South Carolina Supreme Court: Memoranda of Understanding are not contracts
January 5, 2015
COLUMBIA, SC – Do we have a contract? This question has been the source of years of litigation that culminated with a decisive victory for basic contract law and the City of Columbia.
The litigation began in 2005 and at one point involved more than a half dozen law firms. The key question: Is a memorandum of understanding between a government and a business a binding contract?
The South Carolina Supreme Court answer that question in August: Memoranda of understanding are not binding and they in no way obligate governments to pay for projects that are subsequently dropped.
“This is a very important ruling, not only for the City of Columbia, which prevailed in the case, but also for governments and businesses throughout the state,” said Rick Detwiler, an attorney with Callison Tighe & Robinson, LLC, who long has presented the city in the dispute.
“This ruling reminds the parties to an MOU that until all of the material terms of a deal are well defined, there is no binding contract.”
The issue dates back to 2001, when the City of Columbia entered into a memorandum of understanding with realty, development and construction companies to explore the idea of building a hotel adjacent to the Midlands Regional Convention Center.
The city ultimately determined that the financing was too risky and abandoned the project. The businesses sued, claiming that the memorandum was a binding contract and the city owed them money.
In August, the South Carolina Supreme Court disagreed with the businesses and ruled in the city’s favor.
“Memoranda of Understanding are common in complex business transactions,” Detwiler said. “They create a conceptual framework to develop and implement complex arrangements, but these “agreements to agree’ are not contracts.”
Detwiler said the attorneys who represented the city – the team also included Michael W. Tighe, D. Reece Williams II and Kathleen M. McDaniel – are pleased to have prevailed after such a long battle.
The decision is one that all businesses need to be aware of as they negotiate with government agencies in particular.
“Memoranda of understanding have a place in business,” McDaniel said. “But they do not create binding agreements.”
About Callison Tighe & Robinson, LLC
Callison Tighe & Robinson, LLC’s attorneys practice in areas including trials and appeals in all state and federal courts in South Carolina; Alternative Dispute Resolution; Appellate Practice; Banking and Commercial Finance; Business Organizations; Financial Services, Creditor Rights and Bankruptcy; General Litigation; Commercial Real Estate; Employment Law, Employee Benefits and ERISA; Environmental and Regulatory Law; Government Law; Tax, Probate, Trusts and Estates; Title Insurance Litigation; and Workers’ Compensation.
For more information, visit callisontighe.com.
