Briefly

TRANSCRIPT

00:13
Adam Stofsky
So I'd like to ask you about a contract concept that I think a lot of people think they understand. It certainly gets thrown around a lot. But I'm curious to hear your definition. What is a term sheet?

00:24
David Tollen
A term sheet, as we usually use that phrase is not a contract. It is a summary of a contract to be executed. So we've been talking about what our deal will be. We haven't gotten to the point of writing it down into a contract, but just because it's maybe a complicated deal, we want to, we want a summary of what we're talking about. That summary guides the conversation and can guide, you know, we can be negotiating that thing back and forth. So it helps us record what we've agreed on. It also can be a guide when, once we're on sort of initial agreement on those terms, let's write it out as a longer contract that addresses more things and we can use the term sheet as a guidepost. Ideally a term sheet specifically says this is not a contract, this is not enforceable.

01:19
David Tollen
So you don't run the risk that it will be considered a contract that you somehow executed.

01:24
Adam Stofsky
If you're not sure yet, make sure it says that.

01:27
David Tollen
Yeah, a good term sheet says that and has no signature block. Plenty of term sheets don't. And you do run the risk that something you've said by email or in negotiations will look like later you executed that contract. And so you avoid that and all kinds of trouble by just specifically saying that isn't the role of this document.

01:51
Adam Stofsky
I want to ask you about another sort of contract concept I've come across a lot actually in my career, even used, maybe not even quite knowing what it is. But what is an mou? Is it a, is it a kind of contract? Is it a kind of term sheet?

02:05
David Tollen
What is can be either a contract or a term sheet. So MOU stands for Memo of Understanding. And it's not a very tough, tightly defined concept in business or law. So it's a sort of short version description of what the agreement between two parties is. It might be intended to be a term sheet, which is, it's not meant to be a contract. It's a summary of what the parties are working on and the understanding is that they'll move on to actually writing a full length contract.

02:37
Adam Stofsky
Right. It's a summary of our understanding. It makes sense actually, why it's called an MMO understanding.

02:42
David Tollen
Yeah, exactly. It serves a temporary role and if you're smart you'll be very specific and say at the Top, this isn't a contract. This isn't meant to be binding. So you eliminate any risk that it will be. However, just to make everybody's life complicated, sometimes people in business and lawyers use MOUs as an actual contract. And really the only difference is you don't say it's not a contract, and you put a signature block. And then what the term refers to, what MOU refers to is really just a short form contract. You've decided to write it up quick and dirty, simple, short. Maybe you've missed some important things that could come up, but you're kind of taking that risk and you've got just a real short contract. So it's not the clearest term. It's got a couple of different meanings.

03:27
Adam Stofsky
MoU, but it's also kind of legally meaningless because it's either a contract and it's enforceable, or it's not and it's not. Right?

03:36David TollenThat's right. You know, who knows, There may be case law out there where some judge said, you called it an mou, and that leads me to conclude such and such. But in general, it's really better to look at as descriptive. And because the description isn't that clear, term sheet or contract, you got to look further. Hopefully the document itself will say what its role is. You know, if not, you're going to have to start, you know, talking, you know, interviewing people, if you got to figure out whether this is really meant to be binding. And then you've got recollections and all the problems that go with that. So hopefully the document tells you, is this an MOU meant to be just a term sheet, or is this an MOU meant to be a short contract?

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