Are You Afraid Of Commitments? (If So, Be Careful Using "Non-Binding" Term Sheets.)

Background:

 Non-binding Letters of Intent, Term Sheets, Indications of Interest or similarly titled documents are often used by business parties to outline business and financial arrangements that will be documented in a formal written agreement. These "preliminary agreements" are typically marked with a legend that includes a phrase such as, "NON-BINDING and PRELIMINARY" or "FOR DISCUSSION PURPOSES ONLY."   In addition to the legend, the parties often include a disclaimer stating that they do not intend the document to create a binding or other enforceable obligation on either party (other than a duty to maintain confidentiality).

 A recent case in Delaware, however, held that a "Letter of Intent and Term Sheet" marked with the words, "NON BINDING TERMS" on each page could nevertheless be enforceable if combined with an express obligation to negotiate in good faith.