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Arnold Palmer Golf Co. v. Fuqua Industries, Inc.

    Brief Fact Summary.

    Plaintiff and Defendant signed a Memorandum of Intent detailing a proposed new corporation to be formed by the two. However, before a agreement was prepared, Defendant terminated negotiations with Plaintiff. Plaintiff sued Defendant seeking enforcement of the alleged contract. The trial court granted Defendant’s motion for summary judgment. Plaintiff appealed.

    Synopsis of Rule of Law.

    To create an enforceable contract, both parties must have a clear understanding of the terms of an agreement and intent to be bound by its terms.

    Facts.

    Arnold Palmer Golf Co. (Plaintiff) entered into a business relationship with Fuqua Industries, Inc. (Defendant) for the purpose of acquiring third party manufacturing companies. Together, Plaintiff and Defendant acquired Fernquest and Johnson (Fernquest), a manufacturer of golf clubs. After this acquisition, Defendant and Plaintiff signed a Memorandum of Intent detailing a proposed new corporation to be formed by the two companies. The Memorandum of Intent stated that Plaintiff would own seventy-five percent of the new company, and Defendant would own the other twenty-five percent. Additionally, the Memorandum of Intent contained detailed statements about how the new company would be run and funded, as well as a statement that counsels for Plaintiff and Defendant would “proceed as promptly as possible to prepare an agreement acceptable to Palmer and Defendant for the proposed Combination of businesses.” The Memorandum of Intent also stated that the agreement between Palmer and Defendant was conditioned on fulfillment of two conditions: the preparation of a definitive agreement for the proposed combination of the two businesses that was satisfactory to both parties and approval of such agreement by Defendant’s Board of Directors. Before the definitive agreement was prepared, Defendant terminated negotiations with Plaintiff. Plaintiff sued in federal district court against Defendant seeking to enforce the alleged contract. The district court held that since the conditions in the Memorandum of Intent were not fulfilled, the Memorandum of Intent did not represent sufficient intent by Plaintiff and Defendant to be bound by contract. The district court granted Defendant’s motion for summary judgment, and Plaintiff appealed.

    Issue.

    Whether both parties must have a clear understanding of the terms of an agreement and intent to be bound by its terms create an enforceable contract.

    Held.

    Yes. The trial court’s ruling is reversed and remanded. To create an enforceable contract, both parties must have a clear understanding of the terms of an agreement and intent to be bound by its terms.

    Discussion.

    A genuine issue of material fact exists regarding whether the Memorandum of Intent reflects sufficient intent by Plaintiff and Defendant to be bound in contract. To create an enforceable contract, both parties must have a clear understanding of the terms of an agreement and intent to be bound by its terms. When determining whether a writing reflects a genuine intent by the parties to be bound, the entire document and relevant circumstances surrounding its adoption must be considered. Extrinsic evidence may be introduced to support the existence of intent to be bound by the parties. The Memorandum of Intent signed by Plaintiff and Defendant contains all essential terms of a contract. It describes the combination to be formed by the two businesses, the location of their future offices, and the rights and obligations of each party. Additionally, the Memorandum of Intent contains unqualified language in describing the planned actions of each party. For example, the Memorandum of Intent states that Defendant “will” transfer all of its stock in Fernquest to Plaintiff upon formation of a new company; that the office of the new combination business “will” be located in Atlanta, Georgia; that Defendant “will” loan Plaintiff money to finance the transaction; and that counsels for Plaintiff and Defendant “shall” prepare an agreement that is acceptable to all parties. This unqualified language may be interpreted as evidencing intent by Plaintiff and Defendant to proceed with a contractual agreement. At a minimum, the issue of intent by Plaintiff and Defendant to be bound in contract should be submitted to a trier of fact. A genuine issue of material fact exists regarding whether the Memorandum of Intent reflects sufficient intent by Plaintiff and Defendant to be bound in contract.


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