Did MOU Constitute an Enforceable Contract? Court Determines If All Material Terms Were Covered

This was originally posted on the SGR Blog.

Proposals, counter-proposals, term sheets, and memos-of-understanding are regularly and routinely exchanged in the ordinary course of negotiations of contracts for the purchase and sale of real property. But, as a recent case illustrates, a mutually accepted MOU may be found to constitute a binding and enforceable agreement in the absence of a more formal contract.

South Bronx Overall Economic Development Corp. sued 4521 Park Ave. Realty Corp. for specific performance and breach of contract in connection with an alleged agreement for sale by 4521 Park to Sobro of the real property at 4521-4529 Park Avenue in the Bronx.

4521 Park moved to dismiss the complaint and for judgment on its counterclaim for damages in the amount of $3,000.000.00 for Sobro’s placing a lien on its property without a valid claim and/or cause of action.

According to the complaint: On or about December 3. 2014, Sobro’s President, and Carlos De Los Santos and Jose Lozano, principals of 4521 Park, executed a Memorandum Of Understanding for the sale of 4521 Park to Sobro, for a purchase price of $1,160,000.00, for the purpose of developing veterans housing. 4521 Park represented that it owned the entire Premises. The MOU was a binding and enforceable agreement for the sale and transfer of the premises. Sobro had performed or had been prevented from performing all conditions set forth in the MOU and was not in default. In reliance on the MOU, Sobro spent more than $65,000.00 in preparation for the development of the project, including appraisals, environmental studies, surveys, and architectural designs and drawings. Sobro was also contractually beholden to investors who had made commitments toward the development of the project. After the signing of the MOU, 4521 Park, without basis, notified Sobro that it would not execute a contract of sale and would not proceed to close title and failed and refused to take the actions necessary to comply with the MOU and close title. After the signing of the MOU, Sobro discovered that 4521 Park had been actively marketing the property to other potential purchasers and had received a downpayment from one such potential purchaser. After the MOU was executed, 4521 Park unjustifiably demanded a higher acquisition price of $2,200,000.00. 4521 Park was in breach of the MOU. At all times, Sobro was and remained ready, willing, and able to close on the premises pursuant to the terms of the MOU. The premises were unique, and Sobro had no adequate remedy at law.

4521 Park moved to dismiss the complaint, contending that the MOU: (1) did not set forth a definitive purchase price; (2) did not include all the essential terms of a complete agreement, including a closing date and a risk of loss clause; and (3) was not a binding contract because certain emails demonstrated that there were negotiations for an agreement but not an enforceable agreement.

Carlos De Los Santos stated that, in email communications dated May 24, 2017, and July 11, 2017, respectively, from Woody Victor, Sobro’s Vice President, Real Estate Development to 4521 Park, Sobro “admitted that there was no binding contract” between Sobro and 4521 Park. De Los Santos pointed to the following statements made by Victor as indicative of the lack of an enforceable agreement between the parties: “Our funding partner may pull out if we don’t have a deal soon,” “I would like us to move to contract ASAP,” and “Current offer on the table.” De Los Santos also stated that the MOU indicated that the purchase price included “a fixed percentage of the development fee” but did not set forth how that fee would be calculated, what it would be, or when it would be paid. Further, 4521 Park did not receive any consideration for the MOU, the MOU did not set forth a closing date, and Sobro did not set a closing date at any time thereafter.

In its “Terms” section, the MOU stated that “[t]he Seller shall sell and convey and the Purchaser shall purchase the property … known as 4521-4529 Park Avenue, Bronx, New York, 10457, Block 3030, Tax Lot 161, 162, and 163.” The purchase price for the land is listed as “$1,160,000 payable as follows: $1,160,000 at a construction closing; 5,000 square feet of commercial space located at the newly constructed building; in addition to a fixed percentage of the development fee, which is to be paid through available cash flow.” In the case of default under the MOU, the MOU provided that: (1) if the purchaser defaulted, the seller’s sole remedy was to retain the downpayment; and (2) if the seller defaulted, the purchaser shall have all remedies available at law or in equity, including, but not limited to, specific performance. The MOU further stated that “it completely expresses their full agreement.”

The dismissal was warranted only if the documentary evidence submitted utterly refuted the factual allegations of the complaint and conclusively established a defense to the asserted claims as a matter of law.

The elements of a claim for breach of contract are (1) existence of a contract; (2) plaintiff’s performance; (3) defendant’s breach; and (4) resulting damages. To create a binding contract, there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms.

Here, the Court found that the MOU sufficiently manifested the mutual assent of Sobro and 4521 Park to all material terms of the agreement. Indeed, it specifically stated that “[a]ll prior understandings, agreements … between the Seller and Purchaser are merged in this MOU [sic] it completely expresses the parties full agreement and has been entered into after full investigation, neither party relying upon any statement made by anyone else that is not set forth in this MOU.” As such, contrary to 4521 Park’s contention, the MOU constituted an enforceable contract. Further, the complaint sufficiently alleged Sobro’s performance under the contract, 4521 Park’s breach thereunder, and resulting damages.

The elements of a claim for specific performance of a contract are: (1) plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations; (2) defendant was able to convey the property; and (3) there was no adequate remedy at law. The Court found that the allegations set forth in the complaint satisfied the pleading requirements for a cause of action for specific performance.

The Court did not find that the documentary evidence submitted by 4521 Park utterly refuted Sobro’s factual allegations and conclusively established a defense to the asserted claims as a matter of law.

4521 Park Ave. Realty Corp.’s motion to dismiss the complaint and for judgment on its counterclaim was denied.

Comments are closed.