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Wednesday, January 17, 2007

N.D. Ill.: Letter of Intent Created Duty to Negotiate in Good Faith

The Northern District of Illinois recently held that a letter of intent (“LOI”) created a duty for the parties to negotiate exclusively and in good faith.  In negotiating a deal for the purchase of a local television station, the parties signed a LOI. The LOI detailed the price and timing of the potential sale and specified that it was non-binding. When negotiations did not consummate in a deal, the prospective buyer sued for breach of contract.  The court held that the parties’ clearly did not intend that the LOI bind them to the sale of the television station.  However, the court addressed a closer question, holding that the non-binding LOI created a duty for the parties to negotiate exclusively and in good faith.   The court reasoned:

Based on the above precedent, and on a fair reading of the letter of intent in this case, we find that the parties did intend the letter of intent to bind them to exclusive and good faith negotiations. Defendants argue that the letter is not binding in its entirety because the phrase "non-binding letter of intent" is not limited to one specific term or provision, but encompasses the entire letter (def. reply, at 6). We do not agree. The phrase defendants refer to occurs in a paragraph introducing the terms upon which defendants were prepared to sell the station. This paragraph ends with a colon and following that colon are paragraphs setting out all the general terms of the potential sale. These headings include "Purchase Price," "Deposit," and "Timing." The next paragraph begins with the phrase: "Should the above terms be acceptable to Weigel...." Reading the letter as a whole, it is clear that the non-binding clause refers only to the terms set out after the colon. After those terms are set forth, the letter concludes that if those terms are satisfactory to Weigel--indicated by Weigel's signing of the document--defendants would "cease all negotiations to sell to any other party and not enter into or entertain any such similar negotiations pending completion of a definitive and binding SPA." We find support for this conclusion in that the language of the exclusivity clause is taken verbatim from the plaintiff's letter offer, which predicated going forward with the sale on defendants providing written asurance of exclusivity.

Weigel Broadcasting v. TV-49, ___ F. Supp.2d __, 2006 WL 3486861 (N.D. Ill.Nov. 29, 2006).

[Meredith R. Miller]

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