Cochran v. Norkunas (Ct. of Appeals)

Filed March 20, 2007. Opinion by Judge Irma Raker.

Held: A letter of intent is not enforceable as a binding contract for the sale of real property where the letter indicates that a standard form contract would be delivered and specified how certain terms in that contract would be construed. This indicates a lack of intent by the parties to be bound by the letter.

A contract for the sale of real property is not enforceable where the offeree did not manifest acceptance of the contract by mailing or other action.

Facts: The dispute arose over the sale of residential real property. The Buyers tendered a letter of intent ("LOI") to purchase the property. Among other things, the LOI specified that the parties would execute a standard form Maryland Realtors contract. The Buyers then delivered a contract and addenda to the Seller to effect the transaction. The Seller signed the contract and addenda on the majority of the signature lines, but the Seller crossed out and did not sign certain contingency provisions. Ultimately, the Seller did not return the documents to the Buyers. Nor did she otherwise communicate to the Buyers that she had accepted their offer. The Seller simply retained the signed documents. After a week had passed, the Seller communicated to the Buyers that she was taking the property off the market.

The Buyers sued for specific performance of the LOI. During discovery, the Buyers learned that the Seller had privately signed the contract and most addenda. Upon learning this, the Buyers amended the complaint to request specific performance of the contract. The Buyers submitted affidavits stating that the changes the Seller had made to the proposed contract would have been acceptable to them.

The Circuit Court for Baltimore City granted summary judgment in favor of the Buyers, holding that the LOI and contract "signed by all parties constitute the contract in this case and together they constitute an enforceable contract of sale."

The Court of Special Appeals reversed. A copy of the opinion is available here. The CSA concluded that the LOI did not indicate that the parties had reached final agreement at the time the LOI was signed. Second, the CSA held that the Seller did not accept the contract, even though she signed the documents, because the Seller did not mail the signed contract to the Buyers so as to communicate her acceptance.

On appeal to the Court of Appeals, the Court held that a manifestation of mutual assent is an essential prerequisite to the creation of a contract. Upon reviewing the LOI, the Court concluded that a reasonable person would have understood the LOI to mean that a formal contract offer was to follow the letter of intent. The Court found that the plain language of the document indicated that the parties intended to finalize the sale through a standard form Maryland Realtors contract. Accordingly, the Court held that the LOI was the type of preliminary "agreement to agree" generally held to be unenforceable in Maryland.

Regarding enforcement of the executed but undelivered sales contract, the Court held that the Seller had not manifested acceptance of the terms of the agreement. The Court rejected the Buyers' argument that execution of a document in private, without delivery of the document or other manifestation of assent was sufficient. Rather, the Court held that notice of acceptance must be communicated to the counter-party in some way. In the case at hand, the Seller had not communicated her acceptance.

Accordingly, the Court affirmed the opinion of the CSA overturning the judgment of the Circuit Court in favor of the Buyers.

The full opinion is available in PDF.