§ 2.9 Formal Document Contemplated by the Parties

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One of the most common illustrations of preliminary negotiation that is totally inoperative is one where the parties consider the details of a proposed agreement, perhaps settling them one by one, with the understanding during this process that the agreement is to be embodied in a formal written document and that neither party is to be bound until they execute this document. At times they execute a letter of intent, with the understanding that they are not bound until a later definitive writing is drafted, approved and executed.n1 Often it is a difficult question of fact whether the parties have this understanding. There are very many decisions holding both ways. These decisions should not necessarily be regarded as conflicting, even though it may be hard to reconcile some of them on the facts that are reported to us in the appellate reports. It is a question of fact that the courts are deciding, not a question of law; and the facts of each case are numerous and not identical with those of any other case.n2 In very many cases the question may properly be left to a jury.n3 The parol evidence rule plays no role in excluding evidence of the parties' intentions; it does not come into play until it is decided that a final writing has been adopted.n4

The courts are quite agreed upon general principles. The parties have power to contract as they please. They can bind themselves orally or by informal letters or telegrams if they like. On the other hand, they can maintain complete immunity from all obligation, even though they have expressed agreement orally or informally upon every detail of a complex transaction. The matter is merely one of expressed intention.n5 If their expressions convince the court that they intended to be bound without a formal document, their contract is consummated, and the expected formal document will be nothing more than a memorial of that contract. In very many cases the court has been convinced that such was the intention and has held the parties bound by a contract even though no document has been executed.n6 Often a subcontractor submits a bid, in accordance with prepared plans and specifications, for the prime contractor's use in obtaining the principal contract. The latter's acceptance of the bid may consummate the subcontract even though it is not reduced to a formal instrument as was contemplated. The terms may be sufficiently definite and complete.n7 However, if the party who invited the bids indicates to the low bidder that it intends not to be bound until a formal written contract was executed, the parties are not bound.n8 Neither party can ignore the expressed intent of the other.n9

It is very common practice in the field of insurance for the agent to give to the applicant an oral or written preliminary ''binder'', one that has in many cases been held to be effective as a contract of insurance prior to the issuance of a formal ''policy'', sometimes being so held even though the fact of insurability or the amount of the premium is yet to be determined.n10

If the court is convinced that the parties intended not to be bound until the formal document is executed, there is no contract until its execution by both parties. There are many cases holding that such was the intention and that no contract was made.n11

Usage and custom may be decisive of the issue. The greater the complexity and importance of the transaction, the more likely it is that the informal communications are intended to be preliminary only. The fact that the parties contemplate the execution of a document is some evidence, not in itself conclusive, that they intend not to be bound until it is executed.n12

It is not uncommon for a party to express agreement upon one or more terms, either orally or by letter, ''subject to the execution of a satisfactory contract.'' Normally, this means that the formal document is to be the only binding expression of agreement.n13 The phrase ''subject to'' is not wholly conclusive as to this. Other terms in the agreement may contain language indicating a mutual manifestation of assent.n14 The effect of such language also depends on the matter to which the obligation is to be ''subject.'' If this matter is the signature of a party or other expression of will, presumably no contract has yet been made. But if the matter is some event or some act of a third person, the parties may now be bound irrevocably, though their obligation may be a conditional one. Such would be the case if they agree upon the sale of an article subject only to an expression of opinion by X as to its quality or value.n15

The subsequent conduct and interpretation of the parties themselves may be decisive of the question as to whether a contract has been made, even though a document was contemplated and has never been executed.n16 They may both have already begun performance and may have made statements that are strongly evidential. Of course, the subsequent conduct of the parties may constitute a tacit contract on the terms previously agreed upon, even though the understanding at first had been that the execution of a formal document was necessary.n17

If the court finds that a binding contract was made before the execution of any formal writing, it will not be displaced or discharged by a writing that is subsequently executed unless that writing itself complies with the requirements of a valid contract. If the subsequent writing contains a provision whereby one party undertakes an additional performance, that undertaking may be invalid because there was no consideration for it and no sufficient substitute for a consideration by way of action in reliance or otherwise.n18

The evidence may be convincing that the parties intend to reduce their already consummated contract to writing as a mere ''memorial'' thereof and not as their only operative expression of assent. In such a case, the contract is valid even though they try and fail to agree upon the form and terms of the memorial.n19 A letter of confirmation may omit a term previously agreed on or may include a new and different term that now seems desirable. The other party may then prepare a confirmation to which the first party will not assent. The result may be that there is no confirmation and no ''memorial.'' Afterthoughts cannot be brought into the contract except by mutual assent; the informal contract stands as made.n20

Two negotiating parties may have inconsistent intentions as to whether the consummation of a contract shall await the execution of a formal document. The question then presented to the court is to be determined in accordance with the principles applicable in other cases of mistake and misunderstanding. In such a case no contract exists until the document is executed, unless the party intending this result knew or had reason to know that the other party intended and understood that their mutual expressions should be operative before execution of the document.

In making the factual interpretation that the application of the rules of this section requires, the following classification of cases, in which the parties contemplate the reduction of their terms of agreement to a more formal document, may be found helpful: (1) At one extreme, the parties may say specifically that they intend not to be bound until the formal writing is executed,n21 or one of the parties has announced to the other such an intention.n22 (2) Next, there are cases in which they clearly point out one or more specific matters on which they must yet agree before negotiations are concluded. (3) There are many cases in which the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential, but that other people often include in similar contracts.n23 (4) At the opposite extreme are cases like those of the third class, with the addition that the parties expressly state that they intend their present expressions to be a binding agreement or contract; such an express statement should be conclusive on the question of their ''intention.''

If the facts of a case properly fall within either the third or the fourth class above, a valid contract has been made. This is true, even though one or both of the parties may be aware that when prepared the formal writing will contain such additional provisions as they may then agree upon. However formal and complete a written contract may be, it is always competent for the parties to vary the terms or to add new ones by mutual agreement.n24 The existence of such a possibility as this has no effect upon the validity of any contract, formal or informal.

Courts from time to time indicate that, in case of doubt, there is a presumption that a preliminary agreement is not binding.n25 If by this is meant that the proponent of the contract has the burden of proof as to its existence, no one can quarrel with the formulation. If it is also intended to mean that, despite agreement on all essential terms,n26 an expressed intent that the agreement will be memorialized raises the presumption against the existence of a contract, the generalization is on shaky ground, there being many cases to the contrary.n27 If there is doubt as to whether the parties have manifested an intention to be bound, the Restatement (Second) has identified the factors which are helpful in determining whether such a manifestation has occurred. These are: ''the extent to which express agreement has been reached on all the terms to be included, whether the contract is of a type usually put in writing, whether it needs a formal writing for its full expression, whether it has few or many details, whether the amount involved is large or small, whether it is a common or unusual contract, whether a standard form of contract is widely used in similar transactions, and whether either party takes any action in preparation for performance during the negotiations. Such circumstances may be shown by oral testimony or by correspondence or other preliminary of partially complete writings.''n28 A somewhat different list has been put forward by the Second Circuit for determining the issue under the law of New York: first, whether a party has expressly reserved the right to be bound only when a written agreement is signed; second, whether there has been any part performance by one party that the other party accepted; third, whether all essential terms of the alleged contract had been agreed upon; and fourth, whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected.n29 These were precisely the criteria used by the Texas court in applying New York law in Texaco, Inc. v. Pennzoil Co. n30 The Texas court's liberal application of this test, resulting in its upholding a jury verdict for $7.3 billion in compensatory damagesn31 caused great consternation in sectors of the New York financial and legal circles. It is not wild speculation to suggest that the Arcadian decision discussed below was a reaction to the Texaco decision.

The Arcadian casen32 involved the Arcadian Corporation (''Arcadian''), a fertilizer manufacturer, and Arcadian Phosphates Incorporated (''API''), a corporation formed to be a vehicle for buying Arcadian's fertilizer business. The two corporations signed a four page memorandum of understanding outlining the purchase price, describing the assets to be purchased and providing for an option for Arcadian to purchase up to 20% of API's shares. Several months later they signed a further memorandum incorporating the first memorandum and providing further details of the anticipated sale. Other provisions were subject to mutual agreement. Three other provisions were deemed by the court to be highly significant. The first stated that if negotiations for the sale failed, Arcadian would repay any capital expenditures made by API, and the second provided that if negotiations failed through no fault of API, Arcadian would refund API's deposit. The third was a reference to a binding sales agreement to be completed. The memorandum was approved by Arcadian's board of directors and the Togolese government (the source of phosphate supplies). API received a commitment from a bank to finance the purchase price, established its offices in Arcadian's headquarters and made improvements in Arcadian facilities. Suddenly, the market value of fertilizers soared dramatically. Arcadian reacted swiftly. It changed its negotiating position to seek more than 50% of the ownership of API and returned API's down payment.

