Law School Case Brief
Andersen Invs., LLC v. Factory Card Outlet of Am., Ltd. - 630 F. Supp. 2d 1030
A letter of intent (LOI) is defined as a written statement detailing the preliminary understanding of parties who plan to enter into a contract or some other agreement; a noncommittal writing preliminary to a contract. The Iowa Court of Appeals has held that a LOI does not constitute a contract as a matter of law.
Plaintiffs Andersen Investments, LLC, and Northridge Group I, LLC (collectively, Andersen), owner and lessor, respectively, of properties located near shopping malls, entered into a Letter of Intent (LOI) with Defendant Factory Card Outlet of America, Ltd. (FCOA) with respect to a commercial-property lease at a Coralville, Iowa, shopping center. The LOI stated that the lease "is subject to the approval of the FCOA Real Estate Committee, and the negotiation and the execution of a mutually acceptable lease between FCOA and Andersen. Eventually, FCOA's real estate director advised Andersen that FCOA would not enter into the lease because FCOA had been recently acquired by Amscan Acquisitions Holding, and "they would not approve a new store in Coralville. Mark Grossklag, FCOA's agent, told Andersen's developer that FCOA withdrew because FCOA "was blindsided by the parent company when it went to get the lease approved to sign, as they told them they could not do so as Party City had exclusive right to new Iowa deals. Andersen had completed approximately half of the construction on the intended store premises when FCOA notified Andersen of its intent not to sign the lease. After FCOA withdrew from the lease negotiations with Andersen, Andersen filed the present lawsuit in the Iowa District Court for Johnson County, which was removed to federal district court, seeking (1) damages for breach of contract based on FCOA's terminating the lease negotiations, and (2) enforcement of FCOA's promise to enter into a lease under the promissory-estoppel doctrine.
Was the lease contract binding between the parties?
The court found that the lease in question was not in executable form and that no contract would be binding until the parties executed a mutually acceptable lease. Because this condition precedent to form a binding contract did not occur, the agreement to agree to enter into a contract was of no effect. The court held that as a matter of law the LOI did not create a written contract binding either side to enter into an executable lease agreement. Iowa law recognized the validity of oral contracts, even in those cases in which the parties intended to later reduce their agreement to writing. Here, however, the LOI and the draft lease agreement required the parties to reduce the lease into a final and executable form. Because the parties contemplated a condition precedent--execution of the lease--before being contractually bound, and that condition did not occur, the parties could not bind themselves to the oral agreement. The court held that no reasonable jury would find that the parties had concluded an oral agreement. Finally, plaintiffs could not establish a prima facie promissory estoppel cause of action under Iowa law.
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