If the parties can agree upon a settlement in mediation, it is essential that they put their agreement in writing, even if the mediation extends well into the night. Waiting until the next day can be dangerous since parties often change their minds about the deal after sleeping on it. The best way to memorialize the settlement is to prepare a formal settlement agreement as soon as a meeting of the minds has been reached. However, in most cases, because the parties are exhausted after many hours of mediation and many agreements, such as a patent license agreement, may contain detailed terms which need to be spelled out in a formal document, most parties and counsel are only willing to prepare a term sheet to memorialize their agreement. Term sheets present many potential pitfalls and these are some best practices to avoid them.
The Parties Should Sign the Term Sheet. In most states where counsel have apparent authority to bind their clients to the provisions of a settlement agreement or term sheet, it is unwise for counsel to rely upon this apparent authority. Even after a term sheet has been signed by counsel, a client can seek to disown it and claim that it did not give counsel express authority to sign. The client may even retain new counsel to attack the deal, which may lead to litigation over the enforceability of the term sheet, including the prospects of a trial on whether the client consented to the settlement. The best way to avoid this potential problem is to have the parties themselves execute the term sheet. For any avoidance of doubt, the mediator could witness the signatures.
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