Can a Letter of Intent Which Does Not Disclose Any Agreement Impose a Duty Upon a Party to Negotiate In Good Faith ?
In Philmar Mid-Atlantic v. York St. Associates, 389 Pa. Super. 297, 566 A.2d 1253, 1255 (Pa.Super. 1989), appellant, the prospective tenant in a failed real estate lease negotiation with appellee real estate owner, argued that its letter of intent imposed a duty upon the owner to negotiate in good faith.
The Court disagreed.
This duty to negotiate in good faith, appellant contends, was breached when the owner unilaterally withdrew the application for a zoning variance and terminated further negotiations.
Pennsylvania courts have not considered whether a letter of intent gives rise to an obligation to negotiate in good faith.
The Court of Appeals for the Third Circuit, in Channel Home Centers v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986) concluded that under Pennsylvania law such a contract would arise where:
(1) both parties had manifested an intention to be bound by the agreement;
(2) the terms of the agreement were sufficiently definite to be enforced;
(3) consideration had been given.
The court there enforced a duty to negotiate in good faith, with a view toward a formal lease agreement, because the letter of intent contained an unequivocal promise to negotiate.
Appellant's contention that the letter of intent in this case created a binding promise to negotiate a formal lease must fail.
There is no cause of action to enforce a contract absent a mutual manifestation of assent to be bound.
The letter of intent in this case does not disclose any agreement, not even an agreement to negotiate.
Instead, it provided specifically that neither party was to be bound until a mutually satisfactory lease had been negotiated and executed. Id.