The case of New Media Holding Company v Kuznetsov highlights the importance of making it clear on the face of a document whether or not the parties intend to make it legally binding and which clauses are or are not intended to be legally enforceable).
Intention: Whilst there were factors pointing against such an intention, the judge held that the terms of the document in question and the conduct of the parties viewed objectively lead to the conclusion that the term sheet was valid and enforceable. He found that there is no absolute rule that documents described as 'term sheets' cannot be contractual. The nature of a particular agreement reached depends on its own particular wording and what was intended, viewed objectively. The language used in the term sheet was consistent with a legally binding agreement and not merely a document that was aspirational. The preamble referred to the term sheet as "describing principal terms and conditions" which suggested that further agreement on other matters might be required and did not mean that the term sheet itself was not contractual. In addition, the pre-existing contractual relationship between the parties and the fact that the drafting of the term sheet was passed quickly to lawyers persuaded the court that the term sheet was intended to be legally binding.
Consideration: The term sheet made no reference to consideration and this was presented as objective evidence that it could not have been intended to be binding. However the judge found that whilst the document did not refer to consideration it was clear that consideration had been given: the quid pro quo for the signing of the term sheet was the provision of financing. Furthermore, he was satisfied that an act of forbearance (here, not commencing an investigation into the management) conferred a real practical benefit of value and that this constituted good and sufficient consideration to make the promises contained in the term sheet enforceable.
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