Norkunas v. Cochran

MEREDITH, J. In this case we shall hold that the Circuit Court for Baltimore City erred in entering an order for specific enforcement of a letter of intent and an alleged contract for the sale of real estate. Eileen Norkunas, appellant, is the owner of certain residential property known as 835 McHenry Street, Baltimore City, Maryland 21230. The appellees, Robert and Hope Grove, and Robert and Rebecca Cochran, approached Ms. Norkunas and expressed their interest in purchasing the property. Assisted by a real estate agent, the four hopeful buyers gave Ms. Norkunas a handwritten letter of intent that spelled out key terms of an offer they intended to present, together with a check for a $5,000 deposit.

The text of the letter of intent is as follows: 3/7/04 LETTER OF INTENT We, Rebecca Cochran, Robert Cochran, Hope Grove and Robert Grove, Buyers—offer to buy 835 McHenry Street, Baltimore, Md. 21230 for $162,000. Payment by $5,000 check, this date and $157,000 by certified or cashiers funds not later than April 17, 2004. A standard form Maryland Realtors contract will be delivered to Seller within 48 hours. Seller to pay only 1/2 normal transfer taxes and a 3% commission to Long & Foster.

All other costs of closing to be paid by buyers. ¹⁹⁴ The contract will contain a financing requirement for buyers, but buyers will guarantee closing and not invoke the financing contingency. We will delete the standard home inspection contingency, [written in margin:] Buyer to honor Seller’s lease and offer tenants any renewal up to 12 months. The letter of intent was signed by the Groves and the Cochrans under “Buyers,” by Ms. Norkunas under “Seller,” and by Brian Best under “Agent.” Within a day or so after signing the letter of intent, Ms. Norkunas received a package of documents from the buyers’ real estate agent. The package included a cover letter that stated: Dear Ms. Norkunas, It was a pleasure meeting you yesterday.

Enclosed with this folder are all the documents needed to complete the sale of your home. The basic Real Estate contract, along with a couple of documents I need you to fill out to ratify the contract. The first is a Disclosure/Disclaimer. You can either fill out the first 3 pages (the Disclosure) or you can just sign the last page (the Disclaimer).

Also included is a property fact sheet. This is just basic information on the property that needs to accompany the contract. The Groves and the Cochrans are so excited about your home. If you have ANY questions please feel free to call me or have someone near you look over the contract.

Rest assured] that we want this to go as smooth as possible for you and both the Groves and Cochrans asked me to tell you if there is anything they can do please feel free to ask. I look forward to hearing from you. You can either fax me the contract and disclaimer back or I[’]ll include a Fed-X envelope for you to send back. Thank you again[.] The package of documents (“the buyers’ offer”) contained a number of pre-printed forms, including a form titled Residential Contract of Sale, published by the Maryland Association of Realtors®, together with 10 or more form addenda.

Many of ¹⁹⁵ the addenda appear to be forms published by the Maryland Association of Realtors®. At least one of the addenda appears to be a form that the buyers’ broker developed. Some of the documents had blanks filled in or altered by the buyers. The price and description of the property were the same as in the letter of intent.

The form financing contingency had been filled in with details. A separate Property Inspections contingency addendum was included, but appears to have been struck through as promised in the letter of intent. Ms. Norkunas never did return the documents to the buyers or their agent. Nor did she otherwise communicate to the buyers or their agent that their offer had been accepted.

After a week or so had passed, the buyers were eventually told that Ms. Norkunas was “taking the property off the market.” The buyers filed suit seeking specific performance of the letter of intent. During the process of discovery, the buyers learned for the first time that Ms. Norkunas had, in the privacy of her home, signed the documents comprising the buyers’ offer. Ms. Norkunas had struck through two paragraphs relating to the financing contingency, and had made some other marks on the documents. At her deposition, Ms. Norkunas explained: I was probably going through it at the time and kind of getting overwhelmed the more I went through it and questioning parts and kind of scratching out some parts.

This was what I thought was going to be my counteroffer. I signed what I thought was going to be a counteroffer, and then it just got so overwhelming, it was too much. It was just too much. * * * [Buyers’ counsel] What in the contract form that was sent to you, Exhibit 3, were terms that were not contained in the original offer as you state.... What in the contract contained new terms that were not in the original offer? ¹⁹⁶ A. I think the financing....

Page 4 of 9, Paragraphs 20, 21. Q. Those are the ones you in fact crossed out; right? A. Yes. I was really—I don’t know if this adheres to your same question, but I was really very conflicted about who was representing me in this deal, very conflicted.

