## Facts

- Budget Marketing, Inc. (BMI), led by its president Charles A. Eagle, negotiated with Centronics Corporation regarding Centronics’s proposed acquisition of BMI.
- The parties executed a written letter of intent describing a $10 million initial payment plus up to $7 million contingent on cash-flow performance during a 36-month earn-out period.
- The letter allocated certain responsibilities to BMI before closing (including meeting cash needs and addressing regulatory complaints) and conditioned closing on multiple contingencies, including satisfactory due diligence, key-man insurance, acceptable tax consequences, and execution of a definitive binding agreement, as well as board and shareholder approvals.
- The letter expressly stated it was not a binding agreement and would not be construed as legally obligating either party to consummate the merger.
- BMI expanded operations, obtained key-man insurance, and Eagle borrowed funds; BMI alleged Centronics knew of and encouraged these steps during negotiations.
- Centronics later decided not to proceed, and BMI and Eagle sued asserting (1) breach of an implied duty to negotiate in good faith, (2) promissory estoppel, and (3) negligent misrepresentation; Centronics filed a negligent-misrepresentation counterclaim.
- The district court granted summary judgment for Centronics on all plaintiffs’ claims and granted summary judgment against Centronics on its counterclaim.
- On appeal, the Eighth Circuit affirmed dismissal of the implied-duty and negligent-misrepresentation claims and remanded only the promissory-estoppel claim for trial.
- After a jury verdict for BMI on promissory estoppel and reliance damages, the district court granted judgment notwithstanding the verdict (JNOV) for Centronics; the Eighth Circuit affirmed, holding reliance was unreasonable as a matter of law after the letter of intent.

## Issues

1. Whether an express nonbinding letter of intent can support an implied duty to negotiate in good faith toward a definitive agreement.
2. Whether promissory estoppel may be based on pre-letter assurances when the parties later sign a letter of intent expressly disclaiming any legal obligation to consummate the transaction.
3. Whether either side presented a triable claim of negligent misrepresentation arising from statements made during acquisition negotiations.
4. Whether the reasonableness of reliance for promissory estoppel can be decided as a matter of law in light of an explicit nonbinding disclaimer.

## Decision

- The Eighth Circuit held the letter of intent’s clear disclaimer foreclosed any implied duty to negotiate in good faith.
- The Eighth Circuit affirmed summary judgment against BMI and Eagle on negligent misrepresentation and affirmed summary judgment against Centronics on its negligent-misrepresentation counterclaim.
- The Eighth Circuit initially remanded the promissory-estoppel claim because factual disputes existed concerning alleged promises and reliance.
- After trial on remand, the Eighth Circuit affirmed JNOV for Centronics, holding BMI’s reliance was unreasonable as a matter of law once the nonbinding letter of intent was executed, and therefore promissory estoppel failed.

## Legal Principles

- When sophisticated parties sign a letter of intent that unambiguously disclaims binding effect and conditions closing on a definitive agreement and approvals, courts will not imply a duty to negotiate in good faith inconsistent with that express language.
- Promissory estoppel under Iowa law requires a clear and definite promise, detrimental reliance, and reliance that is reasonable; failure of reasonable reliance defeats the claim.
- Reliance on informal assurances may be deemed unreasonable as a matter of law when later superseded by a written letter of intent expressly stating it creates no legal obligation to consummate the transaction.
- Nonbinding negotiation statements, without actionable misstatements meeting the elements of negligent misrepresentation, do not support liability; likewise, a counterclaim fails absent proof of the required elements.

## Conclusion

The Eighth Circuit treated the express nonbinding language of the letter of intent as controlling: it barred any implied duty to negotiate in good faith and, after trial, made BMI’s post-letter reliance on earlier informal assurances unreasonable as a matter of law, defeating promissory estoppel and leaving Centronics without liability.


Budget Mktg., Inc. v. Centronics Corp., 927 F.2d 421 (8th Cir. 1991)