The parties involved in a transaction both have things they want or need. Every part of their negotiation is important to the success or failure of the deal. A letter of intent prepared and signed by the parties may memorialize the terms and conditions in an attempt to deal with future disagreements that threaten the success of the deal. The issue under Minnesota law is whether a letter of intent is considered binding or non-binding.
Purpose of a Letter of Intent.
A letter of intent (“LOI”) is also called an “agreement to agree” or a “letter of agreement.” In addition to details of the proposed deal, an LOI might include provisions calling for confidentiality, exclusivity, or good faith negotiations.
Minnesota Law Pertaining to Letters of Intent.
Minnesota courts generally consider LOIs to be unenforceable, but it comes down to certain language used in the LOI.
When the parties to a deal disagree on the terms, courts will look at the actual language of the LOI to determine whether the LOI is binding. If the LOI clearly states that all parties intend for it to be binding, a court is more likely to agree. Sometimes there’s a mix of binding and nonbinding provisions, and this must be clearly stated in the LOI also. Sloppy language in an LOI may lead to litigation down the road.
Good Faith?
It’s important to remember that “good faith” is a legal term, not just something to be carelessly thrown into an LOI. Language that seems simple or common sense in the real world may mean something totally different in a legal context. Consult with an experienced lawyer during all phases of negotiation, and especially before executing a letter of intent.
Call for a Consultation.
Best advice about LOIs? To avoid becoming embroiled in a lengthy court case over an LOI, make sure the language is clear. At Virtus Law, we strive to protect our business clients from bad deals. Contact us by calling 612.888.1000 or by emailing us at info@virtuslaw.com. We look forward to helping you in one of our conveniently-located offices in Minneapolis, Edina, Mendota Heights, and Red Wing.