TYPE I VS. TYPE II: DELAWARE COURTS DISCUSS ENFORCEABILITY OF PRELIMINARY AGREEMENTS
Robert S. Reder & Evan T. Kowalski | 76 Vand. L. Rev. En Banc 133 (2023) | When parties to commercial negotiations reach an agreement on certain basic transaction terms but are not yet ready to proceed to definitive documentation, they frequently will sign a preliminary agreement—usually called a letter of intent or an agreement in principle—to memorialize their then-current intentions. Preliminary agreements typically state that the parties are not obligated to complete the proposed transaction until definitive documentation is fully negotiated and signed. Further, preliminary agreements may or may not address the parties’ obligations to continue good faith negotiations. Dealmakers and their advisors, however, may not fully appreciate the extent to which preliminary agreements may create enforceable contractual obligations. For instance, are so-called preliminary agreements simply “agreements to agree,” or are the parties required to continue to negotiate in good faith, or have the parties created fully binding contracts to conclude the proposed transaction?
Robert S. Reder
Evan T. Kowalski