107 A.3d 1183
Md.2015Background
- Falls Garden (condominium association) sued The Falls (homeowners association) seeking declaration that Falls Garden owned 39 of 67 disputed parking spaces by adverse possession or easement; The Falls counterclaimed for trespass.
- Parties negotiated and executed a Letter of Intent (LOI) that identified material lease and settlement terms: lease of 24 specific spaces for 99 years at $20/month per space, lessee responsibilities (maintenance, taxes, insurance, indemnity), and mutual dismissal/release of claims.
- LOI stated The Falls would prepare a lease for review/comment/execution and made performance contingent on The Falls obtaining a 2/3 member vote.
- Dispute arose when Falls Garden later refused to execute the draft lease; The Falls moved to enforce settlement based on the LOI.
- The circuit court granted enforcement; the Court of Special Appeals affirmed. Maryland Court of Appeals granted certiorari to decide whether the LOI was a binding contract and whether a plenary hearing was required.
Issues
| Issue | Plaintiff's Argument (Falls Garden) | Defendant's Argument (The Falls) | Held |
|---|---|---|---|
| Whether the LOI is a binding contract | LOI was only a framework; parties did not intend to be bound; material terms were left for later lease | LOI contains definite agreement on all material terms and manifests intent to be bound | LOI is enforceable: it expresses definite agreement on material terms and shows parties intended to be bound |
| Whether all material terms were included in the LOI | Several material lease terms were omitted or were altered in the draft lease (e.g., forfeiture, insurance limits, tax allocation, towing) so LOI is indefinite | LOI sets out the essential lease and settlement terms (term, spaces, location, rent, lessee obligations, release/dismissal) so it is sufficiently definite | LOI included definite material terms (lease and settlement) on its face; omissions did not render it indefinite |
| Whether the LOI’s provision that The Falls would prepare a lease requires a later binding contract | The clause shows parties intended to finalize terms later and thus no present mutual assent | Preparing a formal lease does not negate binding agreement when LOI already sets out essential terms | The mere contemplation of reducing the agreement to a formal lease did not negate present mutual assent given the LOI’s definiteness |
| Whether a plenary evidentiary hearing was required on intent to be bound | Falls Garden proffered testimony that members did not intend to be bound and requested a full hearing on credibility | The LOI is unambiguous; extrinsic, self-serving testimony was unnecessary | No plenary hearing required because the LOI was unambiguous and enforceable; trial court properly relied on objective document analysis |
Key Cases Cited
- Cochran v. Norkunas, 919 A.2d 700 (Md. 2007) (letter of intent unenforceable where parties did not intend to be bound; uses Corbin categories and objective analysis)
- Falls Garden Condominium Ass’n, Inc. v. Falls Homeowners Ass’n, Inc., 79 A.3d 950 (Md. App. 2013) (intermediate appellate decision affirming enforcement of the LOI)
- Peoples Drug Stores, Inc. v. Fenton Realty Corp., 62 A.2d 273 (Md. 1948) (material terms cannot be left for future settlement for a contract to be final)
- General Motors Acceptance Corp. v. Daniels, 492 A.2d 1306 (Md. 1985) (objective theory of contract interpretation: courts give effect to plain, unambiguous language)