United States District Court, Southern District, Iowa
759 F. Supp. 538 (1990)
Continental Labs and Scott Paper Co have been working on a potential supply and distribution agreement for months. They go back and forth with drafts and even the spokesman for Scott Paper sends an internal memo to his company explaining the new partnership. At the stage of seven months, Scott backs out and Continental Labs sues for damages based upon a breach of contract. Scott moves for Summary Judgment based on the fact that there is no contract. Continental Labs states that a binding oral agreement took place during a conference call on either August 25th or 26th.
First called for in the Iowa District Court of Boone County Iowa, but Scott moved for a diversity of citizenship jurisdiction and moved it to the United States District Court, Southern District, Iowa.
Can the speech that was used by the parties on the conference call constitute a binding legal agreement?
Arguments for Both Parties
Plaintiff states that yes it can, based upon all of the circumstances surrounding the written contract and the timeline, with the kicker being the said binding oral agreement in late August. Defendant states that there was never a contract.
Holding & Rule
A binding oral contract may exist even though the parties intend to memorialize their agreement in a fully executed document. However, if either party intends to not be bound in the absence of a fully executed document, no amount of negotiation or oral agreement as to specific terms will result in the formation of a binding document. Therefore, the court grants summary judgment to Scott on the basis that there is no contract that was breached.
If either party intends not to be bound in the absence of a fully executed document, no amount of negotiation or oral agreement as to specific terms will result in the formation of a binding contract.
The offer is when the contract is fully fleshed out and ready for signatures. Acceptance is when the offer is signed by both parties.
They move for sum judgment because they do not disagree with any matters of fact. Only disagree on the matter of whether or not a binding contract exists, which is a matter of law, not fact.