Empro
Mfg. Co. v. Ball-Co Mfg., Inc.
870
F.2d 423.
Facts: Empro wanted to buy
Ball-Co’s assets. Empro sent Ball-Co a
letter of intent to purchase their assets, but the letter required a later
final agreement and other conditions.
Ball-Co bailed and started negotiating with another buyer. Empro filed for a temporary restraining
order. The trial court dismissed Empro’s
complaint, saying that the letter of intent had no legal force based on its own
insistence that it’s not a contract.
Empro appealed to the Circuit Court.
Issue: May Empro’s complaint be
dismissed even if the parties intended to be bound by the letter of intent?
Rule: A letter containing an
agreement that is subject to the execution of a definitive contract has no
independent force.
Analysis: Easterbrook makes a policy
argument about why intent is judged objectively rather than subjectively in
contract law. If intent had to be judged
subjectively, every contract case would go to a jury, and that would be highly
inefficient and very bad for business.
Looking
at the letter, Easterbrook finds that Empro carefully insulated itself against
the deal being binding. If Empro was
free to walk, it stands to reason that Ball-Co was too.
Conclusion: The judgment of the trial
court is affirmed.
Question
The
court is trying to distinguish the letter of intent here from the type seen in Borg-Warner,
where it looks like the two parties are not free to walk away, even
though they haven’t 100% settled on the terms of a final agreement. A breach of a legally enforceable duty to
negotiate a final contract would consist of the failure to come to such a final
agreement plus a demonstration of bad faith on the part of one party.