M&A Stories
February 6, 2026
A “no obligation” clause in your letter of intent seems like clear protection – you’re not bound until you sign the definitive purchase agreement. But for sellers whose deals are governed by Delaware law, adding a promise to negotiate in good faith can turn that protection into a trap.
Under Delaware law, a “no obligation” clause by itself works as intended – it prevents a court from enforcing the preliminary agreement as a final contract. But if you also promise to negotiate in good faith, you’ve created a different binding commitment. A Delaware court won’t force you to sign the final contract, but it can hold you liable for damages if you breach your duty to negotiate that contract in good faith.
One Question Summary
If your letter of intent includes both a “no obligation” clause and a promise to negotiate in good faith, can you walk away or change the price without a Delaware court finding you breached a binding commitment?
The Leading Case: SIGA Technologies
The Delaware Supreme Court’s 2013 decision in SIGA Technologies demonstrates exactly how this happens.
The parties signed a bridge loan agreement that included a term sheet for a future license deal. The term sheet was labeled “non-binding,” but the agreement separately required both sides to negotiate that license in good faith consistent with the term sheet’s terms.
When the seller’s asset suddenly became far more valuable, the seller tried to negotiate a much higher price, essentially abandoning the non-binding term sheet. The seller believed the “no obligation” language protected their right to change direction.
The Delaware court agreed the term sheet itself wasn’t binding. But the court ruled that the promise to negotiate in good faith created a separate, enforceable obligation to try to finalize a deal on those specific terms. Because the court found a deal would have been reached if the seller had negotiated in good faith, it awarded the buyer damages for “lost profits.” The seller faced a judgment exceeding $100 million for a contract that was never formally signed.
Without the good faith provision, the seller likely could have refused to negotiate a license on the original term sheet economics.
The Practical Reality: Buyers Will Insist on Good Faith
Buyers will insist on a good faith negotiation clause in the letter of intent. No sophisticated buyer will invest substantial time and money in due diligence without some assurance of fair dealing. In Delaware, this means you need to understand what you’re actually agreeing to when you accept that clause.
The “no obligation” clause protects you from being forced to sign the final agreement. The good faith promise creates a duty to negotiate toward that agreement on the stated terms. Delaware law treats these as two separate commitments. If you sign a letter of intent with both provisions—even one that includes price and payment terms subject to due diligence—you’ve lost much of your ability to walk away simply because a better offer appears or your circumstances change.
How to Manage This Risk
Since buyers will insist on the good faith requirement, you need to manage this risk by being extremely careful with your letter of intent.
Treat the price and payment terms in your letter of intent as if they were final. From the seller’s perspective, once you’ve agreed to a price in the letter of intent, that’s typically the highest number you’ll see. Buyers usually include “subject to due diligence” language to preserve their ability to reduce the price or convert cash to an earnout based on what they find during diligence.
The danger under Delaware law is that if you try to walk away or increase the price after signing the letter of intent, a court may find you breached your duty to negotiate in good faith—even if the buyer’s “subject to due diligence” language gave them flexibility to move in the opposite direction.
The “no obligation” clause doesn’t prevent you from being bound to negotiate in good faith toward the deal terms in your letter of intent. If you’re not willing to be held to those terms, don’t sign it. And understand that while you can’t realistically eliminate the good faith provision, you can negotiate for language that gives you clearer termination rights within that framework.
Case Reference
SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013)
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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