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    The Lawletter Blog

    CONTRACTS: Memorandum of Understanding Was Not a Binding Contract

    Posted by Gale Burns on Mon, Sep 29, 2014 @ 15:09 PM

    The Lawletter Vol 39 No 7

    John Stone, Senior Attorney, National Legal Research Group

         An architectural firm and two developers sued a City after the City abandoned its plan, under a "Memorandum of Understanding" ("MOU") into which the parties had entered, to develop a publicly funded hotel. The plaintiffs asserted claims for breach of contract and quantum meruit. The Supreme Court of South Carolina granted summary judgment for the City on both claims. Stevens & Wilkinson of S.C., Inc. v. City of Columbia, No. 27434, 2014 WL 4087936 (S.C. Aug. 20, 2014) (not yet released for publication).  

         On the breach-of-contract theory, the MOU showed that there was no true meeting of the minds among the parties as to all material terms, and, thus, it was not a binding contract. The MOU expressly stated an intention to enter into future agreements, thus indicating that the parties consciously agreed to finalize binding agreements at some future time, and the MOU described the intended agreements with a "fluidity" that made it impossible for a court to anticipate the terms:

    It is only an agreement to agree in the future outlining the framework under which the parties would proceed to negotiate the development of the hotel. By its own terms, it "reflects the intent to proceed in good faith to execute definitive written agreements with respect to the business terms and conditions herein contained." (emphasis added). The MOU expressly states the intention to enter into future "definitive" agreements, such as the Development Management Agreement, the Design/Build Agreement, the Qualified Management Agreement, and the HQ Hotel Room Block Commitment.

    Id. at *4.

         Moreover, the court held that where the written document, by its own terms, unambiguously indicated it was meant to be nonbinding, the court would not allow the introduction of extrinsic evidence in an attempt to contradict that clear expression, and any analysis of the purported contract would be "limited to the four corners of the document." Id.

         The plaintiffs' quantum meruit argument fared no better. Quantum meruit is an equitable doctrine that allows recovery for unjust enrichment under what is sometimes called a quasi-contract theory. "The elements of a quantum meruit claim are (1) a benefit conferred upon the defendant by the plaintiff, (2) realization of that benefit by the defendant, and (3) retention by the defendant of the benefit under conditions that make it unjust for him to retain it without paying its value." Id. at *7 (internal quotation marks omitted).

         In Stevens & Wilkinson, the court found that the two developers did not provide more than a "mere scintilla" of evidence that the City had retained a benefit from their work. They had alleged that a building constructed by a third party looked similar to the developers' schematics for a hotel and that they had imparted some knowledge to the City. The court, however, found that there was no other evidence that the third party subsequently chosen to develop the hotel had used those schematics in any way or, even if it had, how that benefited the City. The court also observed that to some extent any dealing with other professionals is educational and that this is particularly true in the context of business negotiations, but that this factor did not have any real intrinsic value for the City.

         The court went on to say that even if it had found that the City had received some benefit from the plaintiffs, it found no evidence that any such "enrichment" was unjust, as is required under the quantum meruit theory of recovery. For example, there was no evidence that the developers had any reason to expect that the City would otherwise compensate them for any work they performed in the event that the project were not completed. As the MOU itself made plain, the parties were aware they were proceeding at risk until the bond financing for the project closed:

    The Project Team will  be responsible for  the costs incurred prior to closing  the financing. . . . If Hotel financing fails to close as a result of the City not meeting its obligations outlined in the Development Management Agreement, . . . the City will reimburse the Project Team for actual, documented costs incurred to that point up to an amount to be agreed upon.

    Id. at *2 (quoting MOU).

    Topics: legal research, S.C. Supreme Court, John M Stone, The Lawletter Vol 39 No 7, contracts law, memorandum of understanding, nonbinding, Stevens & Wilkinson of S.C. v. City of Columbia, only intention to enter future agreements, document terms indicated nonbinding, quantum meruit requires unjust enrichment

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