Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 78 C 2872-James B. Moran, Judge
Before BAUER, Chief Judge, POSNER and COFFEY, Circuit Judges.
COFFEY, Circuit Judge. This is a diversity case arising from Apothekernes unsuccessful attempt to purchase the Biochemical Division of IMC. The parties negotiated for some months in an attempt to reach an agreement on the terms of the sale. In February of 1978, the two companies' negotiators were finally able to agree on all terms. However, IMC's board of directors refused to approve the deal. Apothekernes filed this action asserting state law claims of breach of contract, fraud and estoppel. Following a bench trial, the district court entered judgment in favor of IMC on all counts. We affirm.
Apothekernes brought this suit against IMC on the theories of breach of contract, fraud and estoppel, seeking damages and specific performance of what it perceived as a consummated deal for the sale of IMC's Biochemical Division. The district court initially granted summary judgment for IMC on the breach of contract and estoppel claims (leaving only the charges of fraudulent misrepresentation) and certified the dismissal of those counts for immediate appeal under Federal Rule of Civil Procedure 54(b). We dismissed that appeal for lack of jurisdiction holding that the claims certified for appeal were not "separate in a Rule 54(b) sense" from the claims the district court had retained. A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc., 725 F.2d 1140, 1143 (7th Cir. 1984).
The case then proceeded to a bench trial and the district court made the following findings of fact and conclusions of law. In March of 1977, Apothekernes, through its president, E. W. Sissener, began negotiating with IMC and its president and chief executive officer, Dr. M. B. Gillis, for the purchase of various of IMC's assets. During the month of December in 1977, the scope of the deal had narrowed to the point that the parties were talking about the purchase of certain, though not all, of IMC's Terre Haute plant facilities. On the 9th of December 1977, the parties signed a letter "intended to set forth the terms upon which we and/or our nominee intend to negotiate and consummate an Agreement of Sale relative to the purchase of certain assets of the Biochemical Division of IMC . . . ." The letter set forth and delineated those matters upon which Sissener and Gillis had previously reached substantial agreement, as well as those issues that required further negotiation. The letter then concluded that "all of the above is subject to our concluding an Agreement of Sale which shall be acceptable to the Boards of Directors of our respective corporations, whose discretion shall in no way be limited by this letter . . . In the interim, [IMC] agree[s] not to initiate negotiations or discussions intended to lead to negotiations with others for the sale of these same assets." Finally, the letter provided for an Agreement of Sale to be executed within 60 days of December 9, 1977.
Initially, the court found that the December 9, 1977 letter of intent did not constitute a binding contract for the sale of IMC's assets, but that it did serve to obligate both parties to bargain in good faith with the goal of eventually reaching agreement. According to the district court, although negotiations proceeded in good faith, by February 23, 1978 the parties still had not resolved their differences on three matters that the court considered "deal breakers." The court concluded that because the sixty day period in which the parties had agreed to execute a final agreement had expired, Gillis was no longer obligated to continue negotiations and could have broken them off at any time. Nonetheless, Sissener capitulated on the three points of contention on February 24, and the court found that at that time, the parties had reached a "meeting of the minds on all substantial terms." The court specifically found that up to this point, Gillis had negotiated in good faith and had reached agreement with Sissener.
According to the district court, the February 24 meeting of the minds did not, however, constitute a binding contract of sale. Though it determined that the lack of a final executed written draft did not preclude finding an intent to contract on February 24, it did find that the board approval provision in the December 9 letter of intent prevented the formalization of a binding contract absent the approval of IMC's board of directors. The court also found that though Gillis "had perhaps indicated to Sissener his confidence that board approval would be forthcoming, there was no certainty that it would be granted." Instead, the district court found that the board approval provision was explicit in the letter of intent; Gillis had neither the authority nor the apparent authority to bind IMC to the sale of substantial corporate assets, especially when the deal would have involved joint use of a production facility. Nor was the board bound by the letter of intent to accept the terms of the February 24 deal, even though it was reasonably in accord with the terms in the letter of intent; the letter of intent explicitly reserved to the board unlimited discretion to either accept or reject the deal.
Before taking the agreement to the IMC board of directors for approval, Gillis initially went to discuss the matter with Lenon, the president of IMC's parent, as he told Sissener he would do. The court found that at the Gillis-Lenon meeting, Gillis did not take it upon himself to advocate the agreement, but rather focused on the protracted nature of the negotiations leading up to the agreement. Lenon in turn summarily rejected the deal. Lenon's decision was, according to the district court, binding on Gillis and IMC's board of directors. Accordingly, Gillis convened a telephone meeting of the board and induced them to reject the sale. The court concluded that the fact that the board's decision was not an independent one, but instead was a rubber-stamp for Lenon's decision, was in no way improper. It found that Lenon could reject the sale to the same extent that the IMC board could reject the sale. Having determined that the letter of intent reserved to the board of directors the right to reject the deal, the court concluded that, "before there was a contract the IMC board had to approve what its negotiator had approved, and the IMC board would not approve unless Lenon approved, and Lenon said no. There was no contract." Accordingly, the district court entered judgment in favor of IMC on all counts, which judgment Apothekernes now appeals.
Apothekernes presents two arguments on appeal. First, it argues that the February 24 meeting of the minds constituted a binding contract which IMC breached by refusing to go through with the proposed sale. Alternatively, Apothekernes argues that the December 9 letter of intent imposed a duty upon IMC to negotiate in good faith, which IMC breached when its board of directors rejected the proposal. We address each of these arguments.
A. The February 24 Meeting of the Minds
The district court found that on February 24, following Sissener's capitulation on the three deal-breaking points, Sissener and Gillis had reached a meeting of the minds on all substantial points. All that remained to be accomplished was to formalize the agreement in writing and obtain the approval of the boards of directors of both parties. The question is whether either of these remaining steps were prerequisites to the formation of a binding contract, or whether the meeting of the minds in and of itself served to bind both parties to the sale.
Under Illinois law, courts focus on the parties' intentions to determine whether an enforceable contract comes into being during the course of negotiations, or whether some type of formalization of the agreement is required before it becomes binding. Itek Corporation v. Chicago Aerial Industries, Inc., 248 A.2d 625, 629 (Del. 1968) (applying Illinois law). The fact that some matters may have been left for future agreement does not necessarily preclude a finding of intent to contract during preliminary negotiations. Borg-Warner Corp. v. Anchor Coupling Co., 16 Ill. 2d 234, 243-44, 156 N.E.2d 513, 517-18 (1958). Courts look to all of the circumstances surrounding the negotiations, including the actions of the principals both during and after, to determine what the parties intended. Itek, 248 A.2d at 629. The intent of the parties in circumstances such as these is a question of fact, and we will not set aside the fact finder's determination ...