Q. Well, did you call Mr. Best or anybody involved in that document, the letter of intent and the contract, and say there are new terms here that aren’t in the original offer; I think they should be taken out? A. No, I didn’t say that. I was just getting so over my head and I wasn’t being represented. I knew I was making a big mistake, and I just changed my mind.

I said I can’t do this. I can’t do this. After learning at Ms. Norkunas’s deposition that she had privately signed the offer that had been transmitted to her, the buyers filed an amended complaint in which they asked the court to order “[t]hat the Letter of Intent and Contract of Sale between the parties be specifically enforced.” The parties filed cross motions for summary judgment. They stipulated that “the [buyers] were not aware that [Ms. Norkunas] signed (and crossed out paragraphs 20 and 21 of) the Residential Contract of Sale dated March 7, 2004 until a copy of the Contract was produced by [Ms. Norkunas] through discovery in these proceedings.” The buyers also filed an affidavit asserting that the changes Ms. Norkunas had made to the unreturned contract documents would have been acceptable to the buyers.

The Circuit Court for Baltimore City granted summary judgment for the buyers. No separate opinion of the circuit court is included in the record, but the order granting summary judgment in favor of the buyers states the court was ordering specific performance because “the Letter of Intent and the Maryland Standard Residential Contract signed by all parties constitute the contract in this case and together they constitute an enforceable contract for sale.” Accordingly, the court ordered that Ms. Norkunas “is to settle the property ¹⁹⁷ known as 835 McHenry Street in Baltimore, Maryland with Plaintiffs pursuant to the terms of the executed contract within 60 days....” Ms. Norkunas noted an appeal. Because we conclude the circuit court erred in determining that there was an enforceable contract, we will vacate the order of the circuit court that granted summary judgment for the buyers. 1 Analysis As the Court of Appeals stated in Della Ratta v. Larkin, 382 Md. 553, 563 , 856 A.2d 643 (2004), “[wjhen reviewing a grant of a motion for summary judgment, our task is to determine whether any genuine dispute of material fact was shown to exist and, if not, whether the Circuit Court was legally correct.” Accord de la Puente v. Frederick County, 386 Md. 505, 510 , 873 A.2d 366 (2005). In this case, there is no genuine dispute regarding the facts as to what happened.

Accordingly, our task is to determine whether the motion court properly applied the law to the facts of this case. We review the motion court’s legal conclusions de novo. Id. 1. The Letter of Intent Before the buyers discovered that Ms. Norkunas had secretly signed their multiple-form offer to purchase her property, the buyers sued for specific enforcement of the handwritten letter of intent.

After discovering that Ms. Norkunas had also signed the unreturned detailed offer, the ¹⁹⁸ buyers filed an amended complaint that alleged in a single count that both the letter of intent and the subsequently tendered Realtors^ contract were enforceable. In the amended complaint, the buyers prayed “[t]hat the Letter of Intent and Contact of Sale between the parties be specifically enforced.” The parties filed cross motions for summary judgment. In support of the buyers’ claim that the court should enter summary judgment in their favor, the buyers asserted that “the letter of intent was in writing, named the parties to the contract, described the property in question with sufficient detail, set forth the terms and conditions of the contract between the parties and was signed by the parties. Thus as soon as [Ms. Norkunas] executed the letter of intent it was a valid and enforceable contract.” Citing Beall v. Beall, 291 Md. 224, 228-29 , 434 A.2d 1015 (1981), the buyers repeat that assertion in their brief, and continue to argue that “[t]he actual meeting of the minds occurred when the Letter of Intent was executed,” and, as a consequence, “the moment [Ms. Norkunas] signed the Letter of Intent she completed the legal requirements for a written contract for the sale of the property in question.” Although it would be possible for parties to memorialize an enforceable contract in a letter after they had in fact come to a meeting of the minds on all terms of their agreement, the language of the letter signed by Ms. Norkunas does not support the buyers’ contention that these parties had reached a final agreement of sale as of the time the letter was signed.

In Burbach Broadcasting Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir.2002), the court observed: Letters of intent have led to much misunderstanding, litigation, and commercial chaos. 1 Corbin on Contracts § 1.16 (1993). Courts have expressed reservation concerning the binding nature of “letters of intent” because traditionally, the purpose and function of a preliminary letter of intent has been to merely provide the initial framework from which the parties might later negotiate a final binding agreement. See A/S Apothekernes Laboratorium v. I.M.C. ¹⁹⁹ Chemical Group, Inc., 873 F.2d 155, 158 (7th Cir.1989). Calling a document a “letter of intent” implies, unless circumstances suggest otherwise, that the parties intended it to be a nonbinding expression in contemplation of a future contract.

