Is Your Letter of Intent Binding? How Michigan Courts Decide

Before most business deals are signed, someone puts the outline on paper. It may be called a letter of intent, a memorandum of understanding, a term sheet, or just a “deal letter.” It usually lists the price and the main terms and says a fuller contract will follow. Then the question comes up, sometimes only after one side walks away: did that document commit anyone to anything?

Under Michigan law, the answer depends on what the document says and what the parties meant by it. A letter of intent can be a fully binding contract, a binding contract on a few points, or nothing more than a record of where the talks stood. This post explains how Michigan courts sort these documents out, and what you can do to make sure yours means what you intend.

In a recent post, we wrote about Branch Line School v. St. Andrew’s Episcopal Church, a 2025 Court of Appeals decision about a memorandum of understanding in a lease. That case is one example of the larger issue covered here.

Where these documents come up

Letters of intent and similar documents show up wherever a deal takes weeks or months to finish on paper:

• Commercial leases. A landlord and tenant may sign a letter of intent on rent, term, and build-out before the lease is drafted, or, as in Branch Line, a memorandum about a future extension.
• Buying or selling a business. Buyers and sellers often agree on price and structure in a letter of intent before due diligence (the buyer’s investigation of the business) and the final purchase agreement. Heritage Broadcasting, discussed below, involved a letter like this for the sale of two television stations.
• Supply and other commercial deals. Companies may sign a term sheet on pricing, volume, and length of the relationship before a full supply agreement. For sales of goods, Michigan’s version of the Uniform Commercial Code adds rules of its own, including a separate writing requirement (MCL 440.2201).

The cases discussed below come from a lease, a business sale, an arena project, and a physician recruitment, but the questions the courts asked are much the same.

The starting rule: a promise to make a contract can be a contract

It is common to hear that an “agreement to agree” is unenforceable. Michigan law does not treat it that simply. In Opdyke Investment Co. v. Norris Grain Co., 413 Mich 354 (1982), the owner of land near the Pontiac Silverdome sued the Detroit Red Wings and related companies after they abandoned a planned arena on that land in favor of what became Joe Louis Arena. The terms were in a letter of intent. The Michigan Supreme Court said that “[a] contract to make a subsequent contract is not per se unenforceable; in fact, it may be just as valid as any other contract.”

The same opinion explained where these agreements usually fail. Like any other contract, a contract to make a contract “can fail for indefiniteness” if it leaves out an essential term of the final deal. The Court of Appeals later put the rule this way: to be enforceable, a contract to enter into a future contract “must specify all its material and essential terms and leave none to be agreed upon as the result of future negotiations” (Heritage Broadcasting Co. v. Wilson Communications, Inc., 170 Mich App 812 (1988)).

So a court asks two related questions. Did the parties settle every essential term? And did they intend to be bound before the final contract was signed?

Two Michigan cases, two different results

A letter of intent that bound the seller

In Heritage Broadcasting, a buyer and a seller agreed on a $10.4 million price for two northern Michigan television stations and signed a letter of intent in November 1983. The letter said its terms would be “incorporated into a definitive agreement to be negotiated,” and it barred the seller from dealing with other buyers for 45 days. While lawyers worked on the definitive agreement, the seller ended the talks, saying the 45-day period had expired, and announced it would keep the stations.

The buyer sued, and the trial court ordered the seller to go through with the sale. The Court of Appeals affirmed. It agreed that no essential terms were left open: the letter identified the parties, the assets, the price, the payment schedule, the handling of accounts receivable, each side’s remedies on breach, and termination rights. The definitive agreement “would have added only the mechanics necessary to accomplish the conveyance.”

The seller also argued that the two sides had understood the letter differently. The court rejected that argument because evidence that one party “may have subjectively entertained a different interpretation” does not undo an agreement. What counts is the words the parties used and what they did.

Letters that never became a contract

Kamalnath v. Mercy Memorial Hospital Corp., 194 Mich App 543 (1992), went the other way. A hospital recruiting a physician to run a new clinic sent her a letter offering a one-year salary guarantee, an office, a line of credit, and relocation costs. She asked for changes, including a three-year term. The hospital sent a second letter with revisions and later several draft contracts, but she found none of them acceptable. She moved and began working at the clinic anyway, without a signed contract.

When the relationship ended and she sued for breach of contract, the Court of Appeals held that there was no contract to breach. “The parties had exchanged a series of offers and counteroffers, not an offer and an acceptance,” and important differences remained on basic duties, such as who would pay certain major expenses. The court added that “[m]ere discussions and negotiation, including unaccepted offers, cannot be a substitute for the formal requirements of a contract.”

What Michigan courts look at

The words and conduct, not private intentions

Michigan uses an objective test. “A meeting of the minds is judged by an objective standard, looking to the express words of the parties and their visible acts, not their subjective states of mind” (Kamalnath, 194 Mich App at 548). A party who privately thought a letter was only a starting point may still be bound if the letter and the party’s conduct said otherwise.

Whether anything essential was left for later

Open terms do not automatically defeat a deal, but open essential terms usually do. In Heritage Broadcasting, the open items were paperwork. In Kamalnath, the parties still disagreed about who would pay major expenses.

In Opdyke, the Supreme