It is undisputed that the parties intended to sign written documents that memorialized the terms of their

Question:

“It is undisputed that the parties intended to sign written documents that memorialized the terms of their oral agreement.” —Bernes, Judge 

Facts: Among other assets, Turner Broadcasting System, Inc., owned the Atlanta Hawks professional basketball team, the Atlanta Thrashers professional hockey team, and the Philips Arena located in Atlanta, Georgia (collectively “assets”). Turner Broadcasting publicly announced its intent to sell the assets. David McDavid expressed an interest in purchasing the assets and entered into negotiations with Turner Broadcasting. On April 30, the parties entered into a “Letter of Intent” outlining the proposed sale terms. The parties held meetings and engaged in telephone conference calls to resolve any outstanding issues. During a conference call on July 30 with McDavid, Turner Broadcasting’s chief executive officer (CEO) Phil Kent announced, “we have a deal.” On or about August 16, as the drafting process of a final written agreement continued, Turner Broadcasting’s executive and principal negotiator, James McCaffrey, told McDavid that the “deal was done” and that “they were ready to close the deal.” On August 19, the directors of Time Warner, Inc., Turner Broadcasting’s parent company, approved the sale of the assets to McDavid based on the agreed-upon terms. On or about September 12, during a conference call, Turner Broadcasting and McDavid verbally reached a final agreement for the written agreement and Turner Broadcasting’s principal negotiator announced, “the deal is done. Let’s get documents we can sign and we’ll meet in Atlanta for a press conference and a closing early next week.” However, Ted Turner, a member of Time Warner’s board of directors, opposed the deal. Ted Turner’s son-inlaw, Rutherford Seydel, approached Turner Broadcasting about purchasing the assets on behalf of his company, Atlanta Spirit, LLC. Turner Broadcasting began negotiations with Atlanta Spirit. Turner Broadcasting’s principal negotiator signed an agreement to sell the assets to Atlanta Spirit on substantially the same terms agreed upon by Turner Broadcasting and McDavid. McDavid sued Turner Broadcasting for breach of contract. Turner Broadcasting denied the existence of any binding contract with McDavid, arguing that the parties had not executed a final written agreement. Following an eight-week trial, the jury returned a verdict in favor of McDavid, finding that Turner Broadcasting had breached its contract with McDavid, and awarded $281 million in damages to McDavid. Turner Broadcasting appealed. 

Issue: Is there an enforceable contract between McDavid and Turner Broadcasting? 

Language of the Court: It is undisputed that the parties intended to sign written documents that memorialized the terms of their oral agreement. McDavid and his advisors testified that in accordance with the customary deal-making process, the parties first had to reach an oral agreement upon the material terms, and then the lawyers were expected to prepare the written documents that memorialized the parties’ agreed upon terms. There was evidence from which the jury could conclude that the parties entered into a binding oral agreement with the intent to sign written documents that memorialized the terms, but failed to do so as a result of Turner Broadcasting’s breach. 

Decision: The court of appeals affirmed the trial court’s judgment that found that Turner Broadcasting had breached an oral agreement with McDavid and that awarded $281 million in damages against Turner Broadcasting.

Ethics Questions: Should businesspeople be bound to their oral word? Did Turner Broadcasting act unethically in this case?

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