Empro Mfg. Co. v. Ball-Co Mfg., Inc.
870 F.2d 423.
Facts: Empro wanted to buy Ball-Coís 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 Emproís complaint, saying that the letter of intent had no legal force based on its own insistence that itís not a contract.† Empro appealed to the Circuit Court.
Issue: May Emproís 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.
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 havenít 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.