Delaware Supreme Court Says Yes

The Delaware Supreme Court, in SIGA Technologies Inc. v. PharmAthene, Inc., Case No. D67068 (Del. Dec. 23 2015), recently reconsidered whether a term sheet labeled as “non-binding” could support a party’s damage claims where his counter-party failed to negotiate in good faith.  The Court held that it could, and awarded damages of more than $100,000,000 to the aggrieved party.

There were many background facts that supported the claimant’s position:

• the term sheet was attached as an exhibit to other documents imposing an obligation to negotiate in good faith,
• the defendant received a loan from the plaintiff while the parties were negotiating the term sheet, and
• economic conditions shifted during the negotiations in a way that had favored the defendant.

The Court made it clear that the mere phrase “non-binding” in the title of a term sheet is not, by itself, sufficient to shield a bad faith party from legal liability associated with the negotiation of a deal. So, if your client genuinely hopes to avoid a current commitment, consider whether the client really needs a term sheet in advance of detailed negotiations.

And if such a term sheet is indeed used, consider adding a disclaimer indicating that the parties do not intend to create any obligation to bargain in good faith over and above any such obligation that might exist under generally applicable law.

This article was originally published in the ACBA Business Section’s May Newsletter. Section membership is only $35 and gets you great discounts on CLEs. For more information on the ACBA Business Section, check out their webpage at: https://alamedacountyb.wpengine.com/Sections/Business.aspx.