Incomplete and Deferred Agreement

Case: Empro Manufacturing Co., Inc. v. Ball-Co Manufacturing, Inc. (1989 US)
[pp.427-431]

Facts: Empro sent Ball-Co a "letter of intent" to Ball-Co, proposing an

agreement, but left open terms to be agreed upon and formally concluded by a
formal, definitive Asset Purchase agreement to be signed by both parties, and
other conditions including "the approval of the shareholders and board of
directors of Empro." Parties signed the letter of intention, and negotiated over
4 months on many terms. But they couldn’t agree on a security interest term, and
when Empro learned Ball-Co was negotiating with someone else, Empro brought this
suit. Empro said that the letter of intent obliges Ball-Co to sell only to Empro,
but court dismissed the complaint for failure to state a claim on which relief may
be granted.

Issue: Whether Ball-Co objectively intended to be bound by the letter of intent.

Holding: Ball-Co did not intend to be bound. Verdict for defendant.

Reasoning: Empro made clear in the letter of intent (because of the conditions,
and subject-to statements), that it was free to walk until the formal agreement
was drawn up. There was no option that would commit Ball-Co. The letter of intent
did no more than set the stage for negotiations on details. Empro claims reliance
expenditures, but these are only the usual associated with preliminary
negotiations.

RULE: Objective manifestation of intent needed, “subject to” clause may qualify
as an option but not magic words – must look at the whole letter to find intent to
be bound

This was an agreement to agree, not an agreement fully agreed upon on its
essential terms. Here, neither party can unjustifiably withdraw, but neither can
be compelled to perform, if after good faith bargaining, an agreement cannot be
reached. So, this is a contract to bargain.

Notes

· P lost because there was no binding contract.

o They were a lot of ways out for P. There were conditions made very clear
by parties in the beginning. Letter of intent, but many conditions.
· No longer have a mirror-image rule. Ok for courts to supply open terms.
· If its clear from the contract (objectively) that no agreement until conditions
are met, then no binding agreement.
· If there was a binding contract, and D breached, what would be the remedy?
o Expectation damages - this is typical for breach of damages
§ Put P in the position they would have been in if no breach. How to
determine the expectancy?
□ Lost profits - these are very speculative; not concrete
® determined from P's calculations on whether they should
go forward with the deal
® History of company's profits
® Cant get lost profits forever; they have to take action
to find another party to transact with, and they get the lost profit of that time
period
□ Purchase price
□ Difference in price if they had to buy from somewhere else for
more $
 ® Cant get both lost profits and diff in price both b/c the
lost profits you would prob get from the breached sale, you would make if you
actually bought from somewhere else
◊ Except lost profits in the time it took to get
another company
· Also, injunctive relief - specific performance
o If D already sold to another company, too late to get specific
performance, and might go for damages
o Maybe if you feel the deal isn't that great, you may just go for monetary
damages
· Usually go monetary - specific performance is unusual
· Is there anything P could have done during negotiations to alter the outcome.
What type of term or change in arrangement during negotiations could P have made
to a better result
o Get an option
o Create a contract to negotiate (in good faith)
§ If they had this they could get reliance Damages
□ Money spent on the negotiations, fruitlessly - they relied on
the promise to negotiate in good faith