Although the seller signed the buyer prepared LOI, it included additional terms which were never agreed to by the buyer.
April 30, 2021
A letter of intent (or LOI) is often used in a private deal to summarize the key business terms of a proposed transaction. This summary is contained in a nonbinding section of the document. There are usually some binding terms. A common binding term prohibits the buyer from soliciting the seller’s employees.
This case involved a failed deal between competitors in the mortgage lending industry. The buyer and seller key executives negotiated the major business terms of a proposed acquisition in 2019. The buyer’s president left the details to be worked out by the buyer’s COO/chief legal officer.
The buyer sent a draft LOI to the seller. The seller signed it but included a “lengthy addendum” which would prohibit the buyer from soliciting or hiring any seller employees for 2 years. The buyer was willing to include a nonsolicitation restriction but not a prohibition of hiring seller’s employees where the buyer did not solicit the seller employee.
The deal never happened. Later the seller and buyer ended up a Minnesota federal district court with a claim by seller that the buyer solicited and hired its employees in violation of a letter of intent. The seller wanted the court to restrain the buyer from soliciting and hiring its employees while the seller and buyer battled in court. The court refused because the buyer probably never agreed to refrain from soliciting or hiring seller employees.
The court noted that the seller’s signed LOI was not binding upon the buyer because the seller had added additional terms. The seller’s “proposed revisions effectively created a third draft of the letter of intent.” That third draft LOI was a seller offer that would only be binding on the buyer when and if the buyer accepted the revisions by signing the LOI as revised by the seller. The buyer never did that.
This case is referred to as American Mortgage & Equity Consultants, Inc. v. Everett Financial, Inc., No. 20-cv-426 (ECT/KMM), United States District Court, D. Minnesota, (February 28, 2020).
The takeaway. Assume that a LOI is not binding (to the extent of the binding provisions in the LOI) until both the buyer and the seller have signed an LOI that contains the same terms and conditions.
By John McCauley: I help people manage M&A legal risks.
Telephone: 714 273-6291
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