Is a Letter of Intent (or Memorandum of Understanding) binding?

Business and commercial transactions usually include a Letter of Intent (“LOI”), Term Sheet, or Memorandum of Understanding (“MOU”) during the early stages of negotiation.  The parties usually understand that the LOI (or MOU) outlines the fundamental terms of the transaction and typically includes an “agreement to agree” to a more formal, final agreement at a future date.  The question often arises despite these general, mutual understandings: in South Carolina, is a Letter of Intent or Memorandum of Understanding legally binding?

In general, the law in South Carolina encourages parties to negotiate freely without the fear of exposing themselves to liability prematurely.  If the terms of the alleged agreement are indefinite or subject to future negotiation, the LOI or MOU would not be binding. Simply put, an agreement to agree does not amount to a legally binding contract in South Carolina.

Of course, there are always exceptions. Suppose there is a dispute over whether an LOI or MOU is binding. In that case, the court will consider several factors, including, most importantly, the parties’ intent as determined by each case’s facts and circumstances.  (For example, has either party expressly indicated it would only be bound by a written instrument? Are the material and essential terms included in the LOI or MOU with reasonable certainty, or are those terms still subject to negotiation by the parties? Has there been a mutual meeting of the minds?).

While Letters of Intent, Term Sheets, and Memoranda of Understanding may be seemingly straightforward, these gray areas may be a good reason to consult with an experienced business attorney before you sign an agreement to agree!