## Facts

- Ball-Co offered its specialty valve-component business assets and plant for sale.
- Empro sent Ball-Co a signed three-page “letter of intent” proposing a $2.4 million asset purchase, with $650,000 due at closing and the balance via a 10-year promissory note secured by Ball-Co’s inventory and equipment.
- The letter stated the proposal’s “general terms and conditions” were “subject to and incorporated in” a “formal, definitive Asset Purchase Agreement signed by both parties.”
- Empro’s purchase was “subject to” stated conditions precedent, including execution of the definitive agreement and approval by Empro’s shareholders and board.
- The parties negotiated for several months but did not resolve a major term: Ball-Co demanded a security interest in the land under the plant; Empro refused.
- When Empro learned Ball-Co was negotiating with another buyer, Empro sued for injunctive relief asserting the letter obligated Ball-Co to sell only to Empro; alternatively, Empro sought reliance expenditures.
- The district court dismissed the complaint under Rule 12(b)(6), concluding the letter of intent was not a binding contract under Illinois law.

## Issues

1. Whether the signed letter of intent constituted an enforceable contract requiring Ball-Co to sell its assets exclusively to Empro.
2. Whether, absent an enforceable contract, Empro stated a viable claim for reliance-based recovery.

## Decision

- The Seventh Circuit affirmed the Rule 12(b)(6) dismissal.
- The letter of intent was a nonbinding preliminary writing contingent on a future definitive asset purchase agreement and other conditions.
- The unresolved security-for-the-note term confirmed the parties had not reached agreement on material terms.
- Empro’s reliance theory failed because the pleaded expenditures were ordinary negotiation costs and did not establish the type of detrimental prejudice required for estoppel-based recovery.

## Legal Principles

- Contract formation under Illinois law turns on objective manifestations of assent shown by the parties’ words and written terms, not later claims of subjective intent to be bound.
- A writing that repeatedly makes obligations “subject to” execution of a definitive agreement ordinarily indicates no present intent to be bound.
- Express conditions precedent (including one party’s internal approval requirements) may show that neither side has made a binding commitment, especially where they functionally permit a party to avoid closing.
- Where material terms remain open and further negotiation is contemplated, the document is an unenforceable “agreement to agree.”
- Reliance-based recovery in the absence of contract requires a showing of detrimental prejudice beyond typical pre-contract negotiation expenses.

## Conclusion

The court held that the parties’ letter of intent, by its express “subject to” language, conditions precedent, and unresolved material terms, did not create an enforceable contract or exclusivity obligation, and Empro’s pleaded reliance expenditures did not support recovery without a contract.


Empro Manufacturing Co. v. Ball-Co Manufacturing, Inc., 870 F.2d 423 (7th Cir. 1989)