The court adopted a new approach toward preliminary agreements, which may well shape much future case law in this area.n33 The approach had first been formulated by District Judge Leval who classified binding preliminary agreements as being of two types.n34 In the first type the parties have reached complete agreement on all of the issues requiring negotiation, but have not completely formalized the agreement. In which case the parties are bound to carry out the transaction. In the second type, the parties have committed themselves to some major terms, but some terms will remain to be negotiated. In such a case they accept an obligation to negotiate together in good faith in an effort to reach final agreement. In other words the parties have implicitly adopted the kind of clause that was explicit in the Itek case discussed in § 2.8 above. To determine whether the parties have reached a binding agreement of the second type, the court applied a modified version of the second circuit's four factor test discussed above. As applied to the Arcadian facts, the court ruled that the language in the memorandum, allocating the risks of a failed negotiation and its reference to a binding agreement to be completed at some future date, conclusively established that no binding contract had been reached. None of the other factors needed to be considered. The court went on to say, however, that because Arcadian breached its obligation to bargain in good faith, it was liable in promissory estoppel. The court suggested, but did not rule, that on remand API might be limited to recovery for its out-of-pocket expenses. Although generally regarded as a conservative reaction to cases such as Texaco, Inc. v. Pennzoil Co., the case represents an evolutionary advance. It recognizes that inherent in the preliminary agreement there may be an obligation to negotiate in good faith. Although it builds on Judge Leval's analysis, it differs significantly in its implementation. In Judge Leval's analysis the obligation to negotiate in good faith is inherent in the preliminary agreement that is a binding conventional contract, for breach of which expectation damages are awardable.n35 The Second Circuit agrees with this analysis but also finds an obligation to negotiate in good faith in a case where no conventional contract exists but in which the withdrawing party has foreseeably induced an injurious change of position by the other negotiating party.n36

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For related research and practice materials, see the following legal topics:

Contracts LawFormationExecutionContracts LawFormationGeneral OverviewContracts LawFormationAcceptanceMethods of AcceptanceGeneral OverviewContracts LawFormationMeeting of Minds

FOOTNOTES:

(n1)Footnote 1. On the purposes and function of letters of intent, see § 1.16 above.

(n2)Footnote 2.

Alaska - Juliano v. Angelini, 708 P.2d 1289 (Alaska 1985) .

Idaho - Thompson v. Pike, 122 Idaho 690, 838 P.2d 293 (1992) ; Miller Constr. Co. v. Stresstek, Division of L.R. Yegge Co., 108 Idaho 187, 697 P.2d 1201 (App.1985) .

Miss. - Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F.Supp. 1176 (N.D.Miss.1970) .

N.Y. - Eisenberg & Levi v. Montague & Co., 1991 U.S. Dist. LEXIS 11627 (S.D.N.Y. 1991), summary judgment denied as the question is one of fact.

Most of the other cases cited in this section also support this point.

(n3)Footnote 3.

Ala. - H.C. Schmieding Produce Co. v. Cagle, 529 So.2d 243 (Ala.1988) .

Del. - Universal Products Co. v. Emerson, 36 Del. 553, 179 A. 387, 100 A.L.R. 956 (1935) .

Ill. - Chapman v. Brokaw, 225 Ill.App.3d 662, 167 Ill.Dec. 821, 588 N.E.2d 462 (1992) , rehearing denied.

Ky. - Barr v. Gilmour, 204 Ky. 582, 265 S.W. 6 (1924) .

Mass. - Bates v. Southgate, 308 Mass. 170, 31 N.E.2d 551, 133 A.L.R. 1349 (1941) .

Mich. - Opdyke Invest. Co. v. Norris Grain Co., 413 Mich. 354, 320 N.W.2d 836 (1982) .

Tex. - Turboff v. Gertner, Aron & Ledet Invest., 763 S.W.2d 827 (Tex.App.1988) , appeal after remand, 840 S.W.2d 603 ; Rosebud Oil & Cotton Co. v. Merchants' & Planters' Oil Co., 248 S.W. 116 (Tex.Civ.App.1923) .

Wash. - Bharat Overseas Ltd. v. Dulien Steel Products, Inc., 51 Wash.2d 685, 321 P.2d 266 (1958) (citing this section).

W.Va. - Brown v. Western M.R. Co., 92 W.Va. 111, 114 S.E. 457 (1922) .

This section is cited in Godfrey v. Heublein, 219 F.2d 654 (2d Cir.1955) , sustaining the trial court's finding that the parties did not intend to be bound by an informal contract before the execution of a written integration. The question of such intention is a question of fact. In McKeon v. Giusto, 44 Cal.2d 152, 280 P.2d 782 (1955) , the court similarly held that the intention to make a binding oral contract was a question of fact and sustained the trial court's finding that such an oral contract was made even though there were negotiations for a different written contract.

In Simmons & Simmons Constr. Co. v. Rea, 155 Tex. 353, 286 S.W.2d 415 (1955) , the court reviews the evidence and holds that it indicated an intention not to be bound until the prepared written draft had been signed by both parties. The court states that, had the question been submitted to a jury and a verdict rendered for the plaintiff, it is not prepared to say that it would or would not have sustained the verdict. See note on this case under § 2.10. The court quotes from § 2.10, 2.11.

In Brassteel Mfg. Co. v. Mitsubishi International Corp., 21 Misc.2d 343, 192 N.Y.S.2d 200 (1959) , the parties executed a preliminary document providing that certain performances should be rendered and stating that ''this temporary agreement which will serve as our understanding until the formal agreement is drawn up by our lawyer and formal chattel mortgages executed. This represents our understanding and working agreement until legalized by appropriate contract.'' The court denied a motion to dismiss for legal insufficiency. Further evidence of the intention of the parties was necessary. The court also quoted from Hart v. Socony-Vacuum Oil Co., 291 N.Y. 13, 18, 50 N.E.2d 285, 287, 148 A.L.R. 390 (1943) , as follows: ''While the construction of writings is, to be sure, matter of law in the sense that it is an affair for the judge, still the particulars of the process of ascertaining the disclosed intention of the writer are for the most part items of fact.''

Cases holding both ways are collected in quantity in notes to Rosenfield v. U.S. Trust Co., 290 Mass. 210, 195 N.E. 323, 122 A.L.R. 1210 (1935) , and Nigro v. Conti, 319 Mass. 480, 66 N.E.2d 353, 165 A.L.R. 752 (1946) .

(n4)Footnote 4. I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 n. 6 (Colo.1986) , rehearing denied.

Miller Constr. Co. v. Stresstek, Division of L.R. Yegge Co., 108 Idaho 187, 697 P.2d 1201, 1204 (App.1985) . The court states: ''However, ''[t]he parol evidence rule comes into play only when the last expression is in writing and is binding contract.'' J. Calamari & J. Perillo, The Law of Contracts § 3-2 at 99 (2d ed. 1977).'' (emphasis added by the court).

(n5)Footnote 5. In Mississippi & Dominion Steamship Co. v. Swift, 86 Me. 248, 29 A. 1063 (1894) , Emery, J., said: ''From these expressions of courts and jurists, it is quite clear that, after all, the question is mainly one of intention. If the party sought to be charged intended to close a contract prior to the formal signing of a written draft, or if he signified such an intention to the other party, he will be bound by the contract actually made, though the signing of the written draft be omitted. If, on the other hand, such party neither had nor signified such an intention to close the contract until it was fully expressed in a written instrument and attested by signature, then he will not be bound until the signatures are affixed. The expression of the idea may be attempted in other words: if the written draft is viewed by the parties merely as a convenient memorial, or record of their previous contract, its absence does not affect the binding force of the contract; if, however, it is viewed as consummation of the negotiation, there is no contract until the written draft is finally signed.'' It was held that there was no contract.

