A signatory may be bound to a letter of intent depending on how the letter is drafted. In a business-to-business transaction, a letter of intent normally contains a provision stating the letter is nonbinding. Even if such language is not included, it is possible a court would rule the letter is only an expression of intent. On the other hand, parties to a letter of intent should not rely on assumptions; strong nonbinding language is recommended.
Interpretations of Letters of Intent
A court relies on two factors when determining if a letter of intent is binding: written expressions of intent present in the letter and demonstrative actions taken by both parties after the letter of intent is signed. If it is treated like a contract, it could be ruled binding.
It is also important to understand the relationship between the two parties. If two parties draft and sign an ambiguous letter of intent but have a history of nonbinding agreements together, it is likely the court will rule the most recent letter as also nonbinding.
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