An agreement between parties to agree to contract at a separate time may be enforceable in court even though the later contract was never created, so long as the agreement includes all the material terms and leaves nothing for further negotiations. This was result in the recent December 13, 2013 Michigan Court of Appeals decision Juliano v. Smith,
In Juliano v. Smith, the plaintiffs were investors in two capital management companies that owned shares in two other companies, iSekurity and Ecology Coatings. The plaintiffs had alleged in Oakland County Circuit Court that the defendant, an officer and sole director of Ecology Coatings, was imperiling Ecology Coatings’ ability to continue operations, and therefore negatively impacting the value of the plaintiffs’ investments. The Circuit Court held in favor of the plaintiffs and upheld a Memorandum of Understanding (MOU) between plaintiffs and the defendant. The MOU was an agreement between the parties asserting that “[t]he parties have reached an agreement” and included the terms of the agreement that were to be included in a settlement agreement in the near future. Despite this agreement, the parties failed to enter into an actual final settlement agreement and the Circuit Court instead upheld the terms of the MOU as the final settlement agreement instead.
On appeal, the Michigan Court of Appeals affirmed the Circuit Court’s decision (however remanding it for the ministerial task of amending the trial court’s order) finding the MOU was enforceable even though it was a “contract to contract”. In upholding the Circuit Court’s decision, the Court of Appeals noted that a contract to contract may be enforceable if it includes all the material terms of the agreement and leaves nothing for further negotiations. The Court of Appeals also rejected defendant’s other arguments against upholding the MOU, including finding that he had presented insufficient evidence of fraud, he could not have shown the plaintiff owed him fiduciary duties during the settlement negotiations, he did not make an adequate showing of mistake, and the defense of impossibility was not available.
The court’s opinion can be accessed at the link below:
http://law.justia.com/cases/michigan/court-of-appeals-unpublished/2013/308296.html
Lisa Okasinski is a licensed attorney in the State of California. If you have any questions about the information above, please contact the attorneys at Demorest Law, PLLC.
