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.