Under Pennsylvania law, the test for enforceability of an agreement is whether both parties have manifested an intention to be bound by its terms and whether the terms are sufficiently definite to be specifically enforced. Additionally, there must be consideration on both sides. Consideration confers a benefit upon the promisor or causes a detriment to the promisee and must be an act, forbearance or return promise bargained for and given in exchange for the original promise.
Appellant prospective tenant entered into negotiations with appellee property owner for the lease of space in a shopping mall. The parties signed a letter of intent which stated that the appellee would withdraw the store from the rental market and negotiate the transaction to completion. Subsequently, appellee leased the space to another tenant. Appellant sought a preliminary injunction, alleging that the letter constituted an agreement to negotiate in good faith. The court denied the injunction and entered a judgment for appellee, holding that the letter was not an enforceable contract. On appeal, the court reversed the judgment and remanded for trial.
Did the agreement have sufficient specificity to make it an enforceable contract if the parties so intended, and did consideration pass between the parties?
The court held that an agreement to negotiate in good faith, if it otherwise met the requisites of a contract, was an enforceable contract. An examination of the entire document and the circumstances surrounding its adoption supported a finding that the parties intended to be bound by it. The record would support a finding that appellant's execution and tender of the letter of intent conferred a bargained for benefit on appellee which was valid consideration for appellant's return promise to negotiate in good faith.