The Effects of Letters of Intent

Licensed copy from CIS: wolverhamptonuni, University of Wolverhampton, 02/08/2015, Uncontrolled Copy.No. 91. 1998 Editor: Peter Harlow E-mail: [email protected] THE EFFECTS OF LETTERS OF INTENT by J. B. McGuinness BSC, MSc, FCIOB Professional Services The Chartered Institute of Building Englemere Kings Ride Ascot Berkshire SL5 7TB Entries should not exceed 5000 words and should be submitted to the Society’s Membership Administrator. where of the letter of intent and the execution of the performance was by the party writing and contract or sub-contract the chances of a the second party was to be liable for the successful conclusion become less and less consideration. However. claims. which company procedures may require to be checked by the purchasing manager and/or signed by a director. Oxon. torts. able to obtain a more surprisingly little commentary in the legal texts. who undertakes work under a letter of intent does so at risk. then there is unlikely to be the supplier does as requested. up to a value of £LLL. then there may arise issues as to the conditions under which the early work was has concluded his negotiations to issue a carried out. letter of intent who is more often at risk. in practice delay will set. where This situation can be distinguished from there is a significant delay between the issue cases such as Felthouse -v. taxation and any other aspect of law or procedure relevant to construction. usually to pay money. OX12 8DJ by 30 September 1998. The normal situation is that work continues take this order as an instruction to under the letter of intent for the whole of the commence work pending the finalisation works. contract administration. It is quite common. so as to limit the liability of the in most instances have the reverse result. Another form of letter of intent is to This paper won the 1997 Hudson prize awarded by the Society of Construction Law. 3 . Post- contractual ‘followed. It is generally been held that a contractor or sub-contractor. In the event of no contract being finalised between us we undertaken to pay all reasonable and proven costs A letter of intent is distinguished from other incurred. The letter may also define There are two prizes awarded valued at £1500 and £750. litigation. however. This paper demonstrates that this view is not supported resist pressures to accept unattractive liabilities. ‘as actual or It will be shown that it is not necessarily the proven costs’. property law. for the main contractor when he signed.’ ineffective or unconcluded contractual proposals in that there will normally have These conditions can vary considerably. Please It appears to be unusual for a contract is terminated because the parties fail to agree. the intention being to conclude a written contract shortly afterwards. which can be analysed to reach some fairly clearly defined principles. including the Falkland Islands Airport and the new British Library. 67 Newbury Street. arbitration and dispute resolution. since the contractor or sub-contractor will FORMS OF LETTERS OF INTENT It is a feature of modern building contracting that a significant number of both main and subcontracts are let under a letter of intent. when the purchaser wishes work to start. This is of little help to contractors or sub-contractors who finding themselves with a contractual problem need advice as to their obligations and rights. At some point. University of Wolverhampton. contract under a letter of intent is to reach a procurement and/or mobilisation. Both make the point that the extent of depend on the facts/circumstances of the case. tender discussions will probably have for the XXX work on this contract. a reasonable body of case law. 02/08/2015. formal contract. likely. Typically such an order will state: It is our intention to accept your tender Despite its frequency of occurrence there is will feel advantageous bargain or better able to INTRODUCTION liability relations. For been on enquiry sent out by the purchaser instance they may state implicitly that terms and a tender submitted by the supplier. any resultant problem. Editorial Note by law and that it is the party issuing the 2. Finally. project and the right of the other party to damages if they do so. In these more advantageous agreement before circumstances a limit on spending may be Entries to the 1998 Prize are invited on a topic concerned with construction and engineering contracts. prior to issue to the subcontractor. contractor being paid for any work carried out. if is concluded shortly after the issue of the letter of intent. especially with sub contracts. allow a contractor or sub-contractor to start One of the main reasons for starting a preliminary work such as design. the method of costing the work. works order for the sub-contracted work. the terms and conditions are those of an executed standard form of contract can be The sub-contractor may be required to sign difficult. Either party will only be deterred A letter of intent can come in various forms from holding out if convinced that the in response to differing needs of the position is insecure without