Valve
manufacturer Ball-Co was interested in selling some of its assets.Mepro 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 filed a diversity
suit, contending 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 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.
Appellate
Court affirmed the Trial Court.
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.
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.
