Delaware Supreme Court: Bad-Faith Attempt to Renegotiate Term Sheet May Create Liability for “Benefit-of-the-Bargain” Damages

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A term sheet can play a useful role by allowing the parties to focus on key issues first, without getting bogged down in details. But what happens when a party agrees to a term sheet but insists on very different terms for the final contract?

The Delaware Supreme Court held in Siga Technologies, Inc. v. PharmAthene, Inc., No. 314, 2012, __A.3d__, 2013 WL 2303303 (Del. May 24, 2013), that a bad-faith failure to negotiate a final deal based on a term sheet may have harsh consequences. The breaching party may be liable for “benefit-of-the-bargain” damages reflecting the profits the counterparty would have received if the final contract had been signed and performed. While this ruling is based on Delaware law and the specific facts of that case, the message to negotiators is clear: Don’t agree to a term sheet unless it is explicitly non-binding or you are prepared to continue negotiations in good faith, consistent with the term sheet.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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