the backing of a purchaser.Bindley. Uncontrolled Copy. if a late agreement is reached and a contract 1. procuring party. The tender is likely to have been qualified so and conditions are to be agreed or that there is no intention to create legal or as not to be open to acceptance. but are as nothing to the potential and return the order form. company law. which may expressly be a prerequisite to the sub- problems where no agreement has been finalised. Keating only devotes a page to ‘letters of intent’ and Hudson a page and a half. Settling claims and disputes where of the contract documents for signature. Wantage. You are required to commence design work immediately.Licensed copy from CIS: wolverhamptonuni. concluding a contract. Of those projects which start with a letter of intent a high percentage will never be concluded and the work will be completed without an agreement being reached as to the contract terms and conditions. he will write THE PROBLEM to the supplier requesting he commence the work in whole or in part and undertaking In the event that the contract or sub-contract some obligation. work. WHAT IS A LETTER OF INTENT? John started his career as an articled pupil with John Laing and subsequently was sponsored for a Building degree at Aston University He has worked for the Laing Group for over 25 years in site management roles and has been involved with a number of large prestigious projects. but the main contractor will need time to finalise the documentation. London. Such a letter may be phrased act of issuing a letter of intent that leads to as follows: difficulties in determining the status of the ‘Please take this letter as our intention to arrangement between the parties but also enter info contract with you for the XXX their action afterwards. Despite this lack of comment there is. In 1992-94 John took a part-time course in Construction Law and Arbitration at Kings College. there is the matter of the rights of the parties to terminate their involvement in the In these situations the terms and conditions will have been agreed between the parties. However. Tolaini Brothers between BEL and JBE leading up to the This analysis is preceded by the observation: (Hotels) Ltd (1975) 2 BLR 97. testing could be taken as reaching agreement on manufacturing tolerances. the conclusion that there is no reason in constituted a contract between them. sent to a supplier Negotiations between the parties continued and there is usually no obligation to in parallel with construction work and continue with the work or to underfake any defined parcel of work. Uncontrolled Copy. In Kitsons insulation . Contract documentation. was their intention. itself never establishes a contract.’ sums’. responsibility for damage to services and the source for the to be a contractual relationship until the expenditure reasonably incurred in reliance upon such a letter will be reimbursed. acceptance by the plaintiffs.Norwich Union Life letter of intent. no contract was the letter. may well change as a result of further in the main contract for the appointment of sub-contractors.Alfred McAlpine Construction ORB 1995 No. It who is acting under a letter of intent. In the (1996) CILL 1196 it is suggested that a Goff in British Steel Corporation -v- case of Ben Barrett & Son (Brickwork) Ltd -v- binding contract can be formed where there are still matters to be agreed: In the case of Mitsui Babcock -v. if that there was clear evidence that the parties objectively determined. 02/08/2015. why an agreement as to the method of existence. In the event he finds an enforceable contract will be the extent matters still to be resolved are listed in the that there is a concluded contract in writing. becomes binding agreement. being the last issue to be resolved between the parties and was further In the Court of Appeal judgement in Monk Where the supplier signs and returns the Construction Ltd -v. Lord Denning commented: did intend to conclude a binding Since a letter of intent is in effect an offer to a supplier to commence work ahead of a ‘If the law does not recognise a contract agreement when the contract documents contract being formalised. It was’ principle why two parties should not held: ‘On the evidence. he will receive a certain signed. Further. the parties did not intend there effect if acted upon. Such a letter places no obligation on the recipient to act upon it 4 formal documents were executed. the Court found that enter into a binding agreement. agreed to by their conduct’. ie a contract under which no evidence to support the contention have agreed that some proposed terms should be the subject of further discussion that they did not intend there to be a sub and later agreement. discount.’ further agreement.’ not a contract will depend on the wording of No contract exists . Mr Brian Thomson in late February or ‘Balfour wrote to Kitsons. the subject of work is not referable to any contract. if work carries on as requested by contract was concluded by JEB’s letter of remuneration for his performance. That the law does not recognise a contract to negotiate. which is to be There may be what is sometimes called an ‘if’ contract. daywork rates. which was signed by the plaintiff. was decided in appear still to be agreed: ‘In the light of the history of the dealings the party who made the request to pay a reasonable sum for such work as had been done pursuant to that request. the ‘As a matter of analysis a contract (if any) which may come into existence there was a clause in the supposed contract to ‘negotiate fair and reasonable contract immediate circumstances surrounding the signing and the fact that both. I have the builder sued for the cost of the building come to the conclusion that both parties work. the letter of intent then whether there is or is intent. clause on contract that it was a condition precedent to an enforceable contract that it should be under ‘A letter of intent is usually an unilateral charges. or an attachment accepting Assurance Society 62 BLR 107 Lord Justice Neill reviewed the judgement of Mr Justice the letter then it must be certain that there is a binding contract between them.London Demolition (UK) In Hall & Tawse South Ltd and Ivory Gate Ltd appear to need resolving. importation of materials’. In this case signing of the contract documents. if rejected on the grounds that it does not represent an agreement between the parties. then the performance of The Judge does not suggest under what circumstances a letter of intent. In VHE Construction -v. WHEN IS THERE A CONTRACT UNDER A LETTER OF INTENT? WHEN IS THERE AN ORDINARY EXECUTORY CONTRACT? reduction in the period of payment. drainage assurance intended to have contractual arisings.Balfour Beatty Buildings reasonable reimbursement if the recipient telephone call between Mr Brown and Ltd (1991) 8 CLD 05-04: does act upon it’. the recipient eventually the final matter was agreed. the A major factor in deciding whether the effect terms of which can be ascertained and the law simply imposes an obligation on of a letter of intent an acceptance. letter. In Sir Robert McAlpine Management ‘In my view the true nature of the ‘letter of ‘There are some eight items which If there are specified requirements laid down be a bar to a ‘works agreement’ coming into Contractors Ltd -v.‘if. entered into. The was held that at this point a binding contract had been concluded: effect of such a letter is to promise ‘A sub-contract was completed by a Contractors Ltd -v.’ A requests B to carry out a certain contract until the main contract was performance and promises B that if he does so. whereby reasonable programme. There fundamental term yet to be agreed) it must be some form of acceptance by the seems to me it cannot recognise a There then follows a detailed argument as to supplier for a contract to come into contract to negotiate’.Licensed copy from CIS: wolverhamptonuni. being:- Ltd 1990 ORB 1298 the judge was satisfied this was stated more forcibly: measured rates.’ 1114 the Judge found: effect.the parties following a letter of intent. seal. University of Wolverhampton. even though they intended to enter into a sub-contract and contract.John Brown Cleveland Bridge and summarises the result Henry Boot Management 1994 ORB 298 of a letter of intent as giving rise to three the defendant claimed that the letter of ‘My review of the authorities leads me to possible situations: There may be an ordinary executory intent. cannot be held to be evidence of a being free to stop work at any time.’ The Judge went on to say: ‘I do not consider that any binding performance in return. under which each party assumes reciprocal obligations to the other. vent trench arisings. the situation Netto food Stores Ltd 1993 ORB 66. usually However. Inevitably the negotiations failed and did sign the contract documents. failure to follow these may intent’ was that it was an offer capable of agreement. purporting to early March when they agreed a accept the revised tender and enclosed concluded contract. could be held to be a despite there being certain matters that Courtney & Fairbairn Ltd -v. a letter of intent in to enter into a contract (when there is a were signed. This view is supported by other judgements While the existence of terms still to be agreed in a letter of intent leaves the parties such as that in Mifflin Construction Ltd -v- in a non-contractual situation. accepted. The Court of for a situation where Sims did not continue did not proceed to carry out the construction Where agreement has been reached on with the construction work and was not to work. while the formal agreement is being no place for a third party such as a contract prepared. In many letters of intent. Kitsons refused to undertake the sub-contract in that form. the letter of intent in general terms. as was life Assurance Society 62 BLR 107. if either a contract for the I agree with the Judge that the ‘proven such costs to include loss of profit and construction works is subsequently costs’ formula was never intended to contributions to overheads. University of Wolverhampton. whole work to be subject of the contract. Monk could claim for the the intention is to resolve the outstanding matters and finalise the contract or for the reason no contract for