In what circumstances will a letter of intent constitute a binding contract?
A letter of intent may create no contract, a limited interim contract or the substantive bargain. Its legal effect depends on the words and conduct viewed as a whole.
A binding contract arises where the parties objectively intend legal relations and have agreed the terms they require for enforceability
The label is not decisive. The court examines written and oral communications, scope, price, payment terms, dates, incorporated conditions and performance. Unresolved matters may prevent formation, as in British Steel. They may be treated as non-essential on other facts, as in Mitsui Babcock. RTS confirms that conduct can establish agreement and can waive a signature requirement, but the court will not impose a bargain the parties did not make.
| Issue | Position |
|---|---|
| Label | Not decisive |
| Scope and price | Usually central to enforceability |
| Payment terms | Unresolved machinery may prevent formation |
| Conduct | May establish or vary the bargain |
| Subject to contract | Can be waived only by unequivocal agreement |
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