Brief Fact Summary.
Both parties exchanged letters of intent, regarding the sale of Defendant’s assets to Plaintiff, both also acknowledging that security for Plaintiff’s note would need to be agreed upon. The parties failed to agree upon security and suit followed.
Synopsis of Rule of Law.
This case stands for the proposition that mutual letters of intent do not bind the parties to an agreement when integral terms are undecided.
Thus, the parties decide for themselves whether the results of preliminary negotiations bind them, and they do so through their words.View Full Point of Law
The Defendant, Ball-Co Manufacturing, Inc. (Defendant), floated its assets on the open-market, to determine if there was interest in purchasing the company. The Plaintiff, Empro Manufacturing Co., Inc. (Plaintiff), expressed interest and formulated a letter of intent, to which Defendant responded in kind with another letter of intent, also noting that security for Plaintiff’s note would need to be agreed upon, prior to sale. After the parties could not reach an agreement as to how security would be provided for Plaintiff’s note, Defendant began to look at other prospective buyers. When Plaintiff became aware of this fact, it filed suit for performance, based on mutual intent, or alternatively, for reliance expenditures it made in anticipation of the agreement. Defendant’s suit was dismissed and it appealed.
This case explores the question of whether mutual letters of intent are meant to be a binding agreement, in lieu of the fact that all terms of the deal are still undecided.
The court found that letters of intent were not a binding agreement, but rather an agreement to agree. As such, they were unenforceable when their purpose (i.e. the future agreement) did not come to fruition.
Additionally, the Court found that Plaintiff could not claim reliance expenditures, when it could not prove prejudice. Reliance damages are rewarded when a party has been prejudiced to its detriment and estoppel is allowed only to the extent of placing that party in the position it would have been in, had it not relied. In this case, Plaintiff could not recover reliance damages because its only identifiable expenditures are associated with pre-contractual dealings.
When parties intend to deal with one another at a future date, it is important to look at their intent and the terms by which they have agreed. If the parties have agreed to all terms that could or could not be enforceable, then it is reasonable to hold them to those terms. If, however, the parties leave terms out, anticipating future negotiations, it is obvious that a binding agreement has not yet been reached.