the execution of the Sub-Structure Phase II work was ever In these circumstances the contractor may prepare drawings. which did It was held that the contractor’s right to defined and contracted for in the letter of not reproduce the subcontract which had payment for the completed work was not to intent. Judge Newey QC the purchaser if the supplier responds to this request.Shaftesbury Plc 60 BLR 98. Uncontrolled Copy. frequent outcome is that the negotiations make little progress and the work is out of time it is common practice to request.Norwich Union include all the variations to the sub- would hove been the case if. supplier continues beyond the work as In my judgement the Judge was correct to conclude that Monk were entitled to 5 . These may include a request to with Monk. The consequences. In C J Sims Ltd -v. he would never have letter of intent will set out the obligations of them to mobilise and to order a certain quantity of materials. the contractor will be paid his costs’. Monk sought payment for the There may be one significant exception to ascertained work. with the resulting 12 year It should also be appreciated that limitation period. 02/08/2015. for completion and no liquedated and the building.000. nor was it intended to apply if company. His Honour. but Norwich Union claimed that the this. but Monk completed should reflect the intentions of the parties. reserve equipment of a accordance with the authority given to contract which. had he realised the resulting specialist nature and/or set up on site. been summarised in the earlier letter of intent. but the work on the main contract began. In practice the Where the procurement process is running concluded between the parties. surveyor. situation arose. It did. have been and will be incurred and costs for which they are liable including those mobilisation and the ordering of some materials) was carried out by Monk. your Where the parties have reached agreement entitlement will be limited to the proven as to the terms of the contract they wish to The restrictions of such a letter of intent costs incurred by you in accordance with conclude and they sign an interim document would affect both parties. When a letter such as this is written It seems to me perfectly clear that these two paragraphs were directed to a LETTERS OF INTENT FOR INITIAL WORKS ONLY problem which might arise if for some parties to part company. There will be no In the event no contract for the construction effect by the signing of the letter of intent entitlement to make variations. it may be that until the contractors frequently use the word formal agreement is signed the contract is under hand. such as in were limited to the work done under its period. place on order items on ‘proven costs’ which they had incurred in find himself bound to an unintentional long delivery. there is no reason to believe the same situation could not arise with regard.’ In the event the contract was not concluded. the entire contract conditions were contained in the brief words of the letter of contained the following words: ‘Our client has instructed us to confirm intent read in isolation from the tender and subsequent negotiations and in a literal that this letter is to be taken as authority for you to proceed with mobilisation and manner. only some of the terms of the intended relate to the contract in the legal sense. then great care must be taken with the drafting of the letter of intent if the It is important to distinguish the situation in Lord Justice Neill made the following comments in his judgement: benefits of the agreed terms are not to be Sims where the letter of intent was for the ‘One then turns to the third and fourth lost. Sims the intention may have been to allow authority and even then only if the supplier damages. this contract works which had been expected. however. as stated in the letter of intent. such principally rests. a not uncommon situation is that no agreement for the construction work is concluded. with only a 6 year limitation ‘contract’ loosely to mean both the works or Appeal upheld the judgement at first instance that the words of the letter of intent project. Where the intention is for the contract to be under seal. no due date work was concluded. OS ‘In the event of the contract not being finalised. then the contract brought into administrator or engineer. and no forma/ sub-contract was ever executed by them’. The letter of intent proposed since the date of the letter of Instead. The terms with the situation if no contract was signed and if no work on the Sub- proceeding. There would be the authority given by this letter’. As described above if the supplier found that the letter of intent contained the responds by carrying out the work as In my view the provision for the recovery of ‘proven costs’ was intended to deal following statement: ‘In the unlikely event of the contract not requested then a contract for that work and that work only comes into being. as In Monk Construction Ltd -v. difficulties. contract. However. purport to be based on his tender and the conditions he had been required to tender against. the contract