Login

Login

To access this feature, please Log In or Register for your Casebriefs Account.

Add to Library

Add

Search

Login
Register

Brown v. Cara

    Brief Fact Summary.

    Plaintiff sued Defendant for breach of the terms of a memorandum of understanding in which he entered with Defendant to “work together to develop, build, market, and manage” Defendant’s property in Brooklyn. The trial court dismissed Plaintiff’s claim. Plaintiff appealed.

    Synopsis of Rule of Law.

    A preliminary agreement binds parties to negotiate in good faith open terms, where the parties intend to be bound to such a good faith requirement, but not their ultimate contract objectives because market conditions at the time of agreement are such that the parties cannot come to final agreement before the resolution of certain contingencies.

    Facts.

    Jeffrey Brown (Plaintiff) of Jeffrey M. Plaintiff Associates, Inc. (JMB) entered into a memorandum of understanding (MOU) with Charles Cara (Defendant) to “work together to develop, build, market, and manage” Defendant’s property in Brooklyn. The MOU stated that the parties would enter into a more formal contract once the parties worked out certain details. One such detail was that the property needed to be rezoned to fulfill the MOU’s objectives. After spending extensive time and effort, JMB obtained the rezoning and all other approvals that the project needed. Formal negotiations between the parties thus began. JMB sent Defendant a proposed construction management agreement, but the agreement’s terms offended Defendant and he chose to cut off all negotiations. JMB later stated that it had inadvertently sent the wrong agreement, but Defendant chose not to restart negotiations. Plaintiff sued for breach of the terms of the MOU. The district court dismissed Plaintiff’s contract claim. Plaintiff appealed.

    Issue.

    Whether a preliminary agreement binds parties to negotiate in good faith open terms if the parties intend to be bound to such a good faith requirement, but not their ultimate contract objectives because market conditions at the time of agreement are such that the parties cannot come to final agreement before the resolution of certain contingencies.

    Held.

    Yes. The trial court’s ruling is reversed and the case is remanded to determine whether Defendant breached that duty. A preliminary agreement binds parties to negotiate in good faith open terms, where the parties intend to be bound to such a good faith requirement, but not their ultimate contract objectives because market conditions at the time of agreement are such that the parties cannot come to final agreement before the resolution of certain contingencies.

    Discussion.

    The court analyzes five factors in determining whether such a Type II preliminary agreement exists: (1) whether the intent to be bound is explicitly in the agreement; (2) the context of the negotiations, including the current market conditions or contingencies; (3) any open terms; (4) any partial performance of the agreement; and (5) the need to put the agreement into a final form. In the case at bar, all five factors of this test indicate that the MOU bound the parties to negotiate in good faith the open terms. (1) The MOU stated that the parties would “work together to develop, build, market, and manage” Defendant’s property. This language is a clear indication in the MOU itself that the MOU was a general framework for the project that bound the parties to negotiate in good faith going forward. (2) At the time the parties signed the MOU, the property was not properly zoned for the intended use. If rezoning was not accomplished, the project could not have been completed. Given this context, the parties could not reasonably have contracted the project to its conclusion. Accordingly, the parties entered into the preliminary MOU, under which they could move the project forward without the prospect of a total loss. This factor weighs in favor of finding that the MOU was a Type II agreement. (3) Similarly, the open terms in the MOU support a finding of a Type II agreement. The parties chose to leave certain terms open given the market contingencies that existed at the time of the MOU’s execution. These open terms are not inconsistent with a finding of a Type II agreement. (4) Given JMB’s extensive effort in obtaining the necessary rezoning, it is clear that JMB partially performed. This factor also weighs heavily in favor of finding a Type II agreement. (5) The MOU explicitly called for, and, given the open terms, needed a more final agreement to be put into writing. This certainly does not weigh against a finding of a Type II agreement. In sum, the MOU was a Type II agreement necessitating the parties’ good faith negotiation throughout the process. In holding that the MOU was not so binding, the district court erred.


    Create New Group

      Casebriefs is concerned with your security, please complete the following