DealLawyers.com Blog

This Weil Gotshal blog flags a scary new Texas case that says when it comes to finding yourself with a potentially binding deal, don’t just worry about the language of your LOI or term sheet – keep an eye on your inbox as well.  Here’s an excerpt:

A recent Texas Court of Appeals decision, Le Norman Operating LLC. v. Chalker Energy Partners III, LLC, No. 01-15-01099-CV, 2017 WL 4366265 (Tex. App.—Houston [1st Dist.] Oct. 3, 2017), suggests that a definitive agreement can exist by virtue of a series of emails between the parties confirming the essential terms of their deal, despite a confidentiality agreement signed at the beginning of an auction process by all potential bidders that specifically provided as follows:

“No obligation. The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof, except, in the case of this Agreement, for the matters specially agreed to herein. For purposes of this Agreement, the term “definitive agreement” does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.”

In reaching its decision, the court noted that the confidentiality agreement didn’t specify what a definitive agreement had to look like, and that since a chain of email messages between the parties over a two day period set forth in writing “the assets to be sold, the purchase price, a closing day, and other key provisions” of the deal, those messages might qualify as a definitive agreement. As a result, it refused to grant summary judgment on the defendant’s contention that no definitive agreement existed.

It’s tempting to conclude that this is just “one of those Texas things” – I’m looking at you, Pennzoil – but the blog says that’s probably not a good idea:

At first blush it may be tempting to dismiss this case as an aberration. But simply stating that an offer or acceptance of specified terms is “subject to contract” has repeatedly proven to be a very ineffective means of avoiding the formation of a contract based on the otherwise agreed terms set forth in a preliminary agreement.

Indeed, the New York Court of Appeals recently said that “[l]ess ambiguous and more certain language is necessary to remove any doubt of the parties’ intent not to be bound.” And the fact that earlier preliminary agreements contain language clearly disclaiming intent to be legally bound does not preclude later writings and conduct of the parties from becoming binding contracts.

– John Jenkins