8 Practical Aspects of Letters of Intent

Subject(s):

Third parties — Construction of contract — Formation of contract — Interpretation of contract — Performance of contract

This chapter first illustrates a classic letter of intent situation through the case of Texaco Inc v Pennzoil, involving the selling price of Getty oil stock. One party did not want to enter into a binding legal relationship but did not want to say so in clear terms. The case emphasizes in clear terms the dangers posed by the resultant ambiguities. The chapter then considers some possible solutions. It discusses possible ways of delaying legal effect of letters of intent; letters of intent and partially completed negotiations; agreements to negotiate in good faith; refusal to negotiate; and issuance of a letter of intent where the issuer wants work to start but is not yet ready to enter into a complete contract.