## Facts

- Marcus & O’Leary, Inc. agreed to sell Mediafare Entertainment Corp. a 50% interest in “The Gallavants” characters for media exploitation, and the parties formed Gallavants, Inc.; Ralph Smith was Mediafare’s president.
- Mary Ellen Winston claimed she helped bring Marcus & O’Leary and Mediafare together and sued for a finder’s fee in the Southern District of New York.
- On May 9, 1984, counsel met and reached an oral “agreement in principle” for Winston to receive $62,500 in five installments as a nonrefundable advance against a percentage of gross revenues from exploitation of the characters.
- Counsel informed the court settlement was likely and requested a 30-day order.
- The parties exchanged multiple drafts of a written settlement agreement, continued to negotiate terms, and did not obtain execution of a final document by all parties.
- The district court enforced the purported settlement, finding a final and binding agreement existed; defendants appealed.

## Issues

1. Whether the parties formed a binding settlement agreement despite not executing the contemplated written settlement document.

## Decision

- The Second Circuit reversed the order enforcing the settlement and remanded.
- The court held no binding settlement was formed because the parties intended to be bound only upon execution of a formal written agreement.
- The court found the course of drafting, lack of performance, continuing negotiations over terms, and the nature of the transaction supported that intent.

## Legal Principles

- Contract formation in this setting turns on the parties’ intent to be bound in the absence of a signed writing.
- In determining intent where no fully executed document exists, courts consider:
  - whether the parties expressly (or effectively) reserved the right not to be bound without a signed writing;
  - whether there has been partial performance;
  - whether all material terms were agreed upon; and
  - whether the agreement is of a type usually committed to writing.
- An “agreement in principle” is not necessarily enforceable when the circumstances show the parties expected a signed writing as a condition to being bound.

## Conclusion

The Second Circuit held that the parties’ negotiations and conduct showed an intent not to be bound until a written settlement was executed; therefore, the district court erred in enforcing the unexecuted settlement and the case was remanded for further proceedings.


Winston v. Mediafare Ent. Corp., 777 F.2d 78 (2d Cir. 1985)