Empro Mfg. Co. v. Ball-Co Mfg., Inc.
870 F.2d 423 (7th Cir. 1989)
- Valve manufacturer Ball-Co was interested in selling some of its assets. Empro showed interest. After some negotiation, Empro sent Ball-Co a letter of intent to buy one of Ball-Co’s plants for $2.4M.
- The letter of intent said that, “the general terms and conditions of such proposal will be subject to and incorporated in a formal, definitive Asset Purchase Agreement signed by both parties.”
- Subsequent negotiations broke down and Ball-Co began negotiation with another buyer. Empro sued, arguing that Ball-Co had already agreed to sell the land to them, so they must be restrained from selling it to someone else.
- Ball-Co wanted security in case Empro didn’t make their payments.
- Trial Court found that the words, “subject to the execution of an Asset Purchase Agreement” meant that the letter of intent was not a definitive contract and had no independent force.
- Empro argued that the binding effect of the letter of intent depends on the parties’ intent and cannot be dismissed. Empro claimed that they intended the parties to be bound.
- The Appellate Court affirmed.
- The Appellate Court found that there could be cases where a letter of intent could constitute a binding agreement. But it would have to be very specifically worded as such.
- Letters of intent and agreements in principle often do no more than set the stage for negotiations on details.
- In this case, the Court used the objective theory, in which the actual intent of the parties has nothing to do with the contract, it’s only what a reasonable person would think.
- Conversely, in the case of Billings v. Wilby, a letter of intent was considered binding, but in that case, there were a lot more details in the preliminary document.