Ambiguous Letters of Intent

I have received questions over the years from clients relating to the status of their relationship with a potential buyer or seller of property where there was a signed “letter of intent” followed by some “due diligence” investigation, etc.  With real property, the contract must be in writing in order to be enforceable under California law, however, there are exceptions to this where there has been substantial part performance by one party or where there was substantial money spent on due diligence or other items in reliance on a verbal agreement.  Also, one party might claim that the other party cannot break off negotiations because of the “covenant of good faith and fair dealing” which might require a party to continue negotiating in good faith.  All of these theories, while they might be very difficult for a disgruntled party to actually prevail on, could lead to lawsuits, attorneys, delays, and in the case of a claim against a seller of real property, a lis pendens recorded against the property which could prevent it from being sold to a third party.

I believe that it is a good idea to have the general terms agreed to by the parties before money and time is spent on drafting contracts since you will sometimes learn of fundamental flaws in the deal early enough to save these costs, and it is easier to negotiate on 5-7 conceptual bullet points than it is to draft a lengthy contract.  One of the most common problems with letters of intent, however, is ambiguity.  Is it an offer or is it a non-binding letter of intent?  Many letters will contain elements of both which create the ambiguity.  For instance, a letter could state: “this letter is subject to additional terms to be contained in a final contract,” indicating that it is a non-binding letter of intent.  The same letter could conclude with the phrase, “this letter will be deemed rejected if not accepted by 5:00 p.m. on September ___, 2013.”  This is language of offer and acceptance, i.e. contract, not non-binding letter of intent.  Where a letter containing this type of ambiguity is signed, followed by substantial reliance or due diligence by a party, it could lead to litigation or other unpleasantness.

Where a deal is small and it is not anticipated that there will be much, if any, money or effort spent on due diligence before a contract is executed, a clause something like the following may be used to clarify the non-binding nature of the letter agreement: “This letter may form the basis of further purchase discussions, but it is not an offer capable of being accepted.  If you believe the terms outlined in this letter are acceptable, please let me know so the final terms can be included in a written agreement which will be effective only when executed by the parties.”  Of course, you have to make sure that the rest of the letter doesn’t conflict with this statement as mentioned above.  Where a deal is larger, or it is anticipated that the parties could spend a lot on due diligence before entering into a final contract, a more formal letter of intent is prudent.  For instance, some non-binding letters of intent will have “binding” portions, like confidentiality and insurance and indemnity for pre-contract “due diligence.”  This type of partially binding/partially non-binding letter of intent is usually best drafted, or at least reviewed, by an attorney, especially where the dollar values are high.  Although this focuses on real property transactions, similar principals apply to transactions involving asset purchases, stock sale or other transactions.

Here are other samples of non-binding letter of intent provisions, again, subject to the warnings above re: using ambiguous terms:

Option 1

This letter may form the basis of further settlement discussions, but it is not an offer capable of being accepted.  If you believe the terms outlined herein are acceptable, please let me know so I may reduce them to a ***contract or  settlement and release agreement***.  Nothing in this letter will be admissible in litigation pursuant to California Evidence Code §§ 1152 and 1154 and Rule 408 of the Federal Rules of Evidence.

Option 2

            This letter may form the basis of further settlement discussions, but it is not an offer capable of being accepted.  If you believe the terms outlined herein are acceptable, please let me know so our attorneys can write them into a ***contract or  settlement and release agreement*** which will only be effective when executed by all parties.  Nothing in this letter will be admissible in litigation pursuant to California Evidence Code §§ 1152 and 1154 and Rule 408 of the Federal Rules of Evidence.

Option 3

This letter may form the basis of further purchase discussions, but it is not an offer capable of being accepted.  If you believe the terms outlined in this letter are acceptable, please let me know so the final terms can be included in a written agreement which will be effective only when executed by the parties and approved by ______________, as necessary. [when third party approval is also necessary]

For the mutual protection of both of our clients, neither party will be bound until final written agreement is prepared and executed by the parties.  This letter may form the basis of further purchase discussions, but it is not an offer capable of being accepted.  If you believe the terms outlined in this letter are acceptable, please let me know so that we may prepare a formal ***contract or  settlement and release agreement***.  My client is interested in arriving at a mutually acceptable understanding as quickly as possible.  I look forward to your response.

Required Disclaimer: This is Attorney Advertising. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Lunch Presentation to Christian Club at Loyola Law School (Part 3)

Practical 2:

Please God not man

"I tell you, my friends, do not fear those who kill the body, and after that have nothing more that they can do. But I will warn you whom to fear: fear him who, after he has killed, has authority to cast into hell. Yes, I tell you, fear him! Are not five sparrows sold for two pennies? And not one of them is forgotten before God. Why, even the hairs of your head are all numbered. Fear not; you are of more value than many sparrows." (Luke 12:4-9 ESV). 

In business I have found that putting too much stock, one way or another, in the affirmation or condemnation of another person is a snare. Praise of people can be addicting. If you don't keep it in perspective, then you do things that are not appropriate to continue receiving praise. In some cases that can be really bad like violating ethics or the law. It would never start out like that. It would usually start out with much smaller issues, like preferring a client's project goals above those of other clients, your own family and/or your own health when the objectively situation does not require or warrant it. Putting too much stock in the criticism of another person, will equally be a snare.

