## Facts

- Continental Laboratories, Inc., a manufacturer of hotel amenity products, negotiated with Scott Paper Co. for a supply-and-distribution relationship under which Continental would supply products and Scott would distribute them in designated U.S. areas.
- The parties also discussed a possible acquisition of Continental by Scott, but did not complete that effort.
- Beginning in May 1987, Scott prepared and circulated at least five successive drafts of a “Supply and Distribution Agreement,” with each revised draft reflecting ongoing negotiations and serving as the basis for further talks.
- On July 19, 1987, a Scott representative announced internally that the parties had reached an agreement “in principle.”
- Between late July and late August 1987, the parties held meetings and conference calls; Continental’s principal believed a binding oral contract was reached during a telephone conference call on August 25 or 26, with the expectation that Scott would later reduce the terms to a written agreement as a memorial.
- Scott’s representative stated Scott did not intend to be bound orally and intended to be bound only by a duly executed written agreement; Scott’s practice was to memorialize significant transactions in writing.
- After the August call, Scott sent another draft on September 2, 1987, leaving the commencement date blank; no Continental representative signed it.
- Further discussions addressed unresolved manufacturing and distribution terms; Scott ultimately ended negotiations and withdrew from the venture.
- Continental sued for breach of the alleged August oral contract; Scott removed on diversity and moved for summary judgment, arguing no contract was formed and that a signed writing was required.

## Issues

1. Whether the parties formed a binding contract during negotiations, including at the August 1987 conference call, despite the absence of a signed writing.
2. Whether execution of a written “Supply and Distribution Agreement” was a condition precedent to any contractual obligation under Iowa law.
3. Whether Continental produced sufficient evidence of Scott’s intent to be bound to create a genuine dispute of material fact precluding summary judgment.

## Decision

- The court granted Scott’s motion for summary judgment and dismissed the complaint.
- The court held no binding contract (oral or written) was formed.
- The court found Scott intended to be bound only by a fully executed written agreement, which never occurred.
- The court concluded Continental failed to show a genuine dispute of material fact on Scott’s intent to be bound before execution of a written contract.

## Legal Principles

- Contract formation under Iowa law turns on the parties’ mutual intent to be bound as shown by objective manifestations, not one party’s unilateral belief.
- Parties may contemplate a later writing without defeating contract formation, but execution of a written agreement may be a condition precedent to contractual obligation.
- In assessing intent, courts may consider transaction complexity, drafting history, unresolved terms, commercial practice, and the parties’ conduct during negotiations.
- On summary judgment, a plaintiff must present evidence from which a reasonable factfinder could conclude the defendant intended to be bound; continued drafting and absence of signatures may support finding no assent.

## Conclusion

The court ruled that extended negotiations, an internal “agreement in principle,” and one side’s belief in an oral deal did not create an enforceable contract where the record showed the defendant conditioned assent on execution of a written agreement that was never signed.


Continental Laboratories, Inc. v. Scott Paper Co., 759 F. Supp. 538 (S.D. Iowa 1990)