Parties may effectively bind themselves by an informal memorandum where they agree upon the essential terms of the contract and intend to be bound by the memorandum, even though they contemplate the execution of a more formal document. The ultimate question is one of intent.
Appellant commercial lessee sought review of a judgment of a New Jersey trial court, which found that appellant and respondents, lessor and real estate broker, intended to be bound by a letter of intent despite the fact that a more formal lease was contemplated, and held that appellant's recission was a breach of the contract. Appellant commercial lessee signed a letter evincing his intent to lease a commercial building from respondent lessor. Respondent lessor signed the letter, and respondent real estate broker signed the letter as a witness. The next day, appellant told respondent real estate broker that he had changed his mind and did not consider himself bound by the letter. Respondents filed a lawsuit seeking damages, and the trial court concluded that the parties intended to be bound by the letter despite the fact that they contemplated a more formal lease. The trial court assessed damages in favor of respondents. Appellant sought review, contending that the letter was not a binding contract because it did not contain the essential terms of a lease.
Whether the parties’ proposal to execute a more formal contract negated the effectiveness of the letter as a contract?
The court affirmed the trial court judgment, holding that the mere fact that the parties proposed to execute a more formal contract did not negate the effectiveness of the letter as a contract. The court noted that the key fact was the parties' intent, and that the absence of essential contract provisions was but an element in the finding of intent and enforceability. The court held that the parties entered into an enforceable contract.