4.Contract Drafting, Review and Negotiation

Q10 (Termination of Contract Negotiations)

We have not yet entered a contract (just in the preparatory stage).  If we unilaterally terminate the negotiations, would we incur any liability?

Even if you have not yet executed a contract, a party that has entered in the preparatory stages of contract execution has a duty of good faith to not cause damage to the other party. If you violate this duty and cause damage to the other party, you may be held responsible for such damage.

So, if you have not yet executed a contract but have entered into the preparatory stages, meaning the negotiations have proceeded to a certain point and the other party is preparing for the execution of the transaction based on an expectation of and reliance on the contract being executed, and then you unilaterally terminate the negotiations, you need to be careful about potential liability for any damages suffered by the other party.

(Posted: January 27, 2012)