See:

Conn. - Safford v. Morris Metal Products Co., 97 Conn. 650, 118 A. 37 (1922) ; Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921) ; Garber v. Goldstein, 92 Conn. 226, 102 A. 605 (1917) ; Mercer Elec. Mfg. Co. v. Connecticut Elec. Mfg. Co., 87 Conn. 691, 89 A. 909 (1914) .

In Pennsylvania Co. v. Wilmington Trust Co., 39 Del.Ch. 453, 166 A.2d 726 (1960) , aff'd in part and appeal dismissed in part, 40 Del.Ch. 1, 172 A.2d 63 (1961) , the defendant signed a writing in letter form purporting to be acceptance of an offer, but stating also that ''all necessary details, including the purchase agreement, will be arranged by our respective legal representatives.'' Various drafts were later prepared, but before execution of any the defendant received a higher offer and refused to execute a formal document. The court held that the question of intent to be bound by the letter agreement was a question of fact on which extrinsic evidence was necessary, and that the case did not justify a summary judgment. See also § 4.1.

(n6)Footnote 6.

U.S. - Courtin v. Sharp, 280 F.2d 345 (5th Cir.1960) , reh'g denied, 283 F.2d 255 , cert. denied, 365 U.S. 814 , oral contract for the sale of a blooded colt by telephone, colt broke its neck before the writing became operative; Federal Sec. Ins. Co. v. Smith, 259 F.2d 294 (10th Cir.1958) , oral contract of employment as agent to sell insurance for a stated commission, performance actually begun; Smith v. Onyx Oil & Chem. Co., 218 F.2d 104, 50 A.L.R.2d 216 (3d Cir.1955) ; R.H. Lindsay Co. v. Greager, 204 F.2d 129 (10th Cir.1953) , cert. denied, 346 U.S. 828 , the court held that their preliminary agreement was a binding contract for the sale of wool and decreed specific performance; Nelson v. Richia, 232 F.2d 827 (1st Cir.1956) , defendant agreed for a consideration that he would execute one or the other of two proposed licensing agreements; Power Serv. Corp. v. Joslin, 175 F.2d 698 (9th Cir.1949) ; Farmers Equity Co-op. Creamery Asso. v. United States, 132 F.2d 738 (10th Cir.1943) , letter and telegrams; Lehigh Structural Steel Co. v. Great Lakes Const. Co., 72 F.2d 229 (2d Cir.1934) ; California & Hawaiian Sugar Refining Corp. v. Mason By-Products Co., 23 F.2d 436 (9th Cir.1928) ; United States v. P.J. Carlin Constr. Co., 224 Fed. 859 (2d Cir.1915) ; Thomas B. Whitted & Co. v. Fairfield Cotton Mills, 210 Fed. 725 (4th Cir.1913) ; Wehner v. Bauer, 160 Fed. 240 (C.C.Cal.1908) ; Jenkins & Reynolds Co. v. Alpena Portland Cement Co., 147 F. 641 (6th Cir.1906).

Cal. - American Aeronautics Corp. v. Grand Cent. Aircraft Co., 155 Cal.App.2d 69, 317 P.2d 694 (1957) , oral agreement for the construction of an airplane on definite terms; Belcher v. Williams, 151 Cal.App.2d 615, 311 P.2d 861 (1957) , contract specifically enforced even though a contemplated inventory was not made; Mann v. Mueller, 140 Cal.App.2d 481, 295 P.2d 421 (1956) , broker entitled to commission, even though writing executed provided for a further ''satisfactory written agreement ... to consummate this exchange''; Gold Seal Productions v. R.K.O. Radio Pictures, 134 Cal.App.2d 843, 286 P.2d 954 (1955) , a binding oral contract for the production and distribution of an expensive motion picture, awarding as damages $250,000; the parties shook hands, saying ''We have a deal''; Empire Steel Bldgs. Co. v. Harvey Machine Co., 122 Cal.App.2d 411, 265 P.2d 32 (1954) , at defendant's request, the plaintiff began work at once before execution of the contemplated contract; Western Helicopter Operations, Inc. v. Nelson, 118 Cal.App.2d 359, 257 P.2d 1025 (1953) ; Gibson v. De La Salle Inst., 66 Cal.App.2d 609, 152 P.2d 774 (1944) ; Thompson v. Schurman, 65 Cal.App.2d 432, 150 P.2d 509 (1944) ; Gavina v. Smith, 25 Cal.2d 501, 154 P.2d 681 (1944) , a lease; Conner v. Plank, 25 Cal.App. 516, 144 P. 295 (1914) , writing mentioned after complete agreement.

Colo. - Coulter v. Anderson, 144 Colo. 402, 357 P.2d 76 (1960) . The court cited § 581 herein, holding that parol evidence was admissible to show that the writing was not a complete integration.

Conn. - Socony-Vacuum Oil Co. v. Elion, 126 Conn. 310, 11 A.2d 5 (1940) ; Grant v. New Departure Mfg. Co., 85 Conn. 421, 83 A. 212 (1912) , the oral contract was enforced although one party asked for a written contract and the other refused it.

Del. - Vale v. Atlantic Coast & Inland Corp., 34 Del.Ch. 50, 99 A.2d 396 (1953) , an option agreement that fixed no time for exercise of the option or for performance; draft of the written agreement was submitted by the plaintiff and rejected by the defendant.

Ill. - Callaghan v. Miller, 17 Ill.2d 595, 162 N.E.2d 422 (1959) ; Welsh v. Jakstas, 401 Ill. 288, 82 N.E.2d 53 (1948) ; Geary v. Great Atl. & Pac. Tea Co., 366 Ill. 625, 10 N.E.2d 350 (1937) .

Kan. - Phillips & Easton Supply Co. v. Eleanor International, Inc., 212 Kan. 730, 512 P.2d 379 (1973) ; Stull v. Burdett, 110 Kan. 393, 204 P. 1005 (1922) .

Ky. - Hollerbach & May Contract Co. v. Wilkins, 130 Ky. 51, 112 S.W. 1126 (1908) .

Me. - M. N. Landau Stores, Inc. v. Daigle, 157 Me. 253, 170 A.2d 673 (1961) , contract for 25-year lease, terms specified in letter, acceptance by lessor noted thereon with signature, formal lease never executed; Berman v. Rosenberg, 115 Me. 19, 97 A. 6 (1916) .

Mass. - Murphy v. Chichetto, 323 Mass. 11, 79 N.E.2d 898 (1948) ; Nigro v. Conti, 319 Mass. 480, 66 N.E.2d 353, 165 A.L.R. 752 (1946) ; Lisbon Spinning Co. v. Worcester Tire Fabric Co., 301 Mass. 437, 17 N.E.2d 313 (1938) , the court enforced an oral contract, saying: ''But it was not until the end of the conference and when a binding agreement had already been made that the services of a stenographer were sought''.

Mich. - McConnell v. Harrell & Nicholson Co., 183 Mich. 369, 149 N.W. 1042 (1914) ; Bollenbacher v. Reid, 155 Mich. 277, 118 N.W. 933 (1908) .

Minn. - Lamoreaux v. Weisman, 136 Minn. 207, 161 N.W. 504 (1917) .

Mo. - Priest v. Oehler, 328 Mo. 590, 41 S.W.2d 783 (1931) ; Allen v. Chouteau, 102 Mo. 309, 14 S.W. 869 (1890) ; Shapleigh Inv. Co. v. Miller, 193 S.W.2d 931 (Mo.App.1946) .

Mont. - Steen v. Rustad, 132 Mont. 96, 313 P.2d 1014 (1957) , a lease giving the lessee an option to buy on stated terms provided that on acceptance by the lessee ''a contract shall be drawn up,'' specific performance; Long v. Needham, 37 Mont. 408, 96 P. 731 (1908) .

N.J. - Moran v. Fifteenth Ward Bldg. & Loan Ass'n, 131 N.J.Eq. 361, 25 A.2d 426 (1942) ; Zuendt v. A. Eisenstein, Inc., 139 N.J.Eq. 476, 51 A.2d 898 (1947) , aff'd, 140 N.J.Eq. 472, 55 A.2d 43 ; Trustees of First Presbyterian Church v. Howard Co. Jewelers, 12 N.J. 410, 97 A.2d 144 (1953) , where the defendant's agent wrote ''we are prepared to enter into a lease'' stating the terms, plaintiff trustees passed a resolution of acceptance, and later submitted a formal lease, defendant's refusal to execute this or any other lease was held to be a breach of contract.

