PFT Roberson, Inc. v. Volvo Trucks North America, Inc.
Nature of the Case
PFT Roberson (P) got the verdict in excess of $5 million in damages for breach of contract. Volvo Trucks North America (D) appealed the district court’s denial of its motion for judgment as a matter of law under FRCP 50. Roberson filed a cross-appeal in pursuit of damages on its fraud theory, which the district judge did not submit to the jury.
Facts
Roberson has a large trucking operation and Freightliner supplies, maintains, and repairs Roberson’s vehicles under a fleet agreement. Late in 2001 Freightliner sent Roberson a termination notice, which activated the exit clause. Litigation ensued when the parties could finalize an agreement.
Roberson then went shopping for another supplier, Volvo. They discussed a multi-year, $84 million arrangement for the purchase and maintenance of new Volvo trucks plus the trade-in or repair of used Freightliner trucks and trailers that Freightliner did not repurchase. Many lengthy drafts were prepared but none were signed. In March 2002 Roberson and Freightliner settled the lawsuit and extended their fleet agreement.
Roberson then sued Volvo for breach of contract and fraud. Roberson claims that an email constitutes the contract that Volvo breached, and the fraud arises from Volvo’s efforts to negotiate additional or revised terms after sending the email. The email clearly states that the contract would be complete only when these other subjects had been resolved and the package approved by senior managers.
The judge held that a jury could find that the email constituted Volvo’s assent to the items it mentioned even if a full fleet agreement had not been signed. The email came to an agreement on the number of new trucks that Roberson would purchase, the cost per mile of servicing the new trucks and some of the Freightliner trucks, and an outline of an exit clause. There was no agreement on the price per truck, on the cost per mile for all of the older trucks, on the repurchase and trade-in terms for older trucks, or on the details of the exit clause. Roberson had not bound itself to buy a single truck and wanted the court to treat the email as granting it a unilateral option. The jury returned a verdict for Roberson.
Issue
- How is the intent to be bound in large negotiations determined?
Holding and Rule of Law
- The intent to be bound in large negotiations is to be determined from all the writings between the parties and their objective import to a reasonable person.
The email was not list of provisions from which Roberson could check off the items it wanted. The email and the other writings show that the negotiations were global and that Volvo wanted a complete and formal arrangement before being bound. This is to be expected in a multi-million-dollar deal that would last for many years. When negotiators say that agreement is subject to a more definitive document they intend not to be bound until that document has been prepared and signed.
We are averse to enforcing tentative agreements that are expressly contingent on the signing of formal or final documents. Often the parties agree on some items while others require more negotiation. If any sign of agreement on any issue exposed the parties to a risk that a judge would deem the first-resolved items to be stand-alone contracts, the process of negotiation would be more cumbersome. These extra negotiating expenses would raise the effective price of the goods at issue.
Roberson insists that, because the email does not state that agreement is ‘subject to’ future negotiations and documents, the email binds Volvo on all terms it recites. A magic-words approach is not the law in Illinois. Parties need not recite a formula to demonstrate that a definitive agreement lies in the future. Words expressing contingency or dependence on a subsequent event or agreed-on element will suffice.
The parties failed to agree on the details that the email listed as necessary. Even if Roberson had accepted the email, no contract would have been formed because the email was not a definitive offer; it called for negotiation of the many open details rather than acceptance of any contract limited to a subset of the issues. It merely listed the terms to which the parties had agreement and the terms remaining to be agreed upon.
An agreement on some of the major terms does not create a contract on any term if the communications between the parties show that negotiations remained open. Parties may negotiate toward closing a deal without the risk that a jury will think that some intermediate document is a contract, and without the fear that by reaching a preliminary understanding they have bargained away their privilege to disagree on the specifics.
Disposition
Judgment for defendant Volvo.