"This LOI is non-binding" does not end the legal analysis. Confidentiality, exclusivity, and good-faith-negotiation provisions carved out as binding remain enforceable even after a blanket non-binding clause. Maps the carve-out analysis and shows why defense counsel who lead with the subject-to clause often leave a Copeland exposure unclosed.

The 'Non-Binding' LOI That Wasn't: How Carve-Outs and Duty-to-Negotiate Clauses Survive the Subject-to Clause

The LOI says "subject to execution of a definitive agreement." Your client thinks that means nothing in the document can be enforced. Your client is wrong — and finding out at the wrong moment in litigation can be expensive.

The Dispute

What the Law Requires

A clause stating that an LOI is "subject to execution of a definitive agreement" or "contingent on the parties entering into a formal agreement" generally negates binding effect on the underlying deal terms. Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 358. Courts give this language its plain meaning: the parties did not intend to be bound to the underlying deal until a final document was executed.

The critical limit: a "subject to definitive agreement" clause does not automatically negate all binding obligations that arise from the LOI. It negates the deal — but it does not necessarily negate a binding agreement to negotiate in good faith. And it does not negate provisions expressly carved out as binding, which is how most commercial LOIs are actually drafted.

The practical reality is that most LOIs are partially binding documents. The deal terms are expressly subject to the definitive agreement. But the confidentiality obligation, the exclusivity period, the no-shop clause, and — where present — the duty-to-negotiate clause are often carved out as binding regardless of whether the deal closes.

What the Corpus Shows

The law on carve-outs is doctrine-driven and consistently applied. Courts enforce the carve-out provisions as written. The most common drafting variations and their effects:

"This LOI is non-binding except as to paragraphs X, Y, and Z" — The excepted paragraphs (typically confidentiality, exclusivity, governing law) are binding; the rest is not. A breach of those provisions supports a standalone claim regardless of the underlying deal's fate.
"The parties will use good faith efforts to execute a definitive agreement" — This language creates a duty-to-negotiate claim even though the underlying deal is not binding. Copeland v. Baskin Robbins USA, LLC (2002) 96 Cal.App.4th 1251.
"This LOI shall not be construed as a binding agreement" — Strongest negation; courts give it its plain meaning.
"Subject to board approval" — Creates a condition precedent; the LOI may be binding if and when the condition is met.

What Counsel Does

If you represent the plaintiff and the LOI has a "subject to" clause:

Do not treat the "subject to" language as a case-ender. Map every provision of the LOI against whether it is expressly carved out, subject to the definitive agreement clause, or silent on binding effect.
Identify any express carve-outs. If the LOI carves out confidentiality, exclusivity, or a no-shop obligation as binding, a breach of those provisions is enforceable regardless of the overall "non-binding" label.
Identify duty-to-negotiate language. "Agree to negotiate in good faith," "use best efforts to execute a definitive agreement," or "use commercially reasonable efforts" can support a Copeland theory even in an LOI that is otherwise non-binding on the deal. This is the bridge from a "non-binding" LOI to an actionable claim.
Evaluate whether the defendant took the benefits of the LOI — received the exclusivity protection, obtained confidential information, restrained the plaintiff from pursuing other counterparties — and then walked away. That is the core Copeland bad faith pattern, and it arises precisely in LOIs with "subject to" clauses.

If you represent the defendant and the LOI has a "subject to" clause:

Lead with the "subject to" language in any motion, but do not stop there. Distinguish what the clause actually negates (the underlying deal terms) from what it does not negate (express carve-outs, duty-to-negotiate obligations).
If the LOI does not contain an express duty-to-negotiate clause, argue that Copeland does not apply. A plaintiff pursuing a Copeland theory needs a binding obligation to negotiate — it cannot be implied from general "subject to" language.
On the carve-out provisions: if the plaintiff is claiming breach of a carved-out obligation (exclusivity, no-shop, confidentiality), analyze the specific conduct at issue and whether it actually violated the carved-out term. These are standalone breach of contract claims; the defenses are different from the Copeland theory.
Look for a damages cap or liability exclusion clause embedded in the LOI itself. Many commercial LOIs include explicit limitation-of-liability provisions alongside the carve-outs. If the LOI itself limits recovery, brief that limitation in addition to the Copeland reliance-only cap.

This article is for educational purposes only and is not legal advice. All frameworks and sample language should be reviewed by a licensed attorney and adapted to your particular client, case, and situation.