Delaware Supreme Court Confirms Liability for Failure to Negotiate in Good Faith

On appeal from the Delaware Court of Chancery, the Delaware Supreme Court, in SIGA Technologies, Inc. v. PharmAthene, Inc., recently held that an agreement to negotiate in good faith in accordance with a term sheet is an enforceable obligation and that the failure to negotiate in substantial conformity with the term sheet will, under certain circumstances, result in liability for expectation (or “benefit-of-the bargain”) damages.

Although the Court’s decision should not be read in isolation from the facts of the case, any party contemplating an agreement to negotiate in good faith should be cautious of the potential implications of setting forth transaction terms in a term sheet that is attached to or referenced in such agreement.

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