Commercial Division Blog

Posted: June 17, 2016 / Categories Commercial, Contracts

Ongoing Negotiation of Formal Agreement Shows Intent Not to Be Bound by Informal Agreement

On May 23, 2016, Justice Oing of the New York County Commercial Division issued a decision in AEG Live, LLC v. LF USA, Inc., 2016 NY Slip Op. 30957(U), holding that ongoing negotiation of a formal agreement indicated that the parties' informal agreement was not intended to be binding.

In AEG Live, the plaintiff brought an action for breach of an agreement alleged to have been negotiated by telephone and e-mail but not reduced to a formal, written agreement. On summary judgment, the court held that there was no agreement, explaining:

To determine whether these emails created an enforceable contract or were merely an agreement to agree, two factors are considered: whether the agreement contemplated the negotiation of later agreements and whether the consummation of those agreements was a precondition to a party's performance. Consideration of these factors demonstrates that no contract was formed here.

As to the first factor, the record is clear -- both parties contemplated the negotiation of a later agreement and did not intend for the 2013 Sponsorship Deck and January 18, 2013 email to serve as the contract between the parties. Despite plaintiff's, the Sponsorship Deck did not include all of the material terms of the prospective agreement, as it did not address, inter alia, the nature of Frye's on-site presence at the Concerts or dates for payment and performance, and therefore could not create a binding agreement.

Further, the conduct of the parties demonstrates that they understood that a subsequent formal written agreement was necessary to memorialize their agreement. First, by her request for a contract on January 9, 2013 -- prior to the January 18, 2013 email exchange -- Cohen sent a forthright, reasonable signal to AEG that Frye meant to be bound only by a formal written agreement. Moreover, in the January 18, 2013 email exchange, both parties referenced next steps, suggesting that each recognized these emails did not create a final contract between the parties. Finally, after the contract was sent to Frye, the parties held further discussions regarding its terms, suggesting that there was never a meeting of the minds on all essential terms between the parties.

As to the second factor, Klein explicitly informed Cohen that there would be no performance by AEG until the contract was executed. In short, although [the plaintiff] has presented evidence that the negotiating parties had agreed as to price the totality of the circumstances clearly showed that there was never a meeting of the minds on all essential terms.

(Internal quotations and citations omitted) (emphasis added).