Weigel Broad. Co. v. TV-49, Inc. - 466 F. Supp. 2d 1011 (N.D. Ill. 2006)

Rule:

In Illinois, letters of intent may be enforceable. However, such letters are not necessarily enforceable unless the parties intend them to be contractually binding. This is because Illinois law recognizes the prerogative of parties to agree to further negotiations, while reserving the right to back out of a pending deal prior to the occurrence of some later event. The parties decide for themselves whether to be bound by such letters, and they do so by the terms of the letter itself. A letter of intent that refers to a subsequent formal agreement does not necessarily defeat the parties' intent to be bound. However, language that reflects a tentative agreement contingent upon the successful completion of negotiations that are ongoing, does not amount to a contract that binds the parties. Thus, a determination of intent is based on objective, rather than subjective, manifestations of the parties.

Facts:

Defendant corporation was a small television station whose stock was wholly-owned by defendant president. An offer was made for the purchase of defendant corporation by plaintiff. Subsequently, plaintiff filed the present action for breach of contract, alleging that the letter of intent was a binding contract requiring the parties to negotiate exclusively and in good faith towards the Stock Purchase Agreement. Further, plaintiff alleged that defendants breached the contract when they failed to respond to the draft until September 20, 2005, did not provide further comments on the draft, and entertained an offer by a third party. Before the court was the defendants’ motion for summary judgment. 

Issue:

1. Did the letter of intent constitute a binding contract for the sale of defendant corporation? 
2. Did the letter of intent require the parties to negotiate exclusively and in good faith? 

Answer:

1) No. 2) Yes.

Conclusion:

The defendants’ motion for summary judgment was granted as to plaintiff's claims for injunction and specific performance and denied as to plaintiff's claims regarding the duty to negotiate exclusively and in good faith. The court found that the letter of intent did not constitute a binding contract for the sale of defendant corporation. The court reasoned in part that while the letter included some terms of the proposed agreement, it did not cover a majority of terms one would expect to find in a multi-million-dollar contract for the sale of a television station, such as warranties and representations and closing procedures. However, the court found that the parties did intend the letter of intent to bind them to exclusive and good faith negotiations.