## Facts

- Diesel Power Equipment, Inc., a Deutz engine distributor, negotiated to buy ADDCO, Inc.’s Nicholson Engine Group (NEG), a Deutz engine sales and distribution division.
- On August 24, 2001, Diesel Power sent a preliminary offer identifying certain assets and inventory but stating it was not the entire offer and that goodwill, consulting, and noncompete payments still required discussion.
- The parties met on August 30, 2001, to identify specific inventory and fixed-asset items; they discussed alternative goodwill payment structures and anticipated a later closing.
- On August 31, 2001, ADDCO’s president told Diesel Power’s owner he accepted the offer, and Diesel Power agreed to draft a letter of intent.
- On September 11, 2001, the parties signed a Letter of Intent (LOI) setting out purchase components and two alternative goodwill payment options and anticipating a later, more formal asset purchase agreement (APA).
- Diesel Power drafted APAs after the LOI; ADDCO requested changes, including reallocating the purchase price between inventory and goodwill.
- A later draft APA introduced or materially changed terms, including adding a $50,000 noncompete, altering inventory valuation, reallocating goodwill, and conditioning the transaction on Deutz’s approval of an assignment of the distributorship.
- Neither APA was signed.
- In late October 2001, a third party offered to purchase NEG for substantially more money, and ADDCO sold NEG to that third party in November 2001.
- Diesel Power sued for breach of contract in federal district court in Nebraska; after a bench trial, the court found a binding contract and awarded $809,396 in damages.

## Issues

1. Whether the parties’ August 31 verbal communications and September 11 LOI, viewed objectively, formed an enforceable contract under Nebraska law.
2. Whether the absence of agreement on essential terms, and the parties’ continued negotiations and unsigned draft APAs, showed only an agreement to negotiate rather than a final contract.

## Decision

- The Eighth Circuit reversed the judgment for Diesel Power and remanded with instructions to enter judgment for ADDCO.
- The court held that the parties’ writings and conduct were not sufficiently definite to form an enforceable contract under Nebraska law.
- The court treated the LOI and subsequent drafting as ongoing negotiations in which material terms remained unsettled.

## Legal Principles

- Under Nebraska law, an enforceable contract requires objective manifestations of mutual assent to all essential terms; indefiniteness defeats enforcement.
- A letter of intent that anticipates a later definitive agreement generally does not bind the parties where essential terms are omitted or left open.
- Continued negotiations, unsigned contemplated agreements, and later drafts adding or materially changing key terms are objective evidence that no final contract was formed.

## Conclusion

Because the parties continued to negotiate and did not reach definite agreement on essential terms reflected by materially different, unsigned draft purchase agreements, the LOI and related communications did not create a binding contract, and ADDCO was not liable for breach when it sold NEG to a third party.


Diesel Power Equip., Inc. v. ADDCO, Inc., 377 F.3d 853 (8th Cir. 2004)