letter of intent

Otherwise known as heads of terms or memorandum of understanding. The object of such documents is to commit an understanding to writing, prior to preparing formal and more detailed legally binding terms of contract.

Any particular letter of intent may be legally binding, or it may not. Ordinary principles of contractual construction apply when determining whether the document is binding. Some are stated to be partly binding (in respect to say confidentiality, and the applicable law in the event of a dispute), with the reminder of the obligations expressly stated that they are not intended to be binding. Whether or not a letter of intent is legally binding is a question of law, taking in account the surrounding circumstances and the legal intention of the parties.

In sophisticated commercial transactions, such documents play an important role in setting out the landscape for both the future commercial and legal relations between the parties, prior to preparing formal documentation.

Usage: The letter of intent set out the intentions of the parties prior to preparing blinding legal documentation.

Related Words: law of the forum; jurisdiction clause; contract; undertaking.