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Court of Appeals affirms holding that Letter of Intent is enforceable where it contained all necessary terms and did not explicitly reject being bound.

Falls Garden Condominium Association, Inc. v. Falls Homeowners Association, Inc
--- A.3d ---- (2015)
by Gregory S. Emrick, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdcourts.gov/opinions/coa/2015/30a14.pdf

Falls Garden Condominium Association, Inc. (“Falls Garden”) mistakenly believed that it owned 65 parking spaces adjacent to their building. After 23 years, Falls Garden set up parking signs indicating unauthorized vehicles would be towed. The actual lot owner, Falls Homeowners Association, Inc. (“FHA”), contested Falls Garden’s right to erect the signs and Falls Garden filed an action for declaratory judgment. During the course of the litigation, the parties explored the potential of settlement. On August 17, 2011, counsel for the parties executed a Letter of Intent outlining significant portions of the settlement agreement, which was contingent upon FHA obtaining approval of two-thirds of its membership to lease the disputed parking spaces. FHA obtained the necessary approval and submitted a lease agreement with the Letter of Intent terms included, but Falls Garden failed to respond. On November 22, 2011, new counsel for Falls Garden indicated that Falls Garden wanted to go back to “pre-litigation status” and objected to numerous terms in the lease agreement. FHA moved to enforce the settlement. The trial court held that the Letter of Intent demonstrated that the parties had reached an executory accord and enforced the agreement. Falls Garden appealed. The Court of Special Appeals affirmed the trial Court’s ruling and held that the letter of intent was enforceable. See http://www.semmes.com/publications/cases/2013/11/letter-of-intent.asp, summarizing the Court of Special Appeals’ opinion.

Falls Garden then filed a petition for a writ of certiorari to the Court of Appeals, which was granted.

In holding that the Letter of Intent was an enforceable contract to which the parties intended to be bound, the highest Appellate Court noted that there was limited judicial history on the matter. The only case that provided the court any guidance was Cochran v. Norkunas, 398 Md. 1 (2007), where in a letter of intent was found unenforceable between a buyer and seller, because the parties did not intend to be bound. In Cochran, however, the Court recognized that Letters of Intent can constitute a valid enforceable contract in some circumstances.

The Court applied the standard contract interpretation, relying heavily on Corbin on Contracts and adhered to the express language of the Letter of Intent, noting that the parties never rejected being bound by the terms. The Court also noted that all the material terms were present, and the parties could have simply signed the agreement as proposed. The Court also rejected Fall Gardens’ argument regarding the necessity of preparing a lease, noting that it still did not make the Letter of Intent unenforceable. The promise to make future contracts did not cause the terms of the Letter of Intent to be indefinite.

The Court further affirmed the holding that the trial court did not err in failing to hold a plenary hearing, as the terms of the Letter of Intent were unambiguous on their face.