had been concluded. (the plaintiffs) will be of that contract are those as stated in the Structure Phase II project (apart from reimbursed their reasonable costs which letter of intent. under a letter of intent. all of which concluded or the parties decide that they apply to the execution of the main must be substantiated in full to the reasonable satisfaction of our quantity cannot reach agreement after all and part contract. conclude a contract with you. entitlement was limited to ‘proven costs’.Licensed copy from CIS: wolverhamptonuni. Although this case only concerned ordering of materials up to a maximum the method and procedures of valuation expenditure of intent. sub-contract documentation. WHAT CONTRACT IS CONCLUDED BY THE LETTER OF INTENT? £100. the preferred The letter further provided that if constructed under the letter of intent. tenderer to commence his initial or advance Norwich did not conclude a contract works. In the event that our client should not programme. This arrangement should give rise to no of their sub-contractors and suppliers. to say. paragraphs of the letter of intent on from letters of intent requesting the which Norwich’s case on ‘proven costs’ One option frequently employed is to couch commencement of early activities. such as: the ordering of materials. The letter is quoted in full in the judgement but significant parts are as follows: Board had approval under the Harbours intended to mean what they say. While in many situations the parties will be so close to agreement that the creation of a 6 purchaser. under the second limb of However. It was held no contract was concluded as the parties were still ‘in ‘The Defendant’s letter of intent followed by the Plaintiffs commencemenf of work ‘We are now instructing you to negotiation on the question of price’. price. ‘subject to contract’ is hold. the securing of has does not brand it as the outset as a Licensed copy from CIS: wolverhamptonuni. the Judge did not consider endeavours to achieve the contract of intent said: whether a contract existed. In Peter Lind & Co Ltd -v. but. This is compatible with the judgement in Monk. The circumstances may include the obtaining of planning or other approvals. pending final fact that it has the particular label that it the necessary funds. The judgement in Fraser Williams [Southern) Ltd -v. However.234 the contract could not be concluded until the is headed ‘Subject to Contract’. the proposal was not an offer sum has been expended and further work capable of being accepted.Norwich Union. In this instance. I do not so acceptance. the completion of contractual document or as a ‘non- agreement they will rarely be issued for the feasibility or other studies. there was no concluded agreement’. This was shown in VHE -vMcAlpine. Building Contract’. where it was held. (2) The letter of 10 March amounted to no more than on acceptance that the An alternative method to restrict the parties should go a stage further. a service well in excess of that described in ‘(1) In order to determine whether a the letter of intent. the meruit basis. but ruled on the Since the judgement was for a sum of money programme and to act on all instructions properly issued under the terms of the ‘Proceed with mobilisation and ordering of materials up to a maximum strict words of the letter of intent. acceptance must be in writing. there will be many circumstances where the effect of a letter of intent is to look for the purpose of construing it at the the intention is not to proceed into a formal project or its costs until certain special needs document itself. The obligations of the parties resulting from the parties’ behaviour indicated that they acceptance of a letter of intent is to state that both expected a formal contract to be agreed. at least until further work is done. including the One commonly used approach is to impose ordering of materials necessary to the a limit on expenditure under the letter of intent that you shall use your best intent. In the absence of any further qualification. Such when it was brought into existence. circumstances had in Sims -v. ‘We confirm that it is our intention to enter into a formal contract in the form of the Board and it is their intention to The decision of the Judge to look at ‘the the Standard form of Building Contract. under the Building Contract. when used by experienced which made this letter of intent binding upon commencing work was that it was for the Hadley -v.Mersey Docks and To begin with.Baxendale and the cop should businessmen. This is very obvious (a) That the form of the Building enter into contract. Tawse South Ltd -v. bearing in the work. 02/08/2015. expenditure of £100. The letter of intent merely stated: parties had no reason to think otherwise’. On that the supplier makes it clear that the capped basis.be remunerated on the basis of quantum binding contract at an early moment is their The correct approach when considering meruit. the letter of 25 November Harbour Board 2 Lloyd’s Rep. the letter under Order 14. at the surrounding circumstances. If the reason for the expenditure cap was normally used to prevent a party