Page 9 - Minnesota Vol 8 No 3

Counsel for parties negotiating a proposed letter of intent need to be vigilant and protect against its unintended enforceability against his or her client. ere could be no worse out- come for your client who did not expect that a supposed non-binding letter of intent was interpreted by a court to be binding in e ect and, therefore, fully enforceable.
Each party to a commercial real estate transaction must give careful consideration as to whether they want to be bound by a let- ter of intent. It is my experience, though, that parties most o en desire to not be bound by a letter of intent and, instead, desire to be bound only by the fully executed lease or purchase agreement. e key element in de- termining whether a letter of intent is bind- ing or non-binding is the intent of the parties. In Minnesota, no contract is formed when one party to the document knows the other party does intend to be bound by the docu- ment. Hamilton v. Boyce, 48 N.W.2d 172, 174 (Minn. 1951) (citations omitted). Whether or not one labels the document “letter of intent” is not, in and of itself, determinative of the binding nature of the document. Metro O ce Parks Co. v. Control Data Corp., 205 N.W.2d 121, 125 (Minn. 1973). Rather, a letter of in- tent may be binding if the parties “manifest an intent that it be so.” Metro O ce Parks, 205 N.W.2d at 125.
How do parties to a letter of intent “mani- fest” their intent to not be bound thereby? e Minnesota Court of Appeals gave some guidance in Hansen v. Phillips Beverage Co., 487 N.W.2d 925 (Minn. Ct. App. 1992). e Hansen court stated that a letter of intent will (most likely) be nonbinding when it contains language proclaiming that the document is not a nal agreement between the parties. Id. at 927. e court in Hansen based the forego- ing upon the long-standing rule in Minnesota that agreements evidencing nothing more than an intention to negotiate in the future are unenforceable. Id. (citing Consolidated Grain & Barge Co. v. Madgett, 928 F.2d 816, 817–18 (8th Cir. 1991). In other words, where a let-
ter of intent is merely an agreement to enter negotiations in the future it is unenforceable. Ohio Calculating, Inc. v. CPT Corporation, 846 F.2d 497, 501 (8th Cir. 1988); See Mohren- weiser v. Blomer, 573 N.W.2d 704, 707 (Minn. Ct. App. 1998) (holding a letter of agreement “was an unenforceable agreement to agree in the future”). Even a letter of intent which creates an agreement between the parties to negotiate in good faith towards a nal pur- chase agreement or lease is unenforceable in Minnesota. See Lindgren v. Clearwater Nat’l Corp., 517 N.W.2d 574, 574 (Minn. 1994).
If your client wants to be a party to a non- binding letter of intent, then, there are a few important points to keep in mind. A non- binding letter of intent is like any other legal document and should be carefully dra ed to clearly state it is nonbinding. Although not an exhaustive list, counsel should start by fol- lowing the guidance provided by the Court in Hansen. Avoid using language in the docu- ment indicating the parties “agree” or that the letter is an “agreement.” Title the document as a “nonbinding” letter of intent. Expressly state in the letter that the document itself creates no binding legal obligations of the parties, that it is only a summary of the discussions between the parties up to the date of the let- ter, that the respective rights and obligations of the parties remain to be de ned in the nal, de nitive document, and that parties must negotiate and execute a nal, binding written purchase agreement or lease in order to be bound to one another. Be careful in how your client acts as well. Do not publicly announce the deal based on the letter of intent. Do not concede in written communications outside of the letter of intent that the document evi- dences a nal or binding deal.
In the end, it is much less costly to carefully dra the letter of intent at the outset. Know when to use a letter of intent. Do not be afraid to advise your client against using one and, instead, dra the actual purchase agreement or lease.
Yet,
despite its advantages, there are some significant difficulties presented by use of
a letter
of intent. Letters of intent, by their nature, do not contain all the terms
of the transaction.”
AttorneyAtLawMagazine.com
9