N.Y. - Sanders v. Pottlitzer Bros.' Fruit Co., 144 N.Y. 209, 39 N.E. 75 (1894) ; Ariel v. Ariel, 5 A.D.2d 168, 171 N.Y.S.2d 138 (1958) , reh'g and appeal denied, 5 A.D.2d 981, 173 N.Y.S.2d 984 , the parties to a divorce action reached a settlement agreement, held valid and enforceable in spite of a refusal to execute a writing.

N.C. - Billings v. Wilby, 175 N.C. 571, 96 S.E. 50 (1918) ; Gooding v. Moore, 150 N.C. 195, 63 S.E. 895 (1909) .

Ohio - Hotze, Kuntzler & Co. v. Erskine, 99 Ohio App. 17, 130 N.E.2d 720 (1954) , the parties expressly provided for a formal written contract ''acceptable to all concerned'').

Okl. - Suttle v. Chadwell, 196 Okl. 298, 164 P.2d 880 (1945) .

Pa. - Moudy v. West Virginia Pulp & Paper Co., 385 Pa. 39, 121 A.2d 881 (1956) ; Ketchum v. Conneaut Lake Co., 309 Pa. 224, 163 A. 534 (1932) ; Holland v. Hand, 317 Pa. 70, 176 A. 430 (1935) , the defendant was held bound even though she canceled her signature to the document before others signed it.

Tex. - Pacific Mut. Life Ins. Co. v. Westglen Park, Inc., 160 Tex. 1, 325 S.W.2d 113 (1959) rehearing of cause overruled, vendor's lien was subordinated to construction loan, although subordination agreement was never drawn up; Vick v. McPherson, 360 S.W.2d 866 (Tex.Civ.App.1962) , writ refused n.r.e.; O'Neal Furniture Co. v. Tyrrell-Wilson Invest. Co., 282 S.W.2d 104 (Tex.Civ.App.1955) , writ refused n.r.e., a preliminary letter purporting to confirm a previous oral agreement for a 10-year lease was itself operative as a valid lease; Hegar v. Tucker, 274 S.W.2d 752 (Tex.Civ.App.1955) , writ of error refused n.r.e., contract for the leasing of land was consummated by an exchange of letters.

Wash. - Fuller v. Ostruske, 48 Wash.2d 802, 296 P.2d 996 (1956) , the court found that the parties made an oral contract for the sale of stock and that they contemplated reducing it to written form; Hedges v. Hurd, 47 Wash.2d 683, 289 P.2d 706 (1955) , an ''earnest money receipt and agreement,'' commonly used in real estate transactions.

Wis. - Jungdorf v. Little Rice, 156 Wis. 466, 145 N.W. 1092 (1914) .

Eng. -Rossiter v. Miller, 3 App.Cas. 1124 (1878); Brogden v. Metro. Ry. Co., 2 App.Cas. 666 (1877).

A written instrument contained the following provision: ''This is a provisional agreement until a fully legalized agreement, drawn up by a solicitor and embodying all the conditions herewith stated is signed.'' One party gave notice of withdrawal and sued to recover a deposit. The words were interpreted as expressing an intention to be bound by the informal instrument until it should be replaced by a better one. Branca v. Cobarro, 1 K.B. 854 (C.A.1947) .

In Norton & Lamphere Constr. Co. v. Blow & Cote, Inc., 123 Vt. 130, 183 A.2d 230 (1962) , after negotiation the defendant prepared a written instrument stating all the terms agreed upon, and sent three copies to the plaintiff with a letter saying ''We enclose herewith three copies of contract which we have revised at your request. The original and copy should be signed by you and returned to this office. At which time, we will sign the original and return it to you.'' The enclosed instrument was in the form of a letter, addressed to the defendant, stating all the terms previously specified by the plaintiff. Below the space left for the plaintiff's signature, were the words ''Approved and Accepted by: ___________________. Date ____________________.'' The defendant did not sign as promised; but the plaintiff with the defendant's knowledge made substantial expenditures in preparation for performance. The defendant, apparently supposing that no contract would exist unless it signed, repudiated the agreement. The court sustained the plaintiff's action for damages, holding that the defendant's letter and enclosure operated as an offer, and that a contract was consummated by the plaintiff's returning the signed copies as requested. The defendant was bound because its words and acts were such as to justify the plaintiff in understanding them to be an offer that could be accepted by his signing and returning as requested. [Without doubt, the contract so made should be regarded as a ''written contract.'' See § 2.10.] Other notes on this case, § 1481; § 629A; § 1131. As to interpretation by plaintiff, the defendant having reason to know, see § 537.

This section is cited, quoting the second paragraph, in Smith v. Onyx Oil & Chemical Co., 218 F.2d 104, 50 A.L.R.2d 216 (3d Cir.1955) , holding that a valid contract was consummated, even though one of the parties never signed the final draft that it had prepared and sent to the plaintiff for his signature. The negotiations, including several consecutive written drafts, are stated, showing clearly why the court is convinced that the parties reached complete agreement and intended to be bound, although the defendant reneged and repudiated.

This section is quoted in Gardner v. The Calvert, 253 F.2d 395, 399 (3d Cir.1958) , cert. denied, 356 U.S. 960 , the court quoting at length from Judge Goodrich's opinion in Smith v. Onyx Oil & Chemical Co., 218 F.2d 104, 108, 50 A.L.R.2d 216 (3d Cir.1955) . The court held that the parties had consummated a valid charterparty orally, even though they contemplated a formal writing as memorial thereof. A written contract had been submitted by one party and rejected by the other, no second draft having been submitted. Judge Goodrich is quoted as saying that the emphasis of the writers (Williston, and Corbin) ''is, it seems to us, inclined toward finding the formation of a contract prior to the signing of the document unless the parties pretty clearly show that such signing is a condition precedent to legal obligation. And since contract law has passed the formalism of elaborate doctrines pertaining to sealed instruments, it seems to us such emphasis is quite natural and quite correct... As the text writers point out, the question here is one of intention of the contracting parties. Corbin is especially clear on this.'' Here follows a quotation from § 2.9.

(n7)Footnote 7. Berkeley Unified School Dist. v. James I. Barnes Const. Co., 112 F. Supp. 396 (N.D.Cal.1953) , a building contractor's bid in writing covering all terms of a contract became a binding contract on notification of a resolution of acceptance by the school board.

A. T. Klemens & Son v. Reber Plumbing & Heating Co., 139 Mont. 115, 360 P.2d 1005 (1961) , the defendant, a prime contractor, asked the plaintiff to submit a sub-bid on the ventilating system, orally agreeing that the plaintiff should have the contract if his bid was lowest and if defendant got the principal contract.

Stites v. Yelverton, 60 N.M. 190, 289 P.2d 628 (1955) , the plaintiff made a bid as requested; the defendant used it, became the general contractor, and at once notified the plaintiff that plaintiff's plumbing bid was accepted.

In Escote Mfg. Co. v. United States, 169 F.Supp. 483, 144 Ct.Cl. 452 (1959) , the plaintiff submitted a bid for the purchase of specified property. The contracting officer for the Government replied by letter accepting the bid. With this letter were enclosed written contract forms in triplicate, requesting the plaintiff's signature thereto and also a check for the price. The court held the acceptance effective, the forms being ''sent to plaintiff merely to meet the requirements of the Government's bookkeeping system.''

See Central Contra Costa Sanitary Dist. v. National Surety Corp., 112 Cal.App.2d 61, 246 P.2d 150 (1952) , noted under § 2.8 herein, dealing with the preliminary bond of a bidder on construction work, binding him to execute the formal construction contract if his bid is accepted.

(n8)Footnote 8. Angelo Di Ponio Equipment Co. v. State, Dep't of State Highways & Transp., 107 Mich. App. 756, 309 N.W.2d 566 (1981) .

(n9)Footnote 9. Doll v. Grand Union Co., 925 F.2d 1363 (11th Cir.1991) . After a ''gillion'' drafts of a commercial lease in a developing shopping center, all terms were agreed to. At which point, the prospective tenant withdrew because of highway department decision to cut off one of the principal access points to the shopping center. There was no binding lease as the prospective tenant made it clear from the outset that it would not be bound until a lease had been negotiated and executed.

(n10)Footnote 10.

