Background
Testa Enterprises and the City of Hudson entered into a Memorandum of Understanding in 2017 for the development of Phase II of the city’s downtown retail area. The MOU contained a termination clause requiring the parties to “in good faith, negotiate a commercially reasonable termination” if the project proved infeasible. After a ballot initiative failed and city council membership changed, Hudson abandoned the project without negotiating a termination.
Testa sued for breach, arguing the MOU was a binding contract and that the termination clause was an enforceable agreement to negotiate. Hudson moved for summary judgment, contending the MOU was merely a preliminary, unenforceable step toward a future agreement. The trial court granted summary judgment to Hudson, characterizing the termination clause as both “plain and unambiguous” yet “capacious” and concluding it was unenforceable.
The Court’s Holding
The Ninth District reversed and remanded. The majority held that the trial court erred by focusing exclusively on the termination clause language without analyzing whether the MOU as a whole expressed the parties’ intent not to be bound, as required by Normandy Place Associates v. Beyer and Oglebay Norton Co. v. Amco. Under Ohio law, “agreements to agree” are not per se unenforceable; enforceability depends on whether the parties manifested intent to be bound and whether the terms are sufficiently definite.
The court held that the trial court should have examined the entire MOU — not just the termination clause — and, if the language was ambiguous, should have considered extrinsic evidence of the parties’ intentions and actions. Judge Carr concurred in judgment only, stating he would have simply found the termination clause was itself a binding agreement to negotiate with sufficiently definite terms.
Key Takeaways
- Under Normandy Place Associates v. Beyer, Ohio agreements to agree are not per se unenforceable — courts must examine whether the parties manifested intent to be bound and whether terms are sufficiently definite.
- When determining whether an MOU constitutes a binding contract, the entire document must be considered, not just a single clause, and extrinsic evidence of the parties’ conduct may be relevant.
- A “commercially reasonable termination” clause requiring good-faith negotiation can itself constitute an enforceable obligation separate from the underlying development agreement.
Why It Matters
This case is essential reading for Ohio municipal law and real estate development practitioners. Public-private development partnerships frequently rely on MOUs and letters of intent, and this decision clarifies that such documents may create enforceable obligations — particularly termination-negotiation clauses — even when the underlying deal was never finalized. Municipal attorneys should ensure that preliminary agreements clearly disclaim binding effect if that is the parties’ intent. Developers should note that the court’s analysis opens the door for claims based on unilateral abandonment of projects governed by MOUs containing good-faith negotiation requirements.