Palmer Golf Co., began a business relationship with Defendant, Fuqua Industries, Inc., to obtain a third party manufacturing company. Jointly, Plaintiff and Defendant contacted Fernquest and Johnson, who manufactured golf clubs. Thereafter, Plaintiff and Defendant signed a Memorandum of Intent that indicated that the proposed new corporation the parties agreed to form. Further, the memorandum stated Plaintiff would be the owner of seventy-five percent of the new company, while Defendant would be the owner of the remaining twenty-five percent. The memorandum also stated how the new company would be managed, that Plaintiff and Defendant’s attorney’s would promptly prepare a contract for the proposed business between the parties. Likewise, the memorandum had two conditions that needed to be fulfilled for the agreement to be enforceable. First, the parties must prepare a definitive agreement for the proposed agreement to combine the two businesses into a new corporation. Second, Defendant’s Board of Directors was required to approve the agreement. Nonetheless, before the agreement was created, Defendant stopped negotiating with Plaintiff. Plaintiff brought suit to enforce the contract against Defendant. The district court held that because the conditions were not fulfilled, there was not a valid contract to enforce against Defendant. Therefore, the district court granted Defendant’s motion for summary judgment, and Plaintiff appealed.
Whether both parties to a contract must clearly understand the nature of the contract and intend to be bound by the terms in the contract for the contract to be enforceable.
Yes, both parties to a contract must clearly understand the nature of the contract and intend to be bound by the terms in the contract for the contract to be enforceable.
Parties may orally, by informal memorandum, or by both agree upon all the essential terms of a contract and effectively bind themselves thereon, if that is their intention, even though they contemplate the execution later of a formal document to memorialize their undertaking.View Full Point of Law
The court found that there is a genuine issue of material fact regarding whether the parties intended to be bound by the Memorandum of Intent. Here, the entire Memorandum and the relevant circumstances surrounding the adoption of the memorandum must be evaluated. The Memorandum of Intent signed by both parties contain all the essential terms of the agreement, such as the planned actions of each party, the location of future offices, and the rights and obligations of each party. This unqualified language may be viewed as evidence of intent to be bound by the contract. Therefore, in this case, there is a genuine issue of material fact as to whether the parties intended to be bound by the contract. The district court’s motion for summary judgment is reversed and remanded.