Objectively listen to and consider the criticism of other people.  Any messenger, even one who is very unpleasant, may have something that I need to hear. That unpleasant, angering, even exasperating person can be more loving to/positive for me than those who manipulatively flatter or who genuinely like me but don't care/risk enough to point out my flaws.

"Better is open rebuke than hidden love. Faithful are the wounds of a friend; profuse are the kisses of an enemy." (Proverbs 27:5, 6 ESV).

Only the fool rejects correction which is needed, whether that correction manifests itself in through the conviction of a Bible passage, the Spirit of God through prayer, circumstances or people. The one who persists in that rejection does so at his peril. "A man who remains stiff-necked after many rebukes will suddenly be destroyed—without remedy." (Proverbs 29:1 NIV84). 

            Rather than focusing on the roller coaster of the opinions of others, I have found it more healthy to focus on pleasing God, from whom we can receive genuine, untainted approval that matters:

"His master said to him, 'Well done, good and faithful servant. You have been faithful over a little; I will set you over much. Enter into the joy of your master.'" (Matthew 25:21 ESV).
Required Disclaimer: This is Attorney Advertising. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.  An attorney licensed to practice in the jurisdiction where the matter occurs must interpret the facts of any specific case and advise as to whether and how any of these concepts may apply to a particular case.

Lunch Presentation to Christian Club at Loyola Law School (Part 2)

Practical Point 1: 

Go meal to meal.

One of the toughest physical challenges a person to go through is hell week for SEALs.  Chris Kyle, a SEAL sniper wrote that the best way to get through hell weak is to go meal to meal.  They fed them every 6 hours, so relief was never more than 5 hours and 59 minutes away.  His point was that if you focus on what's coming tomorrow or the next day, week, month or year, you'll get freaked out and want to quit.

Matt. 6:25-34 says: "25“For this reason I say to you, do not be worried about your life, as to what you will eat or what you will drink; nor for your body, as to what you will put on. Is not life more than food, and the body more than clothing?26“Look at the birds of the air, that they do not sow, nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not worth much more than they?27“And who of you by being worried can add a single hour to his life?28“And why are you worried about clothing? Observe how the lilies of the field grow; they do not toil nor do they spin,29yet I say to you that not even Solomon in all his glory clothed himself like one of these.30“But if God so clothes the grass of the field, which is alive today and tomorrow is thrown into the furnace, will He not much more clothe you? You of little faith!31“Do not worry then, saying, ‘What will we eat?’ or ‘What will we drink?’ or ‘What will we wear for clothing?’32“For the Gentiles eagerly seek all these things; for your heavenly Father knows that you need all these things.33“But seek first His kingdom and His righteousness, and all these things will be added to you. 34“So do not worry about tomorrow; for tomorrow will care for itself. Each day has enough trouble of its own."

 Law School, the bar and much of life is more stress control, perseverance and time management vs. intellect and raw knowledge.
Required Disclaimer: This is Attorney Advertising. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.  An attorney licensed to practice in the jurisdiction where the matter occurs must interpret the facts of any specific case and advise as to whether and how any of these concepts may apply to a particular case.

Lunch Presentation to Christian Club at Loyola Law School (Part 1)

Three thoughts which I wish had been shared with me when I was going to school here, one more theoretical, and two practical.

Theoretical:

What on earth are you here for?

Pursuit of pleasure, he who dies with the most toys wins, great and noble achievements. 3,000 years ago, King Solomon explored all of these purposes and declared them "meaningless" and many modern non-Christian observers are reaching the same conclusions.

Rick Warren wrote Purpose Driven Life, subtitled “What on Earth am I here For?” Biblical perspective of our purpose in life I want to focus on day 31, under “SHAPE: Employing Your Experiences:”


“God never wastes a hurt! In fact your greatest ministry will most likely come out of your greatest hurt. ...God intentionally allows you to go through painful experiences to equip you for ministry to others. The Bible says, "He comforts us in all our troubles so that we can comfort others. When others are troubled, we will be able to give them the same comfort God has given us." If you really desire to be used by God, you must understand a powerful truth: The very experiences that you have resented or regretted most in life - the ones you've wanted to hide and forget- are the experiences God wants to use to help others. They are your ministry...”
“10 For we are God's workmanship, created in Christ Jesus to do good works, which God prepared in advance for us to do.” Eph 2:10. In Greek, the word workmanship is: “Poiema” from which we get the word "poem" From this passage, we learn that we are created by God as a wonderful work of art for the purpose of doing some good works that he has laid out for us.
Diligently seek what the Lord wants you to do with your life. Not what your parents or other people want you to do. It will be framed by the Bible, but it will be intimate and personal as is our Lord.


Required Disclaimer: This is Attorney Advertising. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.  An attorney licensed to practice in the jurisdiction where the matter occurs must interpret the facts of any specific case and advise as to whether and how any of these concepts may apply to a particular case.