Thomas E. Emmer, Jr., Palmer, Hanjani, Barkley, Barley & Emmer, 110 W. Railway St., P.O. Box 385, Loretto, MN 55357 (for Appellant)

Considered and decided by Parker, Presiding Judge, Toussaint, Chief Judge, and Harten, Judge.

This case arises from a commercial lease transaction between TM Marketing, Inc. (TM) and J & W Enterprises (J & W). Following negotiations regarding certain rental property, the parties executed a letter of intent that contained some agreed-upon lease terms. The letter of intent, however, also provided that "[f]inal acceptance and lease drafting will be based upon financial/credit approval by [J & W]." Prior to the contemplated commencement of the three-year lease term and execution of a formal lease agreement, TM took possession of a portion of the rental property and occupied the space for approximately 38 days. Subsequently, TM moved out of the rental property, complaining of an odor. J & W sued for breach of a written lease. The district court granted summary judgment in favor of J & W and awarded $175,980 damages, finding that the letter of intent constituted a binding lease agreement and the creditworthiness precondition had been satisfied. On appeal, TM argues that fact issues preclude an award of summary judgment. We reverse and remand.

Generally, a letter of intent constitutes merely an agreement to negotiate in good faith and is not a contract. Hansen v. Phillips Beverage Co., 487 N.W.2d 925, 927 (Minn. App. 1992); 1 Arthur Linton Corbin, Corbin On Contracts § 1.16, at 46 (Joseph M. Perillo ed., rev. ed. 1993). A letter of intent may be binding, however, if the parties manifest an intent to be bound by the instrument and the instrument contains all the essential terms necessary for a binding agreement. Metro Office Parks Co. v. Control Data Corp., 295 Minn. 348, 355, 205 N.W.2d 121, 125 (1973). Whether the parties intended to be bound by a letter of intent prior to execution of a formal contract is a factual determination for the factfinder. See id. (parties' intent to be bound by letter of intent is "matter of fact"); see also Betlach v. Wayzata Condominium, 281 N.W.2d 328, 330 (Minn. 1979) (where parties contemplate later formalization of their agreement, it is question of fact whether parties intended legal consequences to arise prior to formal execution of later instrument); Corbin, supra § 2.9, at 144 (whether parties signed letter of intent with understanding that they were not bound until later definitive writing executed is question of fact properly left to jury).

Here, a genuine issue of material fact exists--the parties' intent to be bound by the letter of intent before a formal lease was adopted--that precludes summary disposition. There is record evidence, which we must view in a light most favorable to TM, that the parties did not contemplate a binding letter of intent: (1) J & W withheld its "final acceptance" pending credit approval of TM; (2) the parties continued to negotiate over material terms of the lease agreement; and (3) J & W requested that TM's president personally guarantee the lease, indicating it was not satisfied with the corporation's creditworthiness. Consequently, summary judgment was inappropriate and we reverse and remand to the district court for trial.

Although the ruling has no bearing on our decision, we grant J & W's motion to strike the affidavit of William Schacter contained in the appendix to TM's brief because it was filed after summary judgment was entered, but we deny its motion with respect to TM's memorandum of law in support of its motion for reconsideration. See Donaldson v. YWCA of Duluth, 526 N.W.2d 215, 217-18 (Minn. App. 1995) (denying motion to strike materials submitted in support of motion to reconsider where, although technically not part of record, it could be inferred that district court considered additional materials), rev'd on other grounds, 539 N.W.2d 789 (Minn. 1995).

Reversed and remanded.