Legal Updates

In some cases even an unsigned draft may be deemed binding

July 24, 2019

Purchasers and a seller of a real estate asset exchanged 15 draft agreements until they reached a document headed “Final Draft” and noting a date for execution. However, this draft also stated that it is non-binding and several issues therein remained open. At this point, the seller notified that he is withdrawing from the negotiations and refuses to sell the asset.
The Court rejected the purchasers’ motion to deem the final draft a binding agreement. A contract may be entered orally, in writing or otherwise, but in order for a contract to be binding, it must contain all of the details substantial it and demonstrate the parties’ intent to establish binding legal relations. In this case, no binding contract was created: the final draft was headed “For Negotiation Purposes Only” and also stated that it “Does not constitute an offer or acceptance… only the final version, approved and signed, shall be binding upon the parties”. In addition, substantial issues remained open and required completion (e.g. date for asset handover). A party to a negotiation may, in principle, withdraw from the negotiation at any time, subject to good faith. Withdrawing from negotiations for reasons that are not material to the substance of the transaction, the development of negotiations and the positions of the parties thereto, is suspected to be in bad faith. In this case, the seller withdrew from the negotiations for personal reasons and not, for example, because he sold the asset to another. Therefore, the withdrawal does not constitute bad faith that prevents it.