Letters of intent: their highest and best use is disavowing a binding contract

A letter of intent — aka an LOI, sometimes known as a memorandum of understanding or MOU — is the equivalent of comfort food; it’s something you can show your boss to reassure her that the transaction you’re supposed to make happen is moving forward.

The most useful function of a letter of intent, though – arguably its only proper function – is to make it clear that the parties do not intend to enter into a binding contract at that time — that they will do so only through a formal, signed, final written agreement. That makes it more difficult (although not impossible) for one party to claim later that the parties had reached an oral agreement.

ADDED 7/1/09: See Letters of intent: Use with caution!, Weightmans Commercial Property Focus [UK], May 2009 (summarizing case in which court held LOI to be a binding contract, not just a precursor to one).