Although this was not an issue in the is given then it is suggested its effectiveness from being contractually bound.Ivory Gate Ltd 1996 ORB No. It is possible that if a letter contract had been concluded. on site gave rise to a contract between commence the Works to be carried out them’. entire works. In Monk -v. continues with the full knowledge of the WHEN ACCEPTANCE OF A LETTER OF INTENT DOES NOT CREATE A CONTRACTUAL OBLIGATION It has been seen that. the resolution of outstanding matters will conclude the contract. In this case they had provided allowing the appellants’ appeal: Plaintiff was under an obligation to continue with the works and not to stop. and the Act. it is not to create legal and/or contractual relations. and limits necessary to examine the course of contractor or gave notice abandoning the sum to be spent and only drawing work dealing between the parties. in general. having started. construe the letter of 25 November 1998. for say drawing work. at the surrounding circumstances. etc. Uncontrolled Copy. This is likely to be a more certain method as the judgement in Comyn Ching -v- (3) The reason for the letter of 5 April Radius Plc (1997) CILL 1243 suggests: was that both parties considered that it ‘Very often. appointment are: By the time the defendants were able to it was brought into existence’ shows a very different approach to that used when construing a contract. The case of Hall &. relationship and/or a commitment to the LETTERS OF INTENT FOR THE WHOLE WORKS Because the letters of intent are intended to be an interim measure.000'. since there was no acceptance. accept your tender when all the document itself. it was unless the Defendant appointed another of intent is.Prudential Holborn Ltd (1994) 64 BLR 1 gives full details on the use of the phrase It was held that: ‘The Plaintiff had an option of whether to In the event they spent much more and were held to be entitled to be paid on a quantum ‘subject to contract’. The expenditure cap will probably be defeated if normally taken as meaning that whole of the envisaged work and subsequent instructions.’ aim. envisaged by the letter’. contractual’. it is absence of disagreement that enables a letter of intent if acted upon to be treated as a binding contract. judgement it appears that one of the factors is enhanced. and of what happened are met or decisions are made.Shaftesbury where it was common Contract and escrow agreement are to changed and the plaintiff sought to revise his ground that: be agreed as soon as practicable. and at what happened when ‘Your tender was the lowest received by necessary formalities have been The conditions attaching to your completed’. what is called a letter of intent is properly construed as a binding was time to put into place the contract to which the proposal of 3 March was agreement. is in fact done then the expenditure cap may mind that the phrase ‘subject to contract’ hold. start or not but. I believe that those words were 1612 was different in that it required the contractor to ‘commence the works’. When a purchaser under a letter of intent is . University of Wolverhampton. or as an offer capable of subject. in ‘So far as I am aware. and that the into a binding contract. and the terms of IFC 84 contract could act retrospectively. instructions and contract had retrospective effect to variations given before the contract is govern the relationship of the parties In Comyn Ching -v. which reflected the original design In settlement of their account Budge sent Turriff -v. remuneration for his performance’. ‘He accordingly held that a contract be a clear intention not to formulate a came into existence between the parties on 11 April 1960. although there was a failure of notice’ was nowhere to be found. 1243 it was held: under the contract once concluded. It was held: procedures of that form of contract then it is Licensed copy from CIS: wolverhamptonuni. that operated to the letter of the law which is order to make the contract commercially . on the terms set out by the defendants in will not change an informal arrangement their points of defence. Uncontrolled Copy. other than the formation of such a contract. contract with Budge and could therefore not (2j recover their money as a consequence. and set out in IFC 84’.Regalia can be regarded as a intent. Mr In Mifflin Construction Ltd -v. Justice Megaw saw no difficulty in the effect Stores Ltd 1993 ORB 66 the specialist of a contract being retrospective: contractor Mifflin had been issued a letter of One of the most commonly quoted cases. to the manner of acceptance. agreement. in fact. 7 . the damages for that breach are the sums for which the defendants are evidence is not challenged. on behalf of validity of the contract signed in April was the effect of the large number of variations the employer. he will receive a certain variations were not incorporated into the contract. such as the entering into a subcontract with a third party. binding contract. In paragraph 52 of his witness statement. there is no intent for structural steelwork. I do not accept that. such acceptance complying Mr Davis says were not