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When is a Term Sheet Binding? When the Parties Say So

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  • Posted on: Jan 30 2023

By: Jeffrey M. Haber 

Parties to commercial transactions are no doubt familiar with “term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle”. As the parties to these documents know, they outline the fundamental terms of the transaction being negotiated.

“Term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle” may constitute an enforceable agreement if the writing includes all the essential terms of an agreement.1 This is so even if “the parties intended to negotiate a ‘fuller agreement’”.2 Thus, if the informal writing contains the necessary elements of an enforceable contract, e.g., an offer, acceptance, consideration, mutual assent and intent to be bound, courts will enforce the writing as if it was a formal, written agreement.3

However, a term sheet, letter of intent or a memorandum of understanding will be rendered ineffective where material terms are left for future negotiation, or the writing expressly reserves the right not to be bound until a more formal agreement is signed.4 

In Claim Recovery Group LLC v. Markel Corp., 2023 N.Y. Slip Op. 00371 (1st Dept. Jan. 26, 2023) (here), the Appellate Division, First Department held that the term sheet at issue was enforceable because it contained all the salient terms of the parties’ agreement and was specifically made binding by the very language used therein.

[Ed. Note: the factual discussion below comes from the parties’ briefing on appeal.]

In early 2019, defendant Markel Corporation (“Markel”), an insurance conglomerate, was facing millions of dollars in exposure as a result of two wildfires in California. Markel possessed subrogation claims against two utilities, Pacific Gas & Electric Company (“PG&E”) and Southern California Edison, but when PG&E filed for bankruptcy in January 2019, a question arose as to whether Markel would realize the full value of those subrogation claims. To remove the uncertainty and to secure the cash needed for its claims, Markel looked to sell its claims on the secondary market.

Fulcrum Credit Partners LLC (“Fulcrum”), assignor and predecessor-in interest to Plaintiff, Claim Recovery Group LLC (“Plaintiff”), approached Markel in late January 2019 about purchasing Markel’s claims. After preliminary discussions and due diligence, Fulcrum decided to make an offer, and sent Markel a term sheet, setting out the terms on which it proposed to purchase certain of Markel’s subrogation claims. After negotiation, the parties reached mutually acceptable terms.

The agreed-upon terms were reduced to a term sheet, which Markel signed on March 25, 2019 (“Term Sheet”). The Term Sheet included terms such as “proposed transaction,” “potential transaction,” “potential sale” and “resulting transaction”, as well as conditional and aspirational language concerning what the terms of the proposed transaction “would” or “will” be. The Term Sheet summarized the terms of a “potential” and “proposed transaction” whose consummation would be “subject to … negotiation and execution of a Proceeds Agreement.” Notwithstanding, the foregoing language, the Term Sheet expressly stated that “[t]he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.” 

The parties did not execute a Proceeds Agreement.

The motion court granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff’s motion for summary judgment dismissing the affirmative defenses and in favor of its claim for breach of contract. The motion court held that the Term Sheet was “ambiguous” as to whether the parties intended to be bound and, therefore, was not an enforceable contract. The motion court observed that the document was “entitled Term Sheet, not contract” and emphasized that it summarized “the terms and conditions of a proposed transaction” rather than an actual transaction. The motion court also noted that the Term Sheet used prospective language regarding what the proposed transaction “will” look like. Based on the foregoing, the motion court concluded that “it is clear that the term sheet was not the vehicle to transfer the interest.” The motion court reinforced this conclusion by noting that the phrase “potential transaction” appeared in the Term Sheet, including in the standstill provision whose existence would not make sense “if the parties already had an agreement set in stone.”

The motion court further noted that post-execution negotiations showed “that the parties were negotiating … in an effort to close” the Proceeds Agreement. Among other things, the motion court observed that the parties’ communications were not consistent with the conclusion that a “deal was already in place”. Instead, explained the motion court, the negotiation supported the view that “the term sheet did not create a contract.”

On appeal, the First Department modified the motion court’s order to deny defendant’s motion and grant plaintiff’s motion insofar as it sought summary judgment on the issue of whether the Term Sheet constituted an enforceable agreement, and remanded the matter for further proceedings on the issues of breach and damages, including the viability of the affirmative defenses. The remainder of the motion court’s order was otherwise affirmed.

