Letters of intent typically state that most terms are non-binding while exclusivity, confidentiality, and expense provisions bind. Disputes arise over whether the parties intended to be bound and whether a duty to negotiate in good faith attached.
Explicit non-binding language is generally enforced.
Alternative Names:
LOI Dispute|Term Sheet Dispute
Why it Matters?
Explicit disclaimers stating which provisions bind are what prevent these disputes, since courts examine intent and a document silent on the question invites litigation over whether agreement was reached. A duty to negotiate in good faith may attach even to a non-binding letter in some jurisdictions, which permits recovery of reliance costs where a party walked away arbitrarily. Delaware has enforced express agreements to negotiate in good faith as independently binding.
Frequently Confused with
Related terms
Frequently asked questions
What prevents these disputes?
Can a non-binding letter create obligations?
