Gentleman’s Agreements

• Dominate mode of distributing securities is through underwriters in investment banking.
• Underwriters distribute securities to the public.
• Agreement is usually not signed until the day before going public, but large amount of resources are put into agreement before it is ready to go.
• Governed by letter of intent, by which the underwriter states that it intends to distribute stock to the public, signed by both parties but includes provision that ‘this is not legally binding’.
• Still respected, however, as it is valuable for future business. Reputation market.

Contract may exist even if it hasn’t actually been written down if there is agreement at end of complex negotiation. If you want to make sure that contract is not binding yet, start with agreement that there will be no agreement until all terms are agreed upon and put into writing.

Can be held responsible for inducing breach of contract. e.g., Texaco v. Pennzoil, in which Getty Oil was in negotiations to be purchased by Pennzoil. Texaco purchased Getty, was then sued by Pennzoil and lost with punitive damages, bankrupted company.

Author: international