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Reed Elsevier, Inc. v., Inc.

2006 WL 3827414 (U.S. Dist. Ct. D. N.J. 2006) (Unpublished)

LETTERS OF INTENT—Where a letter agreement unambiguously permits a buyer to terminate the agreement if it was not satisfied with the results of its due diligence investigations, the buyer has the right to terminate the agreement without further liability to its seller.

Two companies entered into a letter agreement which indicated the buyer’s non-binding interest in acquiring the seller’s business. The letter agreement set forth the terms of the potential purchase, subject to certain conditions precedent. The “conditions precedent” included the buyer completing its due diligence investigations and being satisfied with the results, the execution of a mutually acceptable definitive agreement, and approval by the buyer’s board of directors. During the due diligence period, the buyer told the seller that it no longer intended to go forward with the transaction. When the seller threatened to sue, the buyer filed a complaint to declare that it did not breach the letter agreement and had no liability to the seller. The buyer the moved for summary judgment. The Court found the terms of the letter agreement to be unambiguous. According to the Court, the agreement provided that the buyer’s obligation to proceed was conditioned on the satisfaction of several conditions precedent, one of which was its satisfaction with its due diligence investigation. The buyer’s decision not to proceed based on those results was in compliance with the terms of the letter agreement. The Court also rejected the seller’s claim that the buyer prohibited the seller from making sales, thereby interfering with its prospective economic advantage. The Court agreed with the buyer’s contention that the letter agreement instructed the seller to do the opposite, as it was required to maintain its business in the ordinary course during the buyer’s due diligence period.

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