Cochran v. Norkunas
919 A.2d 700 (2007)
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Rule of Law:
A letter of intent that expressly contemplates the execution of a future, formal contract is an unenforceable 'agreement to agree' if the language indicates the parties did not intend to be bound by the letter itself. Furthermore, for a formal contract to be enforceable, the offeree's acceptance must be communicated to the offeror; a private, uncommunicated signing of a contract is insufficient to form a binding agreement.
Facts:
- Rebecca Cochran and others ('Buyers') expressed interest in purchasing property owned by Eileen W. Norkunas ('Seller').
- On March 7, 2004, the Buyers drafted and, along with Norkunas, signed a handwritten 'Letter of Intent' to buy the property for $162,000.
- The Letter of Intent stated that a 'standard form Maryland Realtors contract will be delivered to Seller within 48 hours' and detailed terms that this future contract would contain.
- The Buyers gave Norkunas a $5,000 deposit check when the Letter of Intent was signed.
- Shortly thereafter, the Buyers' agent sent Norkunas a package containing a formal 'Residential Contract of Sale' and numerous addenda.
- Norkunas reviewed the documents, signed most of them, but crossed out two paragraphs related to financing contingencies.
- Norkunas did not return the signed contract documents to the Buyers or their agent; she kept them in her possession.
- About a week later, Norkunas informed the Buyers that she was taking the property off the market.
Procedural Posture:
- The Buyers filed a lawsuit against Norkunas in the Circuit Court for Baltimore City, seeking specific performance of the Letter of Intent.
- During a deposition, the Buyers discovered for the first time that Norkunas had privately signed the formal contract documents.
- The Buyers filed an amended complaint seeking specific performance of both the Letter of Intent and the formal Contract of Sale.
- The parties filed cross-motions for summary judgment.
- The Circuit Court (trial court) granted summary judgment for the Buyers, ordering Norkunas to sell the property.
- Norkunas, as appellant, appealed to the Court of Special Appeals of Maryland (intermediate appellate court).
- The Court of Special Appeals reversed the trial court's judgment, holding that no enforceable contract was formed.
- The Buyers, as petitioners, were granted a writ of certiorari by the Court of Appeals of Maryland (the state's highest court) to review the decision.
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Issue:
Does an enforceable contract for the sale of real property exist when the parties sign a letter of intent contemplating a future formal contract, or when the seller signs the subsequent formal contract but does not communicate her acceptance to the buyers?
Opinions:
Majority - Raker, J.
No, an enforceable contract for the sale of real property does not exist in these circumstances. First, the Letter of Intent was not a binding contract because the objective language of the document demonstrated the parties did not intend to be bound by it. The letter explicitly stated that a 'standard form Maryland Realtors Contract will be delivered,' which signaled that it was merely a preliminary 'agreement to agree' and that a future, more formal document was intended to be the final, binding contract. Citing cases like Eastover Stores, Inc., the court reasoned that when parties contemplate their agreement will be reduced to a final writing, no contract exists until that final writing is properly executed and binding. Second, the formal Residential Contract of Sale was also not an enforceable contract because the Seller, Norkunas, never communicated her acceptance to the Buyers. Contract formation requires offer and acceptance, and acceptance must be manifested to the offeror. Norkunas's act of signing the documents in private and keeping them, without delivering them or otherwise notifying the Buyers of her assent, was insufficient to form a contract, as there was no 'meeting of the minds.' Her only subsequent communication was a rejection of the offer.
Analysis:
This case provides a clear articulation of the distinction between unenforceable preliminary negotiations and binding contracts, particularly in the context of real estate transactions using letters of intent. The court's holding reinforces Maryland's adherence to the objective theory of contracts, emphasizing that the explicit language within a document is paramount for determining the parties' intent to be bound, regardless of their subjective beliefs. Furthermore, the decision underscores the fundamental contract principle that acceptance must be communicated to be effective, preventing a party's uncommunicated, private actions from creating a binding obligation. This serves as a cautionary tale for parties who rely on preliminary agreements, clarifying that future-oriented language can render such documents legally non-binding.
