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M.J. Firestone Affiliates, Inc. v. E.W. Murray Associates, Inc.

98-1603 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

CONTRACTS; LETTERS OF INTENT—A letter of intent may create binding obligations even though the parties never reached a final agreement if the parties intended to be bound by the terms of the preliminary agreement and there is sufficient specificity in its terms.

A New Jersey corporation and a New York corporation signed a document titled as a “Memorandum” with a reference line stating: “Proposed Agreement.” The New Jersey corporation claimed that the memorandum was a letter of intent. Focusing on the portions of the memorandum that contemplated a future agreement, it contended that the document did not create a binding contract. The plaintiff contended that the memorandum was an agreement and argued that it created binding obligations that were breached. The New Jersey corporation moved to dismiss the lawsuit under Federal Rule of Civil Procedure 12 (b)(6), arguing: (1) that the memorandum was not a binding agreement; (2) even if it were a binding agreement, the New Jersey corporation did not breach the agreement; and (3) the action was barred because the New York corporation transacts business in New Jersey but had not obtained authority as required by New Jersey statute.

The Court denied the motion. Taking the allegations to be true as is required under a 12(b)(6) motion, the Court was not prepared to find that there were no circumstances under which a contract could be found. A letter of intent may create binding obligations even though the parties never reach a final agreement if there is sufficient specificity in the terms and the parties intended to be bound by the terms of the preliminary agreement. So long as the essentials are sufficiently definite, any gaps left by the parties should not frustrate their intention to be bound. The parties’ intent is a question of fact that requires an examination of the circumstances surrounding the preliminary agreement. The Court ruled that while the cited language of the agreement was written in the future tense, and clearly contemplated a future contract, that structure was not necessarily dispositive. It recognized that many terms were omitted from the contract, but concluded that those terms seemed to involve the details of the contract rather than its essence. Therefore, the Court could not conclude that no contract existed as a matter of law. For purposes of the motion, the Court assumed that the contract had been breached. The Court considered the question of whether the New York corporation did business in New Jersey to be a factual one and, to the Court, it appeared that it did not conduct business in New Jersey so it need not have obtained authority to do so.


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