Citation. 96 Cal.App.4th 1251; 117 Cal.Rptr.2d 875 (Cal.App 2nd Dist. 2002)
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Brief Fact Summary.
Plaintiff entered into an agreement for the purchase of an ice cream plant, which Defendant owned. As a part of the agreement, the parties also agreed to co-packing, an agreement by which Defendant would purchase Plaintiff’s products. Defendant formed a letter of intent to enter into the agreement, but left many terms undecided. Later, Defendant backed out of the co-packing agreement, and Plaintiff brought suit contending that a binding agreement had been formed.
Synopsis of Rule of Law.
This case stands for the proposition that agreements, encompassing future negotiations, must be considered in light of all terms. If essential elements of the agreement are undecided, there is no binding obligation until they become decided.
The Plaintiff, Copeland (Plaintiff), expressed an interest in acquiring an ice cream plant, owned by the Defendant, Baskin Robins, U.S.A. (Defendant) in the city of Vernon. The parties commenced negotiations, and Plaintiff made it apparent that his agreement to buy the plant was contingent on a co-packing agreement, whereby Defendant would continue to buy ice cream from the plant. Defendant sent Plaintiff a letter of intent, outlining the terms of the agreement. Later, Defendant backed out of the co-packing agreement and Plaintiff brought suit for breach of contract and expectancy damages, based on the expected profit the plant would net.
In his allegations, Plaintiff claimed there was an agreement for the purchase and co-packing, the terms of which were set forth in Defendant’s letter of intent. The Defendant claimed that because the letter of intent was not the final agreement (many of the integral terms of which were yet to be decided), that no agreement had existed. The trial court granted a Motion for Summary Judgment in favor of the Defendant and the Plaintiff appealed.
This case considers whether a binding agreement arises when a promise is made, conditional on the fact that the essential elements will be decided at a later time.
• The court found that because the essential elements of the agreement had not been decided and reserved for future decision, the agreement was incomplete and no legal obligation had taken effect.
• The Court also notes that failure to agree is not a breach of an agreement to negotiate, if both parties have, in good faith, negotiated.
Parties oftentimes enter into an agreement which encompasses future negotiations. The key concept to remember is, when future negotiations are foreseen, if they deal with an essential element of the agreement, the agreement is not complete, nor is it binding, until those terms are agreed upon.