Precision And Drafting: Keys To Ensure Your Agreement To Negotiate In Good Faith Will Be Enforceable

Term sheets, letters of intent and other preliminary documents can be useful for parties in complex negotiations, allowing them to handle the major issues of the deal first and worry about the details later. Agreements that say the parties will negotiate a future agreement in good faith can be enforceable. But how to do you ensure that your agreement will be enforced and that you will have recourse if the other side doesn’t live up to its end of the deal? The answer, like many areas of the law, lies in careful drafting and precision. Several states, including California and New York, have long enforced agreements to negotiate in good faith. In 2013, in Siga Technologies Inc v. PharmAthene Inc., the Delaware Supreme Court affirmed that an express agreement between parties to negotiate in good faith is enforceable in that state as well. It also ruled that a breach of such an agreement in Delaware can, in some circumstances, entitle the non-breaching party to damages equal to what it would have received had the underlying agreement been fully performed. California and other states have typically limited damages to things like legal and advisory fees. Read more.