Precision Time v. Equity Prop.

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Precision Time, Inc.,
a Utah corporation,
Plaintiff and Appellee,

v.

Equity Properties and
Development Limited Partnership,
an Illinois limited partnership,
doing business in Utah as Equity Properties
and Development (Illinois) Limited Partnership,
Defendant and Appellant.

MEMORANDUM DECISION
(Not For Official Publication)

Case No. 990982-CA

F I L E D
October 25, 2001 2001 UT App 313 -----

Third District, Salt Lake Department
The Honorable Stephen L. Henriod

Attorneys:
Cameron M. Hancock, Paul C. Burke, and Steven W. Call, Salt Lake City, for Appellant
George A. Hunt and Carolyn S. Jensen, Salt Lake City, for Appellee

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Before Judges Jackson, Orme, and Thorne.

ORME, Judge:

Whether an oral agreement can be enforceable when the parties contemplated the execution of a written agreement is a question of intent. See Doll v. Grand Union Co., 925 F.2d 1363, 1370 (11th Cir. 1991); Engineering Assoc. v. Irving Place Assoc., 622 P.2d 784, 787 (Utah 1980). "There does not appear to be any doubt that if the parties make it clear that they do not intend that there should be legal consequences unless and until a formal writing is executed, there is no contract until that time." Engineering Assoc., 622 P.2d at 787. See R.J. Daum Constr. Co. v. Child, 247 P.2d 817, 820 (Utah 1952) (explaining that "'if an intention is manifested in any way that legal obligations between the parties shall be deferred until the writing is made, the preliminary negotiations and agreements do not constitute a contract'") (quoting Restatement of Contracts § 26 cmt. a (1932)).(1)

On facts similar to those of the instant case, the court in Doll concluded that it was "unwilling to allow a jury to infer an agreement to sign a lease when one of the parties specifically declared its intention not to be bound until a lease was drafted and signed by both parties." 925 F.2d at 1370. The court explained that while enforcing a verbal agreement may be justified where the evidence suggests that this was the intent of the parties, "when the parties make their intentions [not to be bound absent a formal executed agreement] clear, there is no basis for a court to step in and contradict their explicit desires." Id. See 1 Joseph M. Perillo, Corbin on Contracts § 2.9, at 149-50 (revised ed. 1993).

In this case, Equity repeatedly made clear its intent not to be bound until the parties had executed a formal writing containing all terms of a comprehensive agreement. Equity included language in letters it sent Precision explaining this intention, and such language also appeared in various draft leases. In light of these facts, that the parties successfully negotiated and reached a tentative agreement on a number of the relevant terms does not justify ignoring appellant's continuously expressed intent not to be bound other than by a finalized, signed lease.(2)

Further, even if Precision was free to ignore the expressed intent of Equity, the facts of this case simply do not indicate that a complete lease agreement was ever reached, even orally. Precision contends that an agreement was reached on April 18, 1995, and fully memorialized in a final draft of the lease circulated on May 17, 1995. This argument is untenable given that the parties continued to reject and alter key terms of their still-evolving agreement after May 17 and until at least May 31, 1995.(3) Confronted with these facts and Equity's continuous inclusion of language in the proposed lease agreements and correspondence between the parties indicating that Equity would not be bound until a formal lease was executed, we conclude that it was improper to enforce one of the many draft leases as though it were a binding contract.(4) The verdict and judgment are contrary to law, and they are accordingly reversed.
 

______________________________
Gregory K. Orme, Judge -----

WE CONCUR:
 

______________________________
Norman H. Jackson,
Associate Presiding Judge
 

______________________________
William A. Thorne, Jr., Judge

1. For the current version of this precept, see Restatement (Second) of Contracts § 27 cmt. b (1981).

2. In Doll, the plaintiffs argued they had reached an agreement with the defendant on all essential terms of a lease. See 925 F.2d at 1368; Corbin § 2.9, at 150 n.9. The Eleventh Circuit noted that the plaintiff's focus on the details agreed upon "ignored the primary question" and held that the defendant's intent not to be bound until a formal written agreement had been executed was clear and determinative. See 925 F.2d at 1368-70.

3. This is a clear indication that neither party believed they had a binding final agreement. Not only did Precision acknowledge that it understood a formal written agreement had to be executed, but it continued, as late as May 2, 1995, to propose changes to the April 18, 1995 draft lease, including a request for a $75,000 tenant construction allowance instead of a $70,000 allowance. Furthermore, on May 22, 1995, Precision rejected and/or altered terms of the May 17 draft lease. Following this date, the parties were never able to come to an agreement on all terms.

4. Even if a final oral agreement had been reached, the Statute of Frauds would likely render it unenforceable. See Utah Code Ann. § 25-5-3 (1995). See also 4 Caroline N. Brown, Corbin on Contracts § 17.7, at 431-34 (Joseph M. Perillo ed., revised ed. 1993).