## Facts

- Zenith Data Systems Corporation (Zenith) owned Heath Company, a money-losing business, and decided to sell it (with Prokit).
- Venture Associates Corporation (Venture) sought to buy Heath and proposed an $11 million price in a letter of intent.
- The letter of intent stated the parties were not bound to consummate a sale; their only binding obligation was to negotiate in good faith toward a definitive agreement.
- Zenith responded agreeing in principle, and the parties negotiated for about six months with multiple draft agreements.
- During negotiations, Zenith pressed for (1) a third-party guaranty of Venture’s obligations and (2) a post-closing purchase-price adjustment mechanism reflecting Heath’s changing financial condition.
- Venture refused to provide a guaranty and refused a post-closing price adjustment.
- Zenith terminated negotiations.
- After a bench trial on remand from an earlier appeal recognizing a binding duty to negotiate in good faith, the district court found Zenith’s demands were commercially reasonable and that Venture failed to prove Zenith acted in bad faith.

## Issues

1. Whether the district court clearly erred in finding Zenith did not act in bad faith in terminating negotiations under a binding agreement to negotiate in good faith.
2. Whether Venture could recover expectation damages (lost profits from the unconsummated acquisition) or, at most, reliance damages, and whether Venture proved compensable damages.

## Decision

- The Seventh Circuit affirmed the judgment for Zenith.
- The court held the district court’s no-bad-faith finding was not clearly erroneous.
- The court further held that, even if a breach had been shown, Venture did not prove recoverable damages consistent with the limits applicable to agreements to negotiate in good faith.

## Legal Principles

- A letter of intent may create an enforceable contractual duty to negotiate in good faith even when it disclaims any duty to complete the ultimate transaction.
- Good-faith negotiation does not require agreement, concessions on substantive terms, or negotiation without end; it permits hard bargaining and protective terms responsive to changed business circumstances.
- Bad faith in this setting is shown by conduct such as abandoning negotiations for reasons inconsistent with the preliminary commitment or insisting on terms that materially contradict that commitment.
- Expectation damages for breach of a duty to negotiate in good faith are often unavailable or difficult to justify because they require speculative assumptions about whether a final contract would have been reached and on what terms.
- Any recovery, if available, is generally tied to non-speculative losses caused by the wrongful deprivation of a fair chance to reach agreement (commonly framed as reliance-type loss), not the full profit of a transaction that never occurred.

## Conclusion

The Seventh Circuit upheld the finding that Zenith’s termination of negotiations reflected commercially reasonable bargaining rather than bad faith and, in any event, Venture failed to establish a non-speculative measure of damages tied to an alleged breach of the duty to negotiate in good faith.


Venture Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275 (7th Cir. 1996)