Example of a Clause Stating That An Agreement Is Not Binding
In Feldman v. Allegheny International, Inc., 850 F.2d 1217, 1219 (7th Cir. 1988), the parties entered into lengthy negotiations regarding the purchase of a group of food-related companies.
The parties then signed a letter of intent, which provided that the parties "understood that this is not a binding agreement and the obligations and rights of the parties shall be set forth in the definitive agreement executed by the parties. " Id. at 1221.
The court, applying Illinois law, stated that "having agreed to enter into exclusive negotiations, each party agreed that no step of the negotiations should be interpreted by the other as a binding contract until a definitive agreement had been reached and formally executed." Id.
The clause stating that the agreement was not binding "eliminates confusion about when a binding contract arises." Id.
Because there was no fact question presented and the contract was not binding as a matter of law, the court affirmed a directed verdict for the defendant. Id. at 1226.