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Letter of Intent: Gateway to a Deal

by Philip S. Chubb
Shumaker, Loop & Kendrick, LLP - Charlotte Office

Joseph J. Santaniello
Shumaker, Loop & Kendrick, LLP - Charlotte Office

June 30, 2014

Previously published on June 16, 2014

Your time is valuable. So is the business that you are thinking about selling or the business you intend to acquire. You may also be thinking that before running up professional advisor costs, your business folks should be able to put together a non-binding letter of intent (“LOI”) and then turn it over to legal counsel and other advisors. As discussed below, a party entering into an LOI may not be as free to walk away from the deal without consequences as is commonly thought. LOIs that included a covenant to negotiate in good faith have resulted in some courts award¬ing reliance damages to a jilted party who shows that the other side ended negotiations in bad faith. Reliance damages permit the complaining party to recover out-of-pocket expenses and similar losses linked to its reliance on the other party’s agreement to negotiate in good faith. We will return to this good faith issue after covering other important elements of LOIs.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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Charlotte Office
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