## Facts

- Tracto Equipment Corp. owned 100 Jay Street in Brooklyn, New York, then used as a parking lot and constrained by zoning limits.
- Jeffrey M. Brown and Jeffrey M. Brown Associates, Inc. (JMB) discussed developing the property into a mixed commercial/residential project.
- On March 27, 2000, Brown and Charles Cara signed a two-page Memorandum of Understanding (MOU) stating they would “work together” to develop the Jay Street Project and setting a general framework while anticipating later formal agreements.
- JMB expended substantial time and resources seeking rezoning and related governmental approvals needed to make the project feasible.
- After rezoning/approvals were obtained, JMB sent Cara a proposed construction management agreement; Cara rejected the terms, ended negotiations, and refused to reengage.
- Brown and JMB filed a diversity action asserting contract and related claims seeking to enforce obligations arising from the MOU.

## Issues

1. Whether the MOU was an enforceable contract to complete the development project (a fully binding preliminary agreement) or instead a Type II preliminary agreement imposing only a duty to negotiate in good faith.
2. Whether the MOU created a joint venture under New York law.
3. Whether summary judgment dismissing all claims against Tracto was proper on the ground that Tracto was not bound by the MOU.

## Decision

- Affirmed in part, reversed in part, vacated in part, and remanded.
- Held the MOU was not enforceable as a contract requiring completion of the ultimate development project.
- Held the MOU was enforceable as a Type II preliminary agreement obligating the parties to negotiate open terms in good faith within the MOU’s framework.
- Held the MOU did not create a joint venture under New York law.
- Vacated summary judgment for Tracto as premature because material fact disputes remained regarding whether Cara bound Tracto through the MOU’s execution and surrounding circumstances.

## Legal Principles

- New York law recognizes two categories of preliminary agreements:
  - Type I: fully binding as to the ultimate transaction when parties have agreed on all material terms and intend to be bound, despite anticipating later documentation.
  - Type II: not binding as to the ultimate transaction, but binding as to an obligation to negotiate remaining open terms in good faith within an agreed framework.
- A short, framework-style MOU that anticipates subsequent formal agreements and leaves material terms unresolved generally indicates no intent to be bound to the ultimate objective, while still supporting a Type II duty of good-faith negotiation.
- Partial performance and expenditures consistent with the parties’ framework may support enforcing a Type II obligation to negotiate in good faith.
- A joint venture under New York law requires, among other elements, agreement on joint proprietorship and sharing of profits and losses; absence of loss-sharing and joint-control terms defeats joint venture status.
- Summary judgment is improper where evidence permits competing inferences on whether a corporate property owner is bound by an agreement signed by its principal “and his companies, entities, etc.”

## Conclusion

The court treated the MOU as a binding commitment to negotiate in good faith rather than a final contract to complete the development, rejected the joint venture theory, and remanded because factual disputes remained over Tracto’s potential obligation under the MOU.


Brown v. Cara, 420 F.3d 148 (2d Cir. 2005)