As a Houston, TX business litigation attorney, I often caution clients about the pitfalls involved with signing letters of intent. While on the one hand, a letter of intent can be a useful device to start a conversation or to begin a negotiation, often enough, one or more parties to the document will interpret a simple business overture to be a contractual obligation.
One of the key issues that the Texas courts will examine when determining whether or not a letter of intent contractually binds two or more parties is the determination of whether the parties involved intended to be legally committed by the document. This can often be clarified with unambiguous language that the letter of intent is either intended or not intended to contractually bind the parties. In other words, if you are being asked to sign or accept a letter of intent that you believe contractually commits you to an agreement, you should request a commercial law attorney to add language specifically declaring that the document does not legally bind the parties to a contract. Conversely, vague language as to intent could lead one to the belief that a contract has been formed. More importantly, it could also lead a Texas judge to agree that a contract exists.
Another factor that will certainly come into play in deciding whether a L.O.I. rises to the status of a contract is whether all material terms and conditions are covered in the document. For a meeting of the minds to exist, one would expect for all of the relevant terms to be articulated, so if the letter of intent includes them, it may appear to be more contractual in nature. On the other hand, without essential details, a Texas court might determine that one or both parties were only outlining the broad strokes of a proposal. To avoid letters of intent being construed as contracts, attorneys will often recommend that the parties leaving out some material terms to demonstrate the flexibility of the document.
Although there are cases where all parties to a contract are fully committed to propositions outlined in letters of intent, any Texas businessperson should approach the signing of an L.O.I. with the caution that he or she would use when committing to a contract. The letter of intent should be read thoroughly, and if possible, forwarded to a qualified Texas business attorney for review.