Wednesday, April 1, 2015

Falls Garden Condominium Ass’n, Inc. v. Falls Homeowners Ass’n, Inc. (Md. Court of Appeals)

Filed: January 27, 2015

Opinion by: Lynne A. Battaglia

Holding:  A letter of intent may be an enforceable contract where definite terms are included, signaling intent of the parties to be bound, and the material terms of a contract are included.  Further, where the letter of intent is unambiguous and constitutes an enforceable contract, it is unnecessary to have a plenary hearing on the merits of a motion to enforce a settlement agreement

Facts: The appeal arose out of the execution of a letter of intent which was the result of the settlement of litigation over the contested ownership of parking spaces.

Analysis:  Distinguishing Cochran v Norkunas, which held that the parties did not intend to be bound by a letter of intent and it was therefore unenforceable, the Court noted that in the present case the parties expressed their intent to be bound to the letter of intent through the definiteness of terms included therein.

In discerning the enforceability of the letter of intent the Court relied upon the often cited and influential treatise Corbin on Contracts, which divides cases where letters of intent have been an issue into a spectrum with four categories: (i) where the parties specifically say that they intend not to be bound until the formal writing is executed; (ii) cases where the parties clearly point out one or more specific matters on which they must yet agree before negotiations are concluded; (iii) cases where the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters not essential, but that are often included in similar contracts; and (iv) cases like those of the third class, with the addition that the parties expressly state that they intend their present expressions to be a binding agreement or contract, and are thus conclusive as to the parties intent.  The Court indicated that the essential distinction between the indefinite middle two categories centers on the question as to whether the terms included in the document are definite or indefinite, which then informs the central question as to whether the parties intended to be bound and, thus, their mutual assent.  Under this framework of analysis, the Court finds the letter of intent to be enforcable due to the mutual assent of the parties, and the lease is not enforceable.

Following this line of reasoning, the Court noted that due to the absence of ambiguous terms in the letter of intent the trial judge need not entertain extrinsic evidence, especially if the evidence were to be of a self-serving nature, as in the present case.

The full opinion is available in PDF.

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