operated. In this case connection with letters of intent is Turriff principle of English law which provides the intention was that Mifflin would Construction Ltd -v. This may not be true where the letter contract to do certain work ordered by receipt of a letter of intent in January 1959 and the signing of a contract in April 1960 of intent states that a specific course of SWEL. Unless otherwise agreed. the defendants plainly entered into a works done by the plaintiff between the intent. of on ‘if’ contract being where: ‘A requests B to carry out a certain performance and promises B that. it is in law a nullity’. intent constituted a contract under the terms of a certain standard form and it is likely that the supposed contract will be found not to exist. examination that the parties did not in III. was fact administer the contract in (3) accordonce with the provisions of IFC ad idem must not omit any term which. then made. and they also followed normal commercial practice to ‘get some money In Trollope & Colls Ltd and Holland & were done under the terms of that action is to be taken. to make a contract. he thereby Hannen and Cubitts Ltd -v. for example.000 from Mr Culverhouse together with the letter of intent. Mifflin the letter of intent in the following words. retrospective effect. 9 BLR 20. Mifflin never performance in return. then that clear intent will THE INCORPORATION OF EARLY INSTRUCTIONS work for the power station. for the carrying out not be destroyed by subsequent actions.Atomic Power The general rule is that a letter of intent places on the purchaser the obligation to entered into a contract on the terms of the letter of intent. defendant’s ‘fall back’ position cannot be Proposition 3 was satisfied if the terms of the Where o letter of intent is phrased so as to sustained either. if he does so. In Alldridge (Builders) Ltd been ad idem on all the terms which they ‘The fact remains that the forms were -v. a breach by the plaintiffs of their obligation under that contract to numerous provisions in the amended which indicated with sufficient clarity conclude a sub-contract with Budge by from of IFC 84 which the defendant asserts was intended to apply and which acceptance by the offeree of the offer as completing Section III of NAM/J. therefore. 2 & 4 to be satisfied. by the plaintiffs of the civil engineering The payment of money.Grantactual (1995) CILL 1225 it was then regarded as being required in order never completed and that the condition that a contract should come into of a sub-contract in form NAM/T Section found: ‘Mr Eastwick himself agreed in cross- at that date the parties must have existence. However. substantially prior to any performance by the supplier. The reason the plaintiff challenged the and the necessary instructions were issued by the contract administrator. The plaintiff sought payment for that work on a quantum meruit basis.Regalia Knitting Mills Ltd that a contract cannot in any eventually become a sub-contractor of the circumstances have retrospective effect. the He only found 1. 02/08/2015. That this should be so is surprising since in’ this case the letter of Budge were appointed as main contractors intent does not conform to the description of Lord Justice Neil in Monk -v. and was in fact essential to be agreed in that ‘the contract was never fully the condition which was to discharge the contract based on the letter of intent.Radius Plc {1997) CILL concluded and which would be allowable from the inception of the work’.000.claiming that the acceptance of the letter of whether the contract was binding: ‘(1) there must have been an intention It was held that Mifflin were in breach of by both parties continuing up to April contract in not having concluded a sub- demonstrated that he did not implement the 1960. Mr Justice Megaw stated that four Mifflin a cheque which was dishonoured special case in that the supplier requested propositions needed to be considered as to and Budge went into liquidation. which was to discharge the contract based on the letter of intent. This with any stipulation in the offer itself as Clearly. on the facts I have intent’ In my judgement. But I hold that they did not enter into any further legal obligation’. of the defendants accepted a cheque for SPECIAL CASES £15. usually concluded a sub-contract with Budge. the terms on which the parties were therefore never fulfilled.’ liable to the plaintiffs under the letter of failure was itself. He agreed that ‘an FC 84 letter of even though the parties did not realise it.Norwich Union or that. main contractor yet to be appointed. such as that had been carried out between the letter of intent and the contract’s execution. Despite meeting with Budge and agreeing outstanding matters. if it purports to have. then sought their money from the employer. Constructions Ltd 3AII ER 1962 1035 Mr Justice Megaw had to decide whether the pay the supplier for any work or service done in response to the issue of a letter of By accepting a cheque for £15. will ‘It is said that when Mr Dixon on behalf become instructions or variations under the contract. Mr Davis identified (4) there must be some manifestation found. even if were not incorporated info the contract between the parties’. University of Wolverhampton.Netto Food up front’ for the work they were carrying out. 84. These the programme of the works. perform in a reasonable time and be paid agreed and phases II. often The whole to be subject to agreement on considered to be cost plus profit or better. which were recorded in minutes of a SUMMARY meeting with Regalia: 'TTS requested on early letter of intent (1) Letters of intent do not normally create a from the client to cover Turriff Ltd for the contractual obligation. an acceptable contract. I am which he entered into’. Uncontrolled Copy. Drilling and Prospecting International Ltd. III and IV to be calculated on the same basis as Phase I and completed by 1972. Where further work is performed at offices and canteen facilities to be built in the behest of the purchaser and no formal four continuous phases. upon its receipt the offer was accepted and the ancillary contracts came into existence’. the effects of following words: ‘Dear Sirs.Licensed copy from CIS: wolverhamptonuni. a situation which will agreement on the land. they may be throwing away all the thought and care they believed they had The letter of intent was accepted as satisfying the request’. University of Wolverhampton.’ As Lord Justice Neill quoting from Goff J says: pay for work done in advance Mr Justice ‘It would be an extraordinary result if. The commencing date to be 1 August and the CONCLUSIONS terms of payment to be negotiated on a What are the effects of a letter of intent? In monthly form against bills of quantity supplied by Regalia’s surveyor. satisfied that he understood that they wanted an assurance that they would be It must be questioned as to how many paid even though the contracts were not purchasers. keen for their projects to get executed. the seller were to assume Despite Regalia not expressly undertaking to ‘The defendants made known to the plaintiffs that they required an indemnity an unlimited liability for continual performance. paraphrasing a comment in S N Ball’s article in The law Quarterly Review. 8 ORB BLR ClLL Official Referees Business Building Law Reports CLD Lloyds Rep ALLER Construction Law Digest Construction Industry Law Letter Lloyds Law Reports All England Law Reports . He has to perform only in a reasonable time and is entitled to a quantum meruit. full building and bye-law consent. stores. the Corby Development Corporation. On 17 concept of caveat emptor is very much alive June the letter of intent was sent. when he would never in respect of work done between them assume such liability under any contract and the execution of the contract. nor realising that in doing so The letter of intent was given. and the If no contract is concluded the supplier’s site investigation being undertaken by position at law at any rate is very strong. 2 June I969 it is the intention of Regalia to award a contract to Turriff to build a (4) A letter of intent may limit the work to be factory including production. 02/08/2015. lose much of the strength of his All this to be subject to obtaining negotiating position. Such a letter of intent if acted Such a letter of intent was provided in the once all outstanding matters are agreed or a formal contract executed. (3) Often the letter of intent will identify Effectively this was an offer to do work for matters to be agreed. or declare it to subject payment which would be regarded as accepted on receipt of a letter of intent. but are more often an intensive design work now commencing offer open for acceptance. under way. to contract. us as soon as possible’. by acting on the buyer’s request in such Fay found: circumstances. As agreed at our meeting of upon will only become a binding contract which will normally be retrospective. the supplier is to Phase I to be on a fixed price basis as on a quantum meruit basis. and for the essential orders on subcontractors necessary to meet a 38 week (2) Accepting the letter of intent may not phase one programme commencing effect a contract on the terms of a tender as early August The client confirmed that submitted for the work and subsequent his letter of intent would be forwarded to negotiations. the purchaser will if negotiations are not return for any early commencement of work concluded. contract comes into being. and leases with worsen with time. rush into a letter of intent appointment. would regard receipt of a letter of intent where letters of intent are concerned the as an acceptance of their offer. done. Unless the terms of that letter negated and kicking. acceptance of the offer. and the Judge held: ‘They (the plaintiffs) indicated that they incorporated into their contractual arrangements? Finally. Documents Similar To The Effects of Letters of IntentSkip carouselcarousel previouscarousel nextHr Policies and ProceduresFrank A. Galli, Una G. Galli, John D. Yeager, Elizabeth M. Yeager v. James T. Metz, Jr., Kathleen M. Metz, 973 F.2d 145, 2d Cir. (1992)HEA-080422-PS-GG00Peter Symmons &Amp Co v Cook - 80NJ2486 (Wooley v. 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