A few months ago, I discussed the reasons why I wasn’t in favor of letters of intent. They’re simply poorly written contracts – and in most cases, they’re going to not cover the issue that causes a dispute over the relationship.
Consider the case of Alfred West vs IDT. I trust that you can read the details, but the high-level on this is that West and IDT signed a two-page, handwritten contract (which, much to my amusement, contained the phrase “this is binding”) to the tune of several million dollars.
You know what’s going to happen – and sho’ nuff. IDT terminated the relationship with West, West sued to enforce the contract. As of today, the latest verdict gives him $10.5 million.
Folks: Please do NOT sign letters of intent, term sheets or anything else that is NOT a full-blown agreement. If you feel the need to do something like one of these documents (or you’re forced to by your business folks), please take these additional steps:
1. State on the document that it’s NOT binding until a full agreement is later executed by both parties.
2. Include “time-bomb” language that terminates the agreement in a very short window (so that even if it’s later determined to be a contract by a court of law, it will have expired).
3. Try one more time to NOT do the letter of intent and push harder for completion of a full contract. Show your business folks this post and explain the pitfalls of half-baked agreements.