Letters of Intent and Other Formal Preliminary Agreements

This lesson looks at formal preliminary agreements, often titled letters of intent or memorandums of understanding.

Often parties sign a formal preliminary agreement at the beginning of negotiations without the intention of being bound to the transaction as a whole prior to the completion of a formal agreement. However, the formal preliminary agreement may bind the parties to negotiate in good faith and to other obligations related to the transaction. This lesson can be worked as an introduction to letters of intent or as a review. However, prior to working this lesson, you should have an understanding of offer, acceptance and mutual assent.

Learning Outcomes

On completion of the lesson, the student will be able to:

1. Explain the concept of "preliminary agreement."
2. Analyze the language of a preliminary agreement to determine the extent to which each party has made a commitment.
3. Determine when the parties to a preliminary agreement may have an obligation to negotiate in good faith.