As is commonly the case with contract disputes, prime significance attaches to the intentions of the parties and to their manifestations of intent. Teachers Insurance and Annuity Assoc, of America v. Tribune Co., 670 F.Supp. 491, 497 (S.D.N.Y.1987). Labels such as “letter of intent” or “commitment letter” are not necessarily controlling, although they may be helpful indicators of the parties’ intentions. Id.

The court noted in Burbach that, “[wjhile bare-boned ‘agreements to agree’ are not binding, courts have recognized two kinds of preliminary agreements that are binding and enforceable.” Id. at 407. The court identified the two types of enforceable preliminary agreements as (1) agreements that reflect the “parties have reached a complete agreement (including the agreement to be bound) on all issues perceived to require negotiation”; and (2) agreements that contain a binding commitment to negotiate in good faith. Id. The buyers in this case contend that the letter of intent signed by Ms. Norkunas falls into that first category of enforceable agreement, and that it therefore required no further formalization.

When we analyze the language of the letter of intent, however, we find that the parties merely agreed that the buyers would submit a more detailed formal offer. Cf. Restatement (Second) of Contracts § 27 (1981) (“Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.”). The Court of Appeals summarized the relevant principles governing our interpretation of contract documents in Myers v. Kayhoe, 391 Md. 188, 198 , 892 A.2d 520 (2006), stating: ²⁰⁰ Under Maryland law, the interpretation of a contract, including the question of whether the language of a contract is ambiguous, is a question of law subject to de novo review.

See Towson v. Conte, 384 Md. 68, 78 , 862 A.2d 941, 946 (2004). We have long adhered to the objective theory of contract interpretation, giving effect to the clear terms of agreements, regardless of the intent of the parties at the time of contract formation. Id. at 78 , 862 A.2d at 946-47 . Under the objective theory: “A court construing an agreement under [the objective theory] must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated.

In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.” Dennis v. Fire & Police Employees Ret. Sys., 390 Md. 639, 656-57 , 890 A.2d 737 (2006) (quoting General Motors Acceptance v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306, 1310 (1985) (internal quotations omitted)). The buyers argue that a reasonable person in the position of Ms. Norkunas should have known when she signed the letter of intent that she had already sold her home to these buyers, and that there would be no further negotiations and no opportunity for her to further consider whether she wanted to sell her property upon the terms set forth in the letter.

The plain language of the letter, however, simply does not say that. In Goldstein v. Miles, 159 Md.App. 403, 431 , 859 A.2d 313 (2004), cert. denied, 384 Md. 581 , 865 A.2d 589 (2005), we noted that in order “[f]or a promise to establish an ‘enforceable contract [it] must express with definiteness and certainty the nature and extent of the parties’ obligations.’ ” (Quoting ²⁰¹ Kiley v. First Nat’l Bank, 102 Md.App. 317, 333 , 649 A.2d 1145 (1994), cert. denied, 338 Md. 116 , 656 A.2d 772 , cert. denied, 516 U.S. 866 , 116 S.Ct. 181 , 133 L.Ed.2d 120 (1995).) In the first paragraph, the letter of intent states that the buyers “offer to buy” the property, but there is no statement anywhere in the letter that could be construed as a statement that Ms. Norkunas agrees to accept the offer or agrees to sell the property upon the terms set forth. The letter states that a “standard form Maryland Realtors contract will be delivered to Seller.” The letter further states that “[t]he contract will contain ...” certain language, and that other language “will” be deleted from the contract. In our view, a reasonable person in the position of a seller who was approached by buyers indicating they wanted to purchase her home would have understood the letter of intent to mean that a formal contract offer would soon follow.

The reasonable person in Ms. Norkunas’s position would have understood that these buyers wanted her to know the terms they were prepared to offer and that they were very seriously interested in purchasing the property. The terms of this letter would not communicate to such a seller, however, that if she signed this document she was irrevocably locked into a contract of sale. 2 We reject the notion that, under these circumstances, the letter of intent itself constituted a binding contract. “There was, at best, an agreement to agree in the future ... and this is not a sufficient basis for a specifically enforceable contract.” Grooms v. Williams, 227 Md. 165, 172 , 175 A.2d 575 (1961). ²⁰² See Horsey v. Horsey, 329 Md. 392, 420 , 620 A.2d 305 (1993) (“it is generally held that an 'agreement to agree’ is unenforceable”); Peoples Drug Stores v. Fenton, 191 Md. 489, 495 , 62 A.2d 273 (1948)(“by their correspondence ... [the parties] were only settling the terms of an agreement into which they proposed to enter after the particulars were completely adjusted”); First Nat’l Bk. v. Burton, Parsons & Co., 57 Md.App. 437, 450 , 470 A.2d 822 (1984) (“The overwhelming weight of authority holds that courts will not enforce an