U.S. - Great American Ins. Co. v. Maxey, 193 F.2d 151 (5th Cir.1951) , effect and terms of an oral ''binder''; Carolina Cas. Ins. Co. v. Helms, 248 F.2d 268 (8th Cir.1957) , noted also § 582; New England Ins. Co. v. Cummings, 164 F.Supp. 553 (M.D.Miss.1958) , rev'd on other grounds, 266 F.2d 888 (5th Cir.1959) ; Eagle Star & British Dominions Ins. Co. v. George A. Moore & Co., 9 F.2d 296 (9th Cir.1925) . In Quincy Diary Co. v. Hartford Acci. & Indem. Co., 57 F. Supp. 899 (S.D.W.Va.1944) , the ''binder'' was never agreed upon.

Cal. - Parlier Fruit Co. v. Fireman's Fund Ins. Co., 151 Cal.App.2d 6, 311 P.2d 62 (1957) , appeal after remand, 178 Cal.App.2d 357, 2 Cal.Rptr. 906 .

Ga. - Guest v. Kennesaw Life & Acc. Ins. Co., 97 Ga.App. 840, 104 S.E.2d 633 (1958) , the insured died before any delivery of the policy but after the coverage date specified in the binder.

Ill. - Cottingham v. National Mut. Church Ins. Co., 290 Ill. 26, 124 N.E. 822 (1919) .

Ky. - Hartford Acci. & Indem. Co. v. Middlesboro-La Follette Bus Line, Inc., 357 S.W.2d 671 (Ky.1962) , binder enforceable even though amount of premium was still to be determined.

Mass. - Parkway, Inc. v. U.S. Fire Ins. Co., 317 Mass. 428, 58 N.E.2d 646 (1944) .

Minn. - Gulbrandson v. Empire Mut. Ins. Co., 251 Minn. 387, 87 N.W.2d 850 (1958) , oral binder of hail insurance.

Miss. - Mississippi Farm Bureau Mut. Ins. Co. v. Todd, 492 So.2d 919 (Miss.1986) .

Pa. - McAvoy Vitrified Brick Co. v. North Am. Life Assur. Co., 395 Pa. 75, 149 A.2d 42 (1959) , on an application for a term life insurance policy, a ''deposit receipt'' and an ''interim assurance certificate'' were issued, applicant died of heart failure before the issuance of a policy; Harris v. Sachse, 160 Pa.Super. 607, 52 A.2d 375 (1947) , a preliminary ''binder'' consummated by two clerks on the telephone.

R.I. - Fliger v. Pennsylvania Fire Ins. Co., 48 R.I. 274, 137 A. 470 (1927) .

An oral contract of reinsurance was held valid even though the insurer expected to execute a formal policy next day, the offer for such reinsurance being in writing and orally assented to by defendant. Commercial Mut. Marine Ins. Co. v. Union Mut. Ins. Co., 60 U.S. (19 How.) 318, 15 L.Ed. 636 (1856) .

If the insurer executes a policy of the sort contemplated in the informal ''binder,'' containing the provisions that are customary in like cases, the insured is bound by the terms of that policy. Fisher v. Underwriters at Lloyd's London, 115 F.2d 641 (7th Cir.1940) .

In Simpson v. Prudential Ins. Co., 227 Md. 393, 177 A.2d 417 (1962) , a preliminary insurance premium receipt was held to be a valid conditional ''binder'' contract, even though no policy was ever issued and the insured was killed before the condition of his insurability by the applicable ''objective'' standard had been determined. See Statement of the case under § 644.

(n11)Footnote 11. Ambler v. Whipple, 87 U.S. 546, 22 L.Ed. 403 (1874) , adhered to, 90 U.S. 278, 23 L. Ed. 127 ; General Motors Corp. v. Abell, 292 Fed. 922 (1st Cir.1923) , cert. denied, 264 U.S. 583 , ''will be glad to take a license,'' and asking counsel to have a form of license submitted; Lizza & Sons, Inc. v. D'Onfro, 282 F.2d 175 (1st Cir.1960) , this section was cited in the District Court [ 186 F.Supp. 428 (1959) ]; Banking & Trading Corp. v. Floete, 257 F.2d 765 (2d Cir.1958) , the seller was expressly notified that the government agency was permitted to make a valid contract only by an integrated writing; Julius Kayser & Co. v. Textron, Inc., 228 F.2d 783 (4th Cir.1956) , the evidence plainly showed that the parties were not agreed on the meaning of terms; Lees v. Akshun Mfg. Co., 205 F.2d 577 (7th Cir.1953) , they agreed upon stated ''minimum provisions''; General Motors Corp. v. Keener Motors, Inc., 194 F.2d 669, 48 Ohio Op. 318 (6th Cir.1952) ; Ben-Wat Corp. v. David Lupton's Sons Co., 13 F.2d 390 (3d Cir.1926) ; Barber-Colman Co. v. Magnano Corp., 299 Fed. 401 (1st Cir.1924) ; State Y.M.C.A. v. Picher, 8 F.Supp. 412 (D.Me.1934) ; Banking & Trading Corp. v. Reconstruction Fin. Corp., 147 F.Supp. 193 (S.D.N.Y.1956) , aff'd, 257 F.2d 765 (2d Cir.) (this section is cited several times with approval).

Ala. - Cowin v. Salmon, 244 Ala. 285, 13 So.2d 190 (1943) .

Cal. - Columbia Pictures Corp. v. DeToth, 26 Cal.2d 753, 161 P.2d 217, 162 A.L.R. 747 (1945) ; Las Palmas Winery & Distillery v. Garrett & Co., 167 Cal. 397, 139 P. 1077 (1914) ; Spinney v. Downing, 108 Cal. 666, 41 P. 797 (1895) ; Store Properties v. Neal, 72 Cal.App.2d 112, 164 P.2d 38 (1945) ; Louis Lesser Enterprises, Ltd. v. Roeder, 209 Cal.App.2d 401, 25 Cal.Rptr. 917 (1962) , rule applied to an incomplete writing, with oral testimony that parties said that they would not be bound until execution of a formal draft to be prepared by attorneys; Carter v. Milestone, 170 Cal.App.2d 189, 338 P.2d 569 (1959) , a letter signed by both parties was merely preliminary.

Conn. - Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921) .

D.C. - Simplicio v. National Scientific Personnel Bureau, 180 A.2d 500 (Mun.Ct.App.1962) , ''I will expect these terms of agreement to be drawn up legally and signed by all parties''.

Fla. - Strong & Trowbridge Co. v. H. Baars & Co., 60 Fla. 253, 54 So. 92 (1910) ; Ocala Cooperage Co. v. Florida Cooperage Co., 59 Fla. 390, 52 So. 13 (1910) .

Ill. - Leekha v. Wentcher, 224 Ill.App.3d 342, 166 Ill.Dec. 599, 586 N.E.2d 557 (1991) ; Feldman v. Allegheny International, Inc., 850 F.2d 1217 (7th Cir.1988) ; El Reno Wholesale Grocery Co. v. Stocking, 293 Ill. 494, 127 N.E. 642 (1920) ; Scott v. Fowler, 227 Ill. 104, 81 N.E. 34 (1907) .

Ind. - Risk v. Thompson, 237 Ind. 642, 147 N.E.2d 540 (1958), a written draft signed by both parties was held to be merely a ''rough draft'' by an attorney, earlier opinion to the contrary, reported in 143 N.E.2d 116 (1957), is superseded.

Iowa - Alexandria Billiard Co. v. Miloslowsky, 167 Iowa 395, 149 N.W. 504 (1914) .

Ky. - Tucker v. Pete Sheeran Bro. & Co., 155 Ky. 670, 160 S.W. 176 (1913) .

La. - Breaux Bros. Constr. Co. v. Associated Contractors, 226 La. 720, 77 So.2d 17 (1954) ; Roy O. Martin Lumber Co. v. Saint Denis Sec. Co., 225 La. 51, 72 So.2d 257 (1954) , a letter purporting to accept an offer; Barrelli v. Wehrli, 121 LA. 540, 46 So. 620 (1908) ; City Glass & Mirror Co. v. Charles Carter & Co., 144 So.2d 240 (La.App.1962) , revocation received before plaintiff signed.

Me. - Mississippi & Dominion Steamship Co. v. Swift, 86 Me. 248, 29 A. 1063, 41 Am.St.Rep. 545 (1894) .

Md. - Peoples Drug Stores, Inc. v. Fenton Realty Corp., 191 Md. 489, 62 A.2d 273 (1948) .

