Non Binding Letter of Intent to Buy a Business

Venture Associates Corp. v. Zenith Data Sytems Corp., 96 F.3d 275 (7th Cir. 1996) involved a nonbinding letter of intent between the buyer and seller of a business, which provided, "this letter is intended to evidence the preliminary understandings which we have reached regarding the proposed transaction and our mutual intent to negotiate in good faith to enter into a definitive Purchase Agreement . . . ." Id. The court, in an earlier opinion, had held that the parties "established a binding agreement to negotiate in good faith toward the formation of a contract of sale." Id. at 277. Having decided that the "good faith" provision was enforceable, the court went on to describe the damages available for such a breach as follows: Damages for breach of an agreement to negotiate may be, although they are unlikely to be, the same as the damages for breach of the final contract that the parties would have signed had it not been for the defendant's bad faith. If, quite apart from any bad faith, the negotiations would have broken down, the party led on by the other party's bad faith to persist in futile negotiations can recover only his reliance damages -- the expenses he incurred by being misled, in violation of the parties' agreement to negotiate in good faith, into continuing to negotiate futilely. But if the plaintiff can prove that had it not been for the defendant's bad faith the parties would have made a final contract, then the loss of the benefit of the contract is a consequence of the defendant's bad faith, and provided that it is a foreseeable consequence, the defendant is liable for that loss -- liable, that is, for the plaintiff's consequential damages.Venture Associates, 96 F.3d at 278.