On February 7, 2023, Justice Cohen of the New York County Commercial Division issued a decision in Banner Ridge Secondary Master Fund Ill, L.P. v. Newbury Equity Partners V L.P., 2023 NY Slip Op. 30392(U), holding that a letter of intent was not a binding agreement, explaining:
If the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed. Certainly, when a party gives forthright, reasonable signals that it means to be bound only by a written agreement, courts should not frustrate that intent. With respect to auctions, the general rule is that a seller’s acceptance of an auction bid forms a binding contract, unless the bid is contingent on future conduct.
In determining whether the parties entered into a contractual agreement and what were its terms, it is necessary to look, rather, to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds. In doing so, disproportionate emphasis is not to be put on any single act, phrase or other expression, but, instead, on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain.
Here, the LOI and the parties’ communications demonstrate that the LOI was not a binding agreement for the sale of the Asset. The LOI described a proposed transaction but required only that (i) the parties shall seek to execute a Definitive Purchase Agreement, and (ii) the parties shall use all reasonable efforts to execute the Definitive Agreement on or before November 15, 2021 and close on or before December 31, 2021. Thus, the letter of intent expresses the parties’ intention to enter into a contract at a later date and nowhere states that they intend to be legally bound until such future agreement is reached. Further, the LOI states that the closing would be subject to (ii) Satisfaction of the conditions specified in the Definitive Agreement. While the language subject to is not by itself dispositive, in this instance the language indicates that reaching a Definitive Agreement was a condition precedent.
Further, the email exchange on October 22, 2021 between Newbury and Melting Point (on Banner Ridge’s behalf) confirmed that Newbury’s offer was conditioned on negotiating a Definitive Agreement. Melting Point noted: “I just got off the phone with the seller’s internal counsel who is reviewing the LOI, and they wanted to just verify that the bid is IC approved and
no further approvals are needed. Can you verify this?” Jaroch responded: “We are ready to proceed at this price, subject to legal due diligence, getting an agreeable form of PSA, etc.” Thus, Newbury again reiterated that any agreement was subject to the PSA. Importantly, this exchange occurred before Banner Ridge countersigned the LOI.Stonehill Capital Mgt., LLC v Bank of the W (28 NY3d 439, 449 [2016]), upon which Banner Ridge relies, is distinguishable. Unlike the present case, Stonehill involved a competitive online sealed-bid auction, the express terms of which required that the bids were non-contingent final offers that, if accepted by the seller, required execution by the bidder of a pre-negotiated asset sale agreement and an accompanying 10% deposit. Although the auction seller in Stonehill purported to accept the plaintiff buyer’s winning unconditional bid subject to mutual execution of an acceptable [loan sale agreement, the Court found based on the totality of the circumstances that the seller – which set the terms of the auction – could not thereafter disclaim that there was a binding agreement to proceed with the transaction. The Court particularly stressed the explicit ground rules for the auction, noting that to adopt seller’s argument would mean that the auction was neither final nor binding- in direct contravention of the auction sale terms and the usual manner in which reserve auctions proceed. Accordingly, the Court found that the seller’s requirement that the sale be completed upon the execution of a signed writing and the tender of the 10% deposit were simply post-agreement requirements the parties were obliged to perform pursuant to an existing agreement.
By contrast, this case does not involve a seller seeking to evade the express terms it dictated for its own auction, which included that the bids be non-contingent. Instead, the conditionality of Newbury’s LOI was baked into the transaction from the outset, and it was explicitly confirmed to Banner Ridge before it counter-signed the document. And unlike the bid in Stonehill, Newbury’s LOI did not contain an affirmative statement of an intent to be bound, but rather only stated that upon signing, the LOI would become effective. The parties’ focus then shifted, consistent with the LOI, to negotiating a Definitive Agreement, which is the subject of Banner Ridge’s second claim for relief (discussed below). Defendant’s motion to dismiss the First Cause of Action is granted.
(Internal quotations and citations omitted).