Oregon Court of Appeals finds that letter of intent has teeth

In business transactions, the parties may enter into a letter of intent to negotiate further.  If no final contract results after further negotiations, the parties often have no recourse against each other.  However, the Oregon Court of Appeals recently enforced a letter of intent and awarded damages to the buyer caused by the loss of the deal.  In Logan v. Sivers Co., C-31283CV (August 2, 2006), the parties entered into a letter of intent to negotiate the sale of commercial real estate.  The letter of intent included a term, referred to as a "non-shop" provision, that prohibited the seller from soliciting offers or a contract to sell the property for a period of 60 days.  Twenty-one days after the parties entered into the letter of intent, the seller entered into a sales agreement with a third party to sell the property and the first buyer sued.  The seller countered by arguing that the letter of intent was unenforceable as merely an "agreement to agree."   

While the Oregon Court of Appeals acknowledged that certain terms in the letter were too indefinite to be enforceable, it found that the non-shop provision was sufficiently definite and the parties manifested their intent to be bound by it.  Accordingly, the court held that the seller breached the non-shop provision and turned to the issue of whether plaintiff was entitled to damages.  Plaintiff had attempted to purchase the property for purposes of a 1031 like kind exchange to avoid tax liability from her prior sale of other commercial property.  She sought damages in the amount of her tax liability as result of losing the purchase.  Although the seller argued that such damages were consequential losses that were not reasonable foreseeable, the jury found that the damages were foreseeable and the court of appeals held that the verdict was supported by the evidence.  Consequently, the court awarded the damages amounting to plaintiff's tax liability.