The Court held that the Terms Sheet was an enforceable contract.5 The Court found that the Term Sheet “unambiguously provide[d] that ‘[t]he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.’”6 The Court explained that although the Term Sheet stated that it was drafted as a proposal, it “became legally binding once mutually executed and, as stated on the term sheet, ‘[a]ccepted and [a]greed’”.7 The Court further explained that the Term Sheet “included all material terms, including identification of the buyer and seller, description of the claims to be sold, and a formula for calculation of the purchase price”.8

The Court was unpersuaded by the Term Sheet’s references to a “proposed” or “potential” transaction or “any resulting transaction”.9 Such references did not “undermine this interpretation”, said the Court.10 The Court, therefore, rejected Defendants’ argument that the use of the “subject to” language in the Term Sheet – that is, the transaction would be “subject to” completion of satisfactory due diligence and negotiation and execution of a purchase and sale agreement – was dispositive.11 

Further, the Court rejected the argument that the parties’ post-execution negotiation of certain terms negated the enforceability of the Term Sheet because “those terms were clearly agreed upon in the term sheet”.12 “Nor”, said the Court, “was the term sheet rendered unenforceable ‘simply because certain nonmaterial terms were left for future negotiation’”.13 


Claim Recovery highlights the importance of the language used in a term sheet. As discussed, a term sheet will be deemed enforceable when the term sheet includes all the salient terms of the transaction and “unambiguously provides that ‘[t]he Parties intend to be legally bound to [the] transaction once [the] Term Sheet is mutually executed’”.14

In our discussion of McGowan v. Clarion Partners, LLC, 188 A.D.3d 497 (1st Dept. 2020), lv. denied, 37 N.Y.3d 903 (2021) (here), which the Court found was inapposite, we discussed ways in which parties can protect themselves from the unintended enforcement of a term sheet. Among other things, we said that “the parties should consider using language that expressly imposes a duty to negotiate a final agreement in good faith”. They should also: (a) make clear that neither subsequent communications nor a course of conduct will give rise to an enforceable agreement before they sign the contemplated definitive agreement; “(b) identify material contingencies and conditions precedent for completing the contemplated transaction, such as obtaining financing and required permits or consents, and completing of due diligence; and (c) “state that neither party is relying on, or is entitled to rely on, the term sheet or letter of intent for any purpose”.

As we noted, business owners/corporate executive should proceed with caution when drafting term sheets or letters of intent and in their course of conduct surrounding the negotiation of a final agreement to ensure that they are not later bound to their non-binding term sheet or letter of intent. The foregoing was true then and, as made clear in Claim Recovery, it remains true now.


  1. Sullivan v. Ruvoldt, 16 Civ. 583, 2017 WL 1157150 at *6 (S.D.N.Y. Mar. 27, 2017).
  2. Conopco, Inc. v. Wathne Ltd., 190 A.D.2d 587, 588 (1st Dept. 1993)
  3. Stonehill Capital Mgt. LLC v. Bank of the W., 28 N.Y.3d 439, 451-454 (2016).
  4. Bed Bath & Beyond Inc. v. IBEX Constr., LLC, 52 A.D.3d 413, 414 (1st Dept. 2008); Emigrant Bank v. UBS Real Estate Sec., Inc., 49 A.D.3d 382, 383-384 (1st Dept. 2008).
  5. Slip Op. at *1.
  6. Id.
  7. Id. (citing, Netherlands Ins. Co. v. Endurance Am. Specialty Ins. Co., 157 A.D.3d 468, 468-469 (1st Dept. 2018); Hajdu-Nemeth v. Zachariou, 309 A.D.2d 578, 578 (1st Dept. 2003)).
  8. Id. (citing, Twenty 6 Realty Partners Inc. v. GSS N3 LLC, 192 A.D.3d 463, 464 (1st Dept. 2021); Deephaven Distressed Opportunities Tradings, Ltd. v. 3V Capital Master Fund Ltd., 2011 N.Y. Slip Op. 34007[U], *3, *9 (Sup. Ct., N.Y. County 2011], aff’d, 100 A.D.3d 505, 505-506 (1st Dept. 2012)).
  9. Id.
  10. Id.
  11. Id. (citations omitted).
  12. Id. (citing, Trolman v. Trolman, Glaser & Lichtman, P.C., 114 A.D.3d 617, 618 (1st Dept. 2014), lv. denied, 23 N.Y.3d 905 (2014)).
  13. Id. at *1-*2 (quoting, Sustainable PTE Ltd. V. Peak Venture Partners LLC, 150 A.D.3d 554, 555 (1st Dept. 2017)).
  14. Id.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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