## Facts

- Shady Grove Plaza Limited Partnership planned to construct an office building in Montgomery County, Maryland and obtained a construction loan commitment exceeding $23 million from Citicorp Real Estate.
- Citicorp disbursed more than $7 million but refused to release additional funds unless Shady Grove secured an equity partner.
- Phoenix Mutual Life Insurance Company proposed investing $11.5 million for a 50% ownership interest in the project.
- The parties negotiated and executed a letter of intent drafted by Phoenix.
- The executed letter of intent stated that neither party was obligated to accept any particular partnership terms and that any partnership agreement had to be satisfactory to both parties before finalization.
- After execution of the letter of intent, Citicorp released remaining loan funds to Shady Grove.
- The parties continued negotiating a detailed partnership agreement but reached an impasse on key terms, including allocation of cost overruns.
- No formal partnership agreement was executed, negotiations ended, and the project proceeded without Phoenix.
- Phoenix sued asserting that a binding contract/joint venture/partnership existed, that Shady Grove breached a duty to negotiate in good faith, and that Shady Grove was liable under estoppel based on Phoenix’s reliance and Citicorp’s reliance on the letter of intent.

## Issues

1. Whether the executed letter of intent and subsequent negotiations created an enforceable contract, joint venture, or partnership despite explicit nonbinding language and the absence of a final written agreement.
2. Whether Shady Grove incurred liability for breach of a duty to negotiate in good faith or under an estoppel/reliance theory arising from the negotiations and letter of intent.

## Decision

- The court granted defendants’ motion for summary judgment on all claims.
- The court held no enforceable contract, joint venture, or partnership was formed.
- The court held there was no actionable duty to negotiate in good faith under the parties’ expressly nonbinding arrangement.
- The court rejected estoppel/reliance as a basis to impose contractual obligations absent misrepresentation or independently wrongful conduct.
- The court found no genuine dispute of material fact because the letter’s language and undisputed failure to execute a final agreement established non-formation as a matter of law.

## Legal Principles

- A letter of intent that expressly reserves each party’s freedom not to agree and conditions any deal on a later mutually satisfactory definitive agreement is strong evidence of no present intent to be bound.
- In complex commercial transactions, courts are reluctant to infer a binding partnership or joint venture from preliminary writings when material terms remain open and a formal written agreement is contemplated.
- Continued negotiations, unresolved material terms, and a final breakdown in bargaining support a finding that no contract was formed.
- A court will not impose an implied duty to negotiate in good faith where doing so would contradict the parties’ express reservation that no obligation exists until a final agreement is reached.
- Estoppel generally cannot be used to convert an expressly nonbinding preliminary writing into a binding contract absent proof of misrepresentation or other wrongful conduct causing legally cognizable damages.

## Conclusion

The court held that the parties’ expressly nonbinding letter of intent and their failure to reach agreement on material terms prevented formation of any enforceable partnership, joint venture, or contract, and it declined to impose good-faith negotiation or estoppel-based liability that would override the parties’ stated freedom not to agree.


Phoenix Mut. Life Ins. Co. v. Shady Grove Plaza Ltd. P’ship, 734 F. Supp. 1181 (D. Md. 1990)