In our last post, we began speaking about letters of intent and their use in negotiating the terms of construction projects. As we noted, letters of intent are not contracts, but courts do sometimes enforce them as binding, depending on what the parties intended by the document. In cases where it is evident that both parties intended to be bound, they may be enforced by a court. In cases where parties did not intend to be bound, they may not be enforced. It depends on the circumstances, though.
In some cases, a court may enforce some parts of a letter of intent, but not others. This can happen in cases where parties did not intend to be bound by specific provisions of the letter, but agreed to deal exclusively with the other party, not to disclose the negotiations, or to deal with the other party in good faith. Certain types of agreements such as these can spur parties to take steps in reliance on the letter of intent, including investing money or passing on other opportunities, and courts may choose to enforce them.
Courts may choose to enforce such agreements even in cases where the letter of intent is clear about its non-enforceability, particularly where the party objecting to enforcement led the other party into taking actions in reliance on the letter. In yet other cases, letters of intent may be unenforceable, but may still be used by a court to help interpret ambiguous terms of a later contract. Any of these outcomes are possible, depending on the case.
As can be seen, it is difficult to point to general rules regarding the enforceability of a letter of intent. In the context of negotiating construction projects and other transactions, then, it is beneficial for parties to work with an experienced attorney to ensure they understand state law on the issue and what exactly they may be getting themselves into. Knowing this information can help a party to limit the possibility of a later dispute over a letter of intent. Working with our firm, clients can be sure that we will provide solid legal advice and practical guidance on business negotiations with their rights and interests in mind.
ARTICLE BY
Business and Corporate Law Practice Group.