Letters of intent and preliminary term sheets are often some of the first documents signed in business transactions or in anticipation of a more formal contract. If a deal falls through after a letter of intent and/or term sheet are signed, what is the legal effect of those documents? Are they binding contracts which require you or the other party/parties to perform?
The answer is that it will depend on the language of the documents and potentially the conduct of the parties. Under Missouri law, mutuality of agreement and certainty as to the essential terms are required to form a contract. Fiegner v. Freeman-Oak Hill Health Sys., 996 S.W.2d 767, 771 (Mo. Ct. App. 1999). A mutual agreement is reached when the “minds of the contracting parties meet upon and assent to the same thing in the same sense at the same time.”Kunzie v. Jack-in-the Box, Inc., 330 S.W.3d 475, 483 (Mo. Ct. App. 2010). “A meeting of the minds occurs when there is a definite offer and an unequivocal acceptance.” Id. at 484 . An acceptance must be “positive and unambiguous.” Id. A mere agreement to agree in the future and to work out future, material terms does not form a final contract.
It is paramount to closely review any “preliminary” business documents you are signing to determine whether or not they will bind you to proceed in a certain way. In serious situations, you may be sued for breach of contract for canceling the transaction because you legally had no right to do so.