Commercial Division Blog
Term Sheet Not a Binding Contract
On September 26, 2017, the First Department issued a decision in Keitel v. E*TRADE Financial Corp., 2017 NY Slip Op. 06624, holding that the parties' term sheet was not a binding contract, explaining:
The term sheet relied upon by plaintiff states that it "sets forth the general intent of the parties to discuss in good faith the terms and conditions" of the deal and that "neither party shall be bound until the parties execute a more formal written agreement," and therefore does not constitute an enforceable contract.
Plaintiff's allegations that his agent requested that any offer be "firm and binding," that defendant's agent acknowledged this request, that internal communications between defendant and its agents reveal an intention to make a firm offer, that the cover email transmitting the term sheet labeled the offer "firm and binding," and that defendant later offered a fee to "kill" the contract are not sufficient to negate or demonstrate a waiver of the provision that the parties would not be bound until they executed a formal written agreement. Moreover, waiver of a contractual provision should not be lightly presumed, must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act. Plaintiff's agent's demand for a firm offer and defendant's agent's acknowledgment of this request, before consulting with her client, prove nothing about what was ultimately agreed. Nor do defendant and its agents' internal communications preceding the offer, to which plaintiff was not privy, prove what was ultimately agreed.
Defendant's offer of a "kill" fee is not properly considered, since it is inadmissible as an offer of compromise under CPLR 4547. Plaintiff's contention that CPLR 4547 does not apply because the existence of a contract was not in dispute when the offer was made is unsupported by the record.
The cover email transmitting the term sheet, while it labeled the term sheet a "firm and binding offer," also noted that the offer was contingent on "coming to terms on scripts, compensation, etc." More importantly, it attached the term sheet itself. In light of the provision stating that the term sheet was not binding absent execution of a formal written agreement, plaintiff's reliance on the cover email was not reasonable.
To the extent plaintiff relies on PMJ Capital Corp. v PAF Capital, LLC, that reliance is misplaced. In PMJ, the agreement sought to be enforced did not contain any language requiring that it be fully executed; although such language was included in the plaintiff's initial bid, it was not carried over to the formal loan sale agreement drafted by the parties. Moreover, the plaintiff in PMJ actually executed the completed agreement and wired the defendant a deposit in accordance with its terms, which the defendant retained.
(Internal quotations and citations omitted).