What is a Letter of Intent?

The Positives and Negatives of These Legal Documents in Hawaii

In Hawaii parties often sign documents entitled “Letter of Intent” or “Memorandum of Understanding” or “Agreement in Principle” or “Term Sheet”. The supposed justification for signing such a document are:

  • It is shorter and more informal and so it can be quickly drafted;
  • It allows the parties to quickly document the major points while leaving it for the attorneys to later prepare the formal agreement;
  • It allows the parties to negotiate later the other details;
  • It “legitimizes” the deal by having parties sign a formal document and gives everyone something to hold after the meeting; and
  • It makes the parties negotiate the final agreement because they feel progress had been made.

The Good and the Bad of Letters of Intent

These benefits are for both “nonbinding” and “binding” letters of intent. The negatives though may outweigh the positives, even if this were clearly a nonbinding agreement.

  • A court may decide the letter of intent was binding even though the parties did not intend it that way;
  • A party may just use the “nonbinding” letter of intent to shop around the deal to see if others will give them a better offer.
  • A court may hold you in violation of the obligation of good faith and fair dealing if you do not finalize the full agreement, even if the letter of intent was nonbinding.

Some parties may want to create a hybrid letter of intent so as to have binding provisions and nonbinding provisions. The binding provisions could include confidentiality and exclusivity (sometimes called a “No Shop” clause), things you might have dealt with in a Hawaii Confidentiality and Non-Disclosure Agreement.

Why Solid Legal Guidance is Needed

In summary, the Hawaii letter of intent is a document that must be handled with care as it can result in severe unintended consequences to you. Spend the money hiring an attorney at the start so as to avoid hiring an attorney at the end when things go badly.

Thus, meet with us so that we can determine what your goals are so that we can tailor your documents based on the adverse party. Once we have a game plan as to what would work the best you can then put into motion the most logical method to achieve your objective. Contact us today for a consultation. We can guide you with sound legal advice from our years of experience.

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