Read about a recent court case involving LOI revisions in an M&A deal where the buyer was found not to be bound by the seller’s additional terms. Learn the importance of clarity in LOIs and avoiding disputes in business transactions.
In this M&A legal blog post, explore a court’s ruling on a buyer’s obligation to adhere to seller-prepared LOI revisions. Gain insights into the significance of agreement and proper negotiations in private business deals.
Discover the implications of a court’s decision in an M&A dispute over a buyer’s acceptance of LOI revisions. Learn from the case to ensure a successful deal and mitigate potential conflicts.
M&A Stories
April 30, 2021
Introduction:
A letter of intent (LOI) is a common tool in private business deals that outlines the key terms of a proposed transaction. While some sections may be binding, others are nonbinding. In a recent case involving competitors in the mortgage lending industry, the buyer and seller negotiated the major terms of an acquisition in 2019.
The Issue:
After the buyer prepared the LOI, the seller signed it but included additional terms not agreed upon by the buyer. Specifically, the seller’s “lengthy addendum” sought to prevent the buyer from soliciting or hiring any of the seller’s employees for a period of two years. The buyer was open to a nonsolicitation restriction but not a complete prohibition on hiring seller employees.
The Lawsuit:
The deal fell through, and later, the seller filed a claim in a Minnesota federal district court, alleging that the buyer violated the LOI by soliciting and hiring its employees. The seller sought a court order restraining the buyer from engaging in such actions while the legal battle was ongoing. However, the court rejected the request as it appeared that the buyer never agreed to the seller’s additional terms.
Court’s Ruling:
The court found that the seller’s signed LOI was not binding on the buyer because it included new terms, essentially creating a different version of the original LOI. This revised LOI became a counteroffer by the seller and would only be binding if the buyer accepted the revisions by signing the LOI with the changes. However, the buyer did not do so, and therefore, the additional terms were not enforceable.
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).
Takeaway:
This case highlights the importance of clarity and agreement in LOIs. A seller’s material changes to the buyer’s LOI, is a counteroffer and the original LOI is deemed rejected by the seller. Then the only LOI for legal consideration is the seller’s version, which is a counteroffer and is only binding if accepted by the buyer. Parties should exercise caution when making changes to an LOI to avoid disputes and ensure a successful deal.
By John McCauley: I help people manage M&A legal risks.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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