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Are Verbal Agreements and Letters of Intent Binding?
The sale or purchase of a business or its shares in a tough economy:
In this growing tough economy your clients may be tempted to enter into verbal agreements or a short letter of intent to either buy or sell a business
or its shares.
There is a general view amongst clients that letters of intent and verbal agreements are unenforceable. What your clients need to know is that this is
not necessarily true. The courts have enforced verbal agreements and letters of intent, including those for the sale and purchase of a business or
its shares.
Several recent Ontario Cases have found the words and actions of the parties created binding agreements even in complex transactions
involving the purchase and sale of a business. In these cases, while the parties were to execute formal agreements prior to closing, the courts
found the formal agreements were a mere formality in the implementation of an already binding agreement.
A letter of intent can serve a useful purpose and not bind the parties until a formal agreement is signed, provided that it is drafted properly and
clearly states that the parties do not intend to create a binding agreement.
When I can be of help to your clients in the sale or purchase of a business or it's shares, or drafting a letter of intent, call me. I would be happy to
work together with you to get things done.
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