Brief Fact Summary. Plaintiff sued Defendant for specific performance based on a handwritten agreement.
Synopsis of Rule of Law. The fact that the parties contemplate the execution of a formal document is evidence that they intend to not be bound until the execution of the formal contract.
The land in dispute is 160 acres, previously owned by sisters, Wenger and Ralston (Defendants), subject to a life estate in their mother, Ethel Wenger. Each sister owned an undivided half interest in the property. Ethel Wenger’s health began to deteriorate, and she discussed the advisability of selling the land with her two daughters. They agreed to sell the property, and the Defendants approached Plaintiff to have the land appraised. The Plaintiff declined to do so, but expressed an interest in purchasing the property. Ethel Wenger was hospitalized on December 26, 1972, and Plaintiff and Ethel Wenger’s daughter, Wenger visited to discuss purchasing the land. Ethel indicated that she might be willing to release her interest in the land so that it might be sold. The sales price of the land to Plaintiff was to be $16,000.00, and Plaintiff suggested that Wenger contact her other sister Ralston by telephone, which she did. Then, the Plaintiff and Wenger sat in Defendant’s car whil
e Defendant wrote an agreement, which stated the date, described the property, provided for the sale price of $16,000.00, stated a maximum of $250.00 closing cost, stated that an earnest payment of $1,000.00 was to be made of that date which would be returned to purchaser in case of failure to deliver clear title, provided for an additional down payment of $3,000 to be made when title is delivered, and for payments to be made at $2,000 annually commencing one year from the date of the down payment plus five percent interest per annum. The paper was signed by “Loraine Wenger, Loraine Wenger for Lorene Ralston,” and by “Ward King buyer.” That same afternoon the Plaintiff and Wenger met with Plaintiff’s attorney, for the drawing of a formal contract for the sale of property. The earnest payment mentioned was never made. The attorney stated that he did not have time to draw up the papers at that time. Thereafter, the attorney mailed the contract to Defendant, but Defendant refused to sign
ed the contract and the land was thereafter sold to another group of people for $16,000.00. Plaintiff sued for specific performance. Ethel Wegner died prior to trial. The trial court found for Defendants holding that the handwritten note did not constitute a valid contract for the sale of land. Plaintiff appealed.
Issue. Is the handwritten note a valid and enforceable contract for the sale of land?
Held. No. Judgment affirmed.
The intent of the parties is to be determined by the surrounding facts and circumstances of each case. 17 C.J.S. Contracts Section: 49 697. The mere intention to reduce an informal agreement to a formal writing is not of itself sufficient to show that the parties intended that until the formal writing was executed the informal agreement should be without binding force. However, the fact that the parties contemplated the execution of a formal document is evidence that they intend to not be bound until the execution of the formal contract.
Where the intent of the parties is clear that they are negotiating with an understanding that the terms of the contract are not fully agreed upon and a written formal agreement is contemplated, a binding contract does not come into existence in the absence of execution of the formal document.
The evidence showed that the parties did not have full agreement as to the terms at the time of the handwritten note. Also, the informal agreement was signed by only one of the three co-owners of the property. Even though Wenger signed for Ralston, there is no evidence of a written authorization required by law.
The Plaintiff never tendered the earnest money until it was discovered that the property had been sold to another, and the Plaintiff could not show that he took any steps in reliance upon the handwritten note. Thus, part performance would not be applicable.
Discussion. Points of Law - for Law School Success
Where the intent of the parties is clear that they are negotiating with a definite understanding the terms of any contract are not fully agreed upon and a written formal agreement is contemplated, and no valid, enforceable contract is to exist until the execution of such an agreement, a binding contract does not come into existence in the absence of such execution. View Full Point of Law
Note the insufficiencies in the handwritten note: the life tenant is not mentioned (though in the hospital), the lack of legal authority to bind Ralston, the lack of sufficient clarity as to the legal description. Therefore, the court would not conclude that the parties intended to be bound. This is not a case for part performance, because the Plaintiff did nothing until the property had been sold to someone else.