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Negotiations Cannot Force Party to Be Bound by Contract
Description Appeals court held that no contract was formed when one party responded to a letter from another party by stating that it agreed to the terms of the proposal, when the proposal stated that critical terms had to be resolved before a contract could be formed.
Topic Contracts
Key Words Negotiations; Intent to Be Bound
C A S E   S U M M A R Y
Facts Novecon develops business projects in Bulgaria. It proposed a joint venture for a construction project in Sofia on land owned by Batsov, which was to get a share of the project for contributing land. A construction loan was to come from BAEF. There were four letters between Novecon and BAEF concerning who would have what responsibility for the project. BAEF's last letter said that there were unresolved issues with Batsov that had to be settled before the matter could be finalized. Novecon replied that it accepted the terms of the offer, but it understood that BAEF would resolve matters with Batsov. Negotiations between BAEF and Batsov did not go well and BAEF withdrew from the project. Novecon sued for breach of contract. The district court granted BAEF summary judgment. Novecon appealed.
Decision Affirmed. "For an enforceable contract to exist there must be both (1) agreement as to all material terms; and (2) intention of the parties to be bound." Here there was no contract. BAEF only extended an offer to negotiate when it said it must resolve matters with Batsov, a necessary part of any agreement. Parties "will not be bound to a preliminary agreement unless the evidence presented clearly indicates that they intended to be bound at that point." The exchange of communications could not be held to constitute an agreement by both parties intending to be bound. Rather, they were "merely a part of the preliminary negotiations looking toward the execution of a contract in writing...."
Citation Novecon Ltd. v. Bulgarian-American Enterprise Fund, ___F.3d___ (1999 WL 683006, D.C. Cir.)

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