Opinion
March 14, 1985
Appeal from the Supreme Court, New York County (Arthur Blyn, J.).
We agree with Special Term that the parties did not intend to be bound until the execution of a formal written agreement. This is clearly reflected in their exchange of correspondence. Plaintiff's letter, dated August 17, 1983, confirmed "our agreement in principal to purchase Prestoseal Manufacturing Corporation * * * effective 30 days after signing an official contract between Prestoseal and us," which letter was never signed by defendant. On August 31, 1983, defendants confirmed an agreement to sell plaintiff certain assets of Prestoseal "effective upon the signing of a binding contract between us" and provided that the letter was "a memorandum of our intentions which shall be set forth in a formal contract drawn by our attorney in such form and manner to effectuate the sale and consignment and provide such necessary security as our attorney may deem advisable." While plaintiff claims that the August 31st letter amounted to a binding agreement, it is undisputed that plaintiff did not make the $10,000 payment which was to be paid "upon the signing of [the] contract". Similarly, plaintiff's correspondence of September 8 and October 28, 1983, neither of which was countersigned by defendants, referred to a binding agreement upon the execution of a formal contract.
Under the circumstances, it is clear that both parties contemplated the preparation and execution of a formal agreement and considered the transaction incomplete and without legal effect until reduced to writing and formally signed ( see, Scheck v Francis, 26 N.Y.2d 466, 469-470; Matter of Municipal Consultants Publishers v. Town of Ramapo, 47 N.Y.2d 144, 149; Willmott v Giarraputo, 5 N.Y.2d 250, 253). They expressly conditioned the existence of a binding agreement upon the execution of a formal written contract. As was observed by Chief Judge Fuld in Scheck v. Francis ( supra, at pp 469-470) "if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed." Furthermore, and as additional substantiation, the parties did not agree on all the essential terms of critical concern in such a transaction, namely security or interest.
However, since this was an action which, in part, sought a declaratory judgment, it was error to dismiss the first cause of action because plaintiff was not entitled to the declaration sought. Instead of dismissing, Special Term should have made an appropriate declaration of the rights of the parties with respect to the subject matter of the litigation ( Sweeney v. Cannon, 30 N.Y.2d 633; Lanza v. Wagner, 11 N.Y.2d 317, 334, appeal dismissed 371 U.S. 74, cert denied 371 U.S. 901; American Home Assur. Co. v Port Auth., 66 A.D.2d 269, 273; Fhagen v. Miller, 36 A.D.2d 926, affd 29 N.Y.2d 348, cert denied 409 U.S. 845; Todaro v. New York City Employees' Retirement Sys., 42 A.D.2d 887).
Concur — Sandler, J.P., Asch, Fein and Kassal, JJ.