Mass. - Rosenfield v. U.S. Trust Co., 290 Mass. 210, 195 N.E. 323, 122 A.L.R. 1210 (1935) .

Mich. - Michigan Broadcasting Co. v. Shawd, 352 Mich. 453, 90 N.W.2d 451 (1958) , the amount involved was large, and the contract was of a class usually reduced to writing.

N.J. - Trustees of First Pres. Church v. Howard Co. Jewelers, 12 N.J. 410, 97 A.2d 144 (1953) , formal lease with many other terms was expected; Giovanola v. Fort Lee Bldg. & Loan Ass'n, 123 N.J.Eq. 103, 196 A. 357 (1938) ; Donnelly v. Currie Hardware Co., 66 N.J.L. 388, 49 A. 428 (1901) ; Gable v. English, 93 N.J.Eq. 172, 115 A. 374 (1921) , ''I should like to go over the agreement in question very carefully.''

N.Y. - Litton Industries, Inc. v. Lehman Brothers Kuhn Loeb Inc., 767 F.Supp. 1220 (S.D.N.Y.1991) , rev'd, 967 F.2d 742 , sizable subsequent history is omitted; Willmott v. Giarraputo, 5 N.Y.2d 250, 184 N.Y.S.2d 97, 157 N.E.2d 282 (1959) , one material term to be mutually agreed on; Guarantee Const. Co. v. Rickert-Finlay Realty Co., 88 Misc. 73, 150 N.Y.S. 551 (1914) .

Ohio - Ryan v. Schott, 109 Ohio App. 317, 159 N.E.2d 907, 11 Ohio Op.2d 90 (1959) , the defendant said: ''It's a deal'', they shook hands and directed their attorneys to draw up a written contract; Joseph v. Doraty, 144 N.E.2d 111 (Ohio App.1957) , motion overruled, written contract for a lease to be executed subject to mutual approval of attorneys.

Okl. - American Nat. Bank v. Ardmoreite Pub. Co., 123 Okl. 225, 253 P. 81 (1926) , formal lease to be executed with terms not yet fixed.

Or. - Wagner v. Rainier Mfg. Co., 230 Or. 531, 371 P.2d 74 (1962) , ''we consider your logging bid favorable ... will have our attorney draw up a contract''; Williams v. A. C. Burdick & Co., 63 Ore. 41, 125 P. 844 (1912) .

Pa. - Upsal Street Realty Co. v. Rubin, 326 Pa. 327, 192 A. 481 (1937) , would meet and execute a lease provided they could both agree on all the necessary stipulations; Isenbergh v. Fleisher, 188 Pa.Super. 99, 145 A.2d 903 (1958) , a deposit was made and a deposit receipt signed.

Tex. - Rea v. Simmons & Simmons Constr. Co., 275 S.W.2d 747 (Civ.App.1955) , aff'd, 155 Tex. 353, 286 S.W.2d 415 .

Wash. - Pacific Cascade v. Nimmer, 25 Wash.App. 552, 608 P.2d 266 (1980) , review denied, 93 Wash.2d 1030 ; KVI, Inc. v. Doernbecher, 24 Wash.2d 943, 167 P.2d 1002 (1946) ; Stanton v. Dennis, 64 Wash. 85, 116 P. 650 (1911) .

(n12)Footnote 12.

Del. - Chrysler Corp. v. Quimby, 51 Del. 264, 144 A.2d 123, (1958) , modified and reh'g denied, 51 Del. 264, 144 A.2d 885 , a question of intention to be inferred from the evidence. Where the evidence is conflicting and two inferences are possible, as here, the question is for the jury; noted also § 169; § 205; Universal Products Co. v. Emerson, 36 Del. 553, 179 A. 387, 100 A.L.R. 956 (1934) .

Ill. - El Reno Wholesale Grocery Co. v. Stocking, 293 Ill. 494, 127 N.E. 642 (1920) .

Mass. - Rosenfield v. U.S. Trust Co., 290 Mass. 210, 195 N.E. 323, 122 A.L.R. 1210 (1935) ; George W. Wilcox, Inc. v. Shell Eastern Petroleum Products, Inc., 283 Mass. 383, 186 N.E. 562 (1933) .

N.J. - Levine v. Lafayette Bldg. Corp., 103 N.J.Eq. 121, 142 A. 441 (1928) , rev'd, 105 N.J.Eq. 532, 148 A. 772 (1930) , ''it is always a question of fact, depending upon the circumstances''.

Va. - Atlantic Coast Realty Co. v. Robertson's Ex'r, 135 Va. 247, 116 S.E. 476 (1923) ; Adams v. Hazen, 123 Va. 304, 96 S.E. 741 (1918) .

Eng. -Ridgway v. Wharton, 6 App.Cas. 238, 268 (1857).

(n13)Footnote 13.

U.S. - Burwell v. American Coke & Chem. Co., 7 F.2d 435 (1st Cir.1925) .

Conn. - Atlantic Terra Cotta Co. v. Chesapeake Terra Cotta Co., 96 Conn. 88, 113 A. 156 (1921) , ''this proposal is good for 30 days and acceptance thereof is subject to a form of contract satisfactory to us.''

Ill. - Venture Associates Corp. v. Zenith Data Systems Corp., 812 F. Supp. 788 (N.D.Ill.1992); IK Corp. v. One Financial Place Partnership, 200 Ill.App.3d 802, 146 Ill.Dec. 198, 558 N.E.2d 161 (1990) , appeal denied, 135 Ill.2d 556, 151 Ill.Dec. 383, 564 N.E.2d 838 (1990) .

Ind. - Equimart v. Epperly, 545 N.E.2d 595 (Ind.App.1989) .

La. - McPherson v. Warren, 55 So.2d 30 (La.App.1951) , the phrase ''subject to loan'' was held to make a purchaser's duty conditional, but this did not prevent the existence of a valid contract.

N.J. - Looman Realty Corp. v. Broad St. Nat'l Bank, 74 N.J.Super. 71, 180 A.2d 524 (1962) , cert. denied, 37 N.J. 520, 181 A.2d 782 , resolution of board accepting plaintiff's offer ''subject to the execution of a formal contract,'' citing this section; Stallings v. Eypper & Beckmann, Inc., 5 N.J.Misc. 671, 137 A. 784 (1927) .

Eng. - Spottiswoode, B. & Co. v. Doreen Appliances, 2 K.B. 32 (C.A.1942) , subject ''to the terms of a formal lease to be prepared by their solicitors;'' Lockett v. Norman-Wright, 1 Ch. 56 (1925) , ''subject to suitable arrangements between four solicitors and mine''; Rossdale v. Denny, 1 Ch. 57 (1921) , ''subject to formal contract to embody such reasonable provisions as my solicitors may approve''.

(n14)Footnote 14.

Ill. - West Coast Video Enterprises, Inc. v. Ponce de Leon, 1991 U.S. Dist. LEXIS 4209 (N.D.Ill. 1991).

Colo. - I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo.1986) , ''preliminary agreement'' may be a contract.

N.Y. - American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F.Supp. 597, 606 (S.D.N.Y.1971) ; Sanders v. Pottlitzer Bros.' Fruit Co., 144 N.Y. 209, 39 N.E. 75 (1894) .

Ohio - Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (6th Cir.1976) .

Pa. - Field v. Golden Triangle Broadcasting, 451 Pa. 410, 305 A.2d 689 (1973) , cert. denied, 414 U.S. 1158 .

Tex. - Foreca, S.A. v. GRD Dev. Co., Inc., 758 S.W.2d 744 (1988) , rehearing of cause overruled.

Wis. - Lambert Corp. v. Evans, 575 F.2d 132 (7th Cir.1978) . Defendant's letter of confirmation referred to its acceptance as being ''subject to completion of such documents, papers, and formal written agreement satisfactory to our counsel.'' A contract was held to exist. ''We cannot reverse as erroneous the district court's implicit finding that the statement was nothing more than an inartful phrasing of the parties' understanding that their agreement would be formalized by M-B's counsel and submitted to Lambert's.'' 575 F.2d at 136.

(n15)Footnote 15. Many such cases are cited and discussed in § 3.29, 589, 629A.

(n16)Footnote 16.

