Adjustrite Sys. v. GAB Bus. Servs. - 145 F.3d 543 (2d Cir. 1998)

Rule:

There are four factors to be considered in determining whether the parties to a preliminary agreement that called for execution of a formal instrument intend to be bound in the absence of such an executed final instrument: whether there is an express reservation of the right not to be bound in the absence of a writing; whether there is partial performance of the contract; whether all of the terms of the alleged contract are agreed upon; and whether the agreement at issue is the type of contract that is usually committed to writing.

Facts:

The parties had executed an informal two-page document to memorialize their agreement that defendants were to purchase plaintiffs' assets. Plaintiffs brought a breach of contract action when defendants failed to follow through on the agreement, and sought review when defendants' motion for summary judgment was granted. 

Issue:

Was the preliminary agreement binding upon the parties, on the basis of which, plaintiffs can assert their breach of contract claim? 

Answer:

No.

Conclusion:

The court affirmed the granting of summary judgment in favor of defendants. The court found four factors relevant in determining whether a preliminary agreement was intended to be binding or merely an agreement to further negotiate in good faith: whether there was an express reservation of the right not to be bound if formal agreements were not executed, whether partial performance of the contract had occurred, whether all material terms had been agreed upon, and whether the agreement was of the type ordinarily committed to a formal writing. The court found that material provisions were missing from the informal agreement, and that the size of the agreement as well as the fact that it concerned the purchase of intangible intellectual property rights weighed in favor of finding that the parties did not intend the informal agreement to be binding.