THIS ARTICLE explores the legal and practical implications for in-house counsel and attorneys representing parties that have executed a letter of intent containing material business terms of a proposed transaction. The ramifications of unintentionally entering into a binding contract are often dire, particularly in the real estate context where an action for specific performance with a lis pendens resulting can tie up a property for years.
Two primary issues arise from an executed letter of intent. First, is it sufficiently detailed to potentially be construed as a binding contract? And second, does the letter of intent give rise to any duties by the executing parties. The case law discussed in this article provides guidance to the client that negotiates and memorializes the business terms in a letter of intent, respecting its rights and obligations. Finally, an historical review of the cases decided under New York law shows divergent analytical paths being undertaken by the federal and New York State courts confronted with similar issues. Thus, the forum selection for any attendant litigation may be an important consideration.
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