U.S. - Saul Bass & Assocs. v. United States, 505 F.2d 1386, 205 Ct.Cl. 214 (Ct.Cl.1974) . The defendant wrote: ''this letter of intent is your authority to undertake and continue contract performance, including the placing of orders for materials and supplies.'' It contained detailed terms including price. It also said that the terms of the contract were to be ''mutually agreed upon.'' Performance ensued. The letter of intent was held to be a contract.

Power Serv. Corp. v. Joslin, 175 F.2d 698 (9th Cir.1949) , following Priest v. Oehler, infra.

Mass. - Novel Iron Works, Inc. v. Wexler Constr. Co., 26 Mass.App.Ct. 401, 528 N.E.2d 142 (1988) , review denied, 403 Mass. 1104, 530 N.E.2d 797 .

Kan. - Sewell v. Dolby, 171 Kan. 640, 237 P.2d 366 (1951) .

N.J. -In Corrigan v. Corrigan, 115 N.J.Eq. 49, 169 A. 555 (1933) , an oral contract of separation and for the support of wife and children was specifically enforced, even though the parties contemplated the execution of a formal document. The plaintiff had performed his part by releasing dower in many pieces of land; and the defendant had paid the agreed amount for a period of 13 years. A formal document had been prepared but was never signed.

Mo. - Kisco Co. v. Verson Allsteel Press Co., 738 F.2d 290 (8th Cir.1984) , rehearing denied. Parties failed to come to agreement on an essential term, but one party fully performed. The court holds that no contract existed, but plaintiff obtained quasi-contractual recovery.

Nev. - Tropicana Hotel Corp. v. Speer, 101 Nev. 40, 692 P.2d 499 (1985) . The court rules, as a matter of law, that there was no employment contract despite the fact that employee started working. He refused to sign the proffered written proposal although it represented the oral agreement. He wanted more.

N.Y. -In Devenco, Inc. v. Emerson Radio & Phonograph Corp., 12 Misc.2d 949, 174 N.Y.S.2d 132 (1958) , an order by letter provided that it was to terminate if a definitive contract should not be executed by a fixed date: but full performance was rendered and accepted without executing such a written contract.

Pa. - Ketchum v. Conneaut Lake Co., 309 Pa. 224, 163 A. 534 (1932) .

Wash. - Empson Packing Co. v. Lamb-Davis Lumber Co., 112 Wash. 75, 191 P. 833 (1920) .

Eng. -Brogden v. Metropolitan Ry. Co., 2 App.Cas. 666 (1877).

In Levine v. Lafayette Building Corp., 103 N.J.Eq. 121, 142 A. 441 (1928) , rev'd, 105 N.J. Eq. 532, 148 A. 772 , the court said: ''If, as urged by the defendant, the transaction between the parties was a preliminary agreement which was not to be regarded as concluded until a formal contract was signed on or before September 1, 1925, at which time an additional sum of $4,000 was to be paid by the complainant to the defendant, the defendant, by accepting from the complainant a further benefit thereunder, to wit, the additional money, $4,000, clearly, in my judgment, waived the ''signing of formal contract.'' The fact of such payment of ''additional money''by the complainant and acceptance thereof by the defendant eleven days after the alleged preliminary agreement was signed is strongly indicative that the parties relied upon such alleged preliminary agreement, to wit, the ''Agreement of Sale''as a binding agreement between them... The fact that the paper writing in question contains the words ''formal contract to be signed, ...''though significant, is not conclusive that it was not intended to be a binding agreement. It is no more conclusive than is the caption of said paper writing, which explicitly reads, ''Agreement of Sale,''or the words, ''This property is sold at the above-mentioned price and terms, subject to the acceptance of the owner,''or to the word sale in the owner's acceptance clause set out at the bottom of said paper writing, all of which collocation of words are very significant, and may properly be regarded as evidential in ascertaining the intent of the parties.''

In Priest v. Oehler, 328 Mo. 590, 41 S.W.2d 783 (1931) , after the parties had agreed on various terms of a proposal for financing an amusement park, one said: ''Do you now agree to these things.'' The other replied: ''Yes, I do.'' The first then told an attorney to embody the whole in writing and he would sign it. Both parties proceeded to act under the agreement, although no writing was ever executed. The oral agreement was held binding.

This section was cited in In re ABC-Federal Oil & Burner Co., 290 F.2d 886 (3d Cir.1961) . There was a long letter purporting to state the terms of a very complex contract made orally, but providing for the execution of a 15-year lease and a long term contract for the purchase, storage, and distribution of oil. The terms of the lease and contract, many of them being important, were not specified. The parties failed in their efforts afterwards to agree upon these unspecified terms. The court held that the trial court was justified in finding that the parties had no intention to be bound prior to the execution of a formal contract in writing. This was so, even though performances amounting to nearly $100,000 were rendered in the expectation that a contract would be executed. For these expenditures, the party was held to have a restitutionary remedy.

(n17)Footnote 17. See Interway, Inc. v. Alagna, 85 Ill. App. 3d 1094, 41 Ill. Dec. 117, 407 N.E.2d 615 (1980) (dictum); Sparks v. Mauk, 170 Cal. 122, 148 P. 926 (1915) ; Brown v. Home Sec. Corp., 106 Ga.App. 147, 126 S.E.2d 439 (1962) , noted under § 566.

(n18)Footnote 18.

U.S. - Gateway Co. v. Charlotte Theatres, Inc., 297 F.2d 483 (1st Cir.1961) , an instructive case, noted under § 3.21; Power Serv. Corp. v. Joslin, 175 F.2d 698 (9th Cir.1949) . It must be borne in mind, however, that there are statutes providing that written modifications shall not be rendered ineffective by mere lack of consideration.

This section is cited in Comerata v. Chaumont, Inc., 52 N.J.Super. 299, 145 A.2d 471, 475 (1958) , holding that a valid oral contract was made even though the parties contemplated a formal writing (on which they later failed to agree) and even though ''it was contemplated that additional less essential matters might be incorporated in the formal agreement later to be signed.'' The court said: ''Moreover, the fact that parties who are in agreement upon all necessary terms may contemplate that a formal agreement yet to be prepared will contain such additional terms as are later agreed upon will not affect the subsistence of the contract as to those terms already unqualifiedly agreed to and intended to be binding. 1 Corbin on Contracts (1950), § 30, p. 83... The undertaking of performance, concurred in by the other party, is generally taken as strongly probative of an intention on the part of parties who have orally agreed to terms of a contract to be bound thereby notwithstanding the later execution of a formal contract is contemplated. 1 Corbin, op. cit., supra, § 30 [§ 2.9] pp. 81, 82.'' There is another note on this case under § 1129.

(n19)Footnote 19. Foster v. United Home Improv. Co., 428 N.E.2d 1351 (Ind.App.1981) .

(n20)Footnote 20. After orally agreeing upon all the terms of settlement of a dispute, involving the surrender of an interest in land, the defendant refused to execute a contract in writing. The court found that, in view of the requirements of the statute, the parties intended not to be bound before signing. Part performance that might have made the oral contract enforceable was ineffective because done with knowledge of repudiation. Dolge v. Masek, 70 Nev. 314, 268 P.2d 919 (1954) .

In Perlman v. M. Israel & Sons Co., 306 N.Y. 254, 117 N.E.2d 352 (1954) the court said: ''The confirmatory letters exchanged between them, dated on that day, and which apparently crossed in the mail, were evidence of such contract, despite their variance from each other in two respects.'' Letters that are intended to be merely confirmatory do not constitute a new offer and acceptance. Of course, oral testimony of the transaction so made is not excluded by the parol evidence rule. There has been no integration.

After a contract has been made by telephone or otherwise orally, the parties frequently send letters of ''confirmation'', signed by both parties. Such a letter may or may not be intended to be a complete ''integration'' of the terms orally agreed upon. If not in fact so intended the confirmatory letter does not prevent proof of the oral agreement or of terms actually agreed on but not stated in the letter of confirmation. See § 582, 583, and in particular Caputo v. Continental Constr. Corp., 340 Mass. 15, 162 N.E.2d 813 (1959) noted under § 583.

In Frank Bowman Co. v. Lecato, 292 Fed. 73 (4th Cir.1923) , offer and acceptance were abbreviated cables. Each party then submitted a draft of a formal contract that the other party refused to sign.

Two confirmatory letters written by the parties may be evidence that they previously made an oral contract, even though they vary from each other: but in such case they do not exclude oral testimony of the conversations at the time of the oral agreement. Perlman v. M. Israel & Sons Co., 306 N.Y. 254, 117 N.E.2d 352 (1954) .

(n21)Footnote 21.

Ill. -In Venture Associates Corp. v. Zenith Data Systems Corp., 812 F. Supp. 788 (N.D.Ill. 1992), letter of intent stated it ''does not constitute a binding obligation on either of us.''

Cal. -In Smissaert v. Chiodo, 163 Cal.App.2d 827, 330 P.2d 98 (1958) , there was an express provision that the validity of the agreement should be conditional on the reduction of all terms to writing. But for this provision the agreement might have been held to be complete and enforceable.

N.Y. - Litton Industries, Inc. v. Lehman Brothers Kuhn Loeb Inc., 767 F.Supp. 1220 (S.D.N.Y.1991) , rev'd, 967 F.2d 742 ; Villeroy & Boch S.A.R.L. v. THC Systems, Inc., 1991 U.S. Dist. LEXIS 7352 (S.D.N.Y. 1991), all drafts of agreement, including the last made signature a requirement. Other factors were also present.

(n22)Footnote 22. Doll v. Grand Union Co., 925 F.2d 1363 (11th Cir.1991) , noted above; Angelo Di Ponio Equipment Co. v. State, Dep't of State Highways & Transp., 107 Mich. App. 756, 309 N.W.2d 566 (1981) .

(n23)Footnote 23. In Ray v. Wooster, 270 S.W.2d 743 (Mo.1954) , the court held that a contract for the sale of land was specifically enforceable, although the writing contained no agreement on many items commonly included in such contracts. These included abstract of title, taxes, forfeiture of earnest money, curing of defects, and risk of loss. This case illustrates class (3).

(n24)Footnote 24. An excellent illustration is State ex rel. Appleman v. Lake Circuit Court, 231 Ind. 378, 108 N.E.2d 898 (1952) . A written ''memorandum agreement'' for the sale of a partnership interest, stating all necessary terms, was held enforceable even though it expressly stated that it ''does not include in a detailed manner all of the terms of the dissolution agreement subsequently to be negotiated, drafted and executed.''

In Vise v. Foster, 1 O.&G.R. 570, 247 S.W.2d 274 (Tex.Civ.App.1952) , writ refused n.r.e., a writing was held to be a valid contract for the sale of oil, even though it contained the words, ''it being understood and agreed by all of said parties to execute another contract on or before thirty days after this date to enlarge and cover all agreements between the parties hereto.'' The court found ''nothing in the contract to indicate that such sale was dependent upon the contract to be executed within 30 days.''

In Park Inn Hotel, Inc. v. Messing, 31 Misc.2d 961, 224 N.Y.S.2d 179 (1962) , the court said: ''A statement that the parties contemplate the signing of a formal contract does not render a writing unenforceable. Moreover, as the Court of Appeals stated in May Metropolitan Corp. v. May Oil Burner Corp., 290 N.Y. 260, 264, 49 N.E.2d 13, 15 : ''A contract is not necessarily lacking in all effect merely because it expresses the idea that something is left to future agreement'.''

A very instructive case falling within class 3 above is Rossiter v. Miller, 3 App.Cas. 1124 (1878). A formal contract was drafted by solicitors, as was contemplated, and the defendant refused to sign it.

Other similar cases are:

N.J. - Levine v. Lafayette Bldg. Corp., 103 N.J.Eq. 121, 142 A. 441 (1928) , rev'd, 105 N.J.Eq. 532, 148 A. 772 (1930) .

Pa. - Taylor v. Stanley Co., 305 Pa. 546, 158 A. 157 (1932) , agreement oral; Schermer v. Wilmart, 282 Pa. 55, 127 A. 315 (1925) , informal receipt signed by vendor only.

Eng. -Lewis v. Brass, 3 Q.B.D. 667 (1877), additional terms possible but only in case both parties assented to them.

(n25)Footnote 25.

Mass. - Gel Systems Inc. v. Hyundai Engineering & Constr. Co., 902 F.2d 1024 (1st Cir.1990) . For a suggestion that the presumption is overcome by showing that all essential terms have been agreed upon, see Novel Iron Works, Inc. v. Wexler Constr. Co., 26 Mass.App.Ct. 401, 528 N.E.2d 142, 146 (1988) , review denied, 403 Mass. 1104, 530 N.E.2d 797 (1988) .

Nev. - Tropicana Hotel Corp. v. Speer, 101 Nev. 40, 692 P.2d 499 (1985) .

N.Y. - Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69 (2d Cir.1989) .

Va. - Valjar, Inc. v. Maritime Terminals, Inc., 220 Va. 1015, 265 S.E.2d 734 (1980) .

(n26)Footnote 26. Failure to agree to all essential terms is some evidence of lack of contractual intent, even if the agreement is not too indefinite to constitute a contract. Leeds v. First Allied Connecticut Corp., 521 A.2d 1095 (Del.Ch. 1986) , appeal dismissed, 520 A.2d 1044 (Del.) ; Morales v. Santiago, 217 N.J.Super. 496, 526 A.2d 266 (App.Div.1987) .

(n27)Footnote 27.

N.Y. - In re Municipal Consultants & Publishers, Inc. v. Ramapo, 47 N.Y.2d 144, 417 N.Y.S.2d 218, 390 N.E.2d 1143 (1979) ; Sanders v. Pottlitzer Bros.''Fruit Co., 144 N.Y. 209, 39 N.E. 75 (1894) .

Or. - Cook v. Desler, 52 Or.App. 5, 627 P.2d 885 (1981) , review denied, 291 Or. 368, 634 P.2d 1346 , appeal after remand, 62 Or.App. 36, 659 P.2d 438 .

Pa. - Ingrassia Constr. Co. v. Walsh, 337 Pa.Super. 58, 486 A.2d 478 (1984) . The court in a footnote states: ''Judge Goodrich, referring to Williston and Corbin wrote: ''The emphasis of these two eminent writers is, it seems to us, inclined toward finding the formation of a contract prior to the signing of the document unless the parties pretty clearly show that such signing is a condition precedent to legal obligation. And since contract law has passed the formalism of elaborate doctrines pertaining to sealed instruments, it seems to us such emphasis is quite natural and quite correct.'' Smith v. Onyx Oil & Chemical Co., 218 F.2d 104 (3d Cir.1955) .'' 486 A.2d at 483 n. 9.

(n28)Footnote 28. Restatement Contracts § 27 comment c.

(n29)Footnote 29. Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir.1985) .

(n30)Footnote 30. 729 S.W.2d 768 (Tex.App.1987) , writ ref'd n.r.e., cert. dismissed, 485 U.S. 994, 108 S. Ct. 1305, 99 L. Ed. 2d 686 .

(n31)Footnote 31. The jury, in addition, awarded Pennzoil $3 billion in punitive damages. The appellate court affirmed on condition that Pennzoil would execute a remittitur agreeing to the reduction of punitive damages to $1 billion.

(n32)Footnote 32. Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69 (2d Cir.1989) .

(n33)Footnote 33. This approach was adopted in Fickes v. Sun Expert, Inc., 762 F.Supp. 998 (D.Mass.1991) .

(n34)Footnote 34. Teachers Ins. & Annuity Ass'n v. Tribune Co., 670 F.Supp. 491 (S.D.N.Y.1987) .

(n35)Footnote 35. Teachers Ins. & Annuity Ass'n v. Butler, 626 F.Supp. 1229 (S.D.N.Y.1986) (Leval, J.), extensive subsequent history is omitted.

(n36)Footnote 36. This is not the first court to reach this result, but it may be the first to reach it in the significant area of corporate mergers and acquisitions. Among the precursors are Skycom Corp. v. Telstar Corp., 813 F.2d 810 (7th Cir.1987) , where the ''agreement in principle'' contained some immediately effective terms; Werner v. Xerox Corp., 732 F.2d 580 (7th Cir.1984) ; Vigoda v. Denver Urban Renewal Auth., 646 P.2d 900 (Colo.1982) (en banc); Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965) .

A similar result was reached in Earhart v. William Low Co., 25 Cal.3d 503, 158 Cal.Rptr. 887, 600 P.2d 1344 (1979) , on a theory of restitution.

Other cases suggesting the appropriateness of promissory estoppel in this context include Quake Constr., Inc. v. American Airlines, Inc., 141 Ill.2d 281, 152 Ill.Dec. 308, 565 N.E.2d 990 (1990) .