Letters of intent and term sheets are often used to outline the parties’ general goals and terms in the early stages of a transaction. Lawyers will often go to great lengths to ensure that a letter of intent or term sheet is unequivocally non-binding, using specific language and legends stating the intent of the parties. A recent Delaware ruling reaffirms the importance of those disclaimers.
In Global Asset Capital, LLC v. Rubicon US Reit, Inc., C.A. No. 5071-VCL (Del Ch. Nov. 16, 2009), the parties entered into a letter of intent in connection with a voluntary bankruptcy that Rubicon was considering. The LOI provided that Global Asset Capital (“GAC”) would act as the “stalking horse” bidder if Rubicon conducted a court-supervised auction. The LOI provided, among other things, for “no-shop” and confidentiality provisions, and it stated that the parties would promptly negotiate a support agreement pursuant to which GAC would serve as the stalking horse bidder. The LOI was silent as to whether it was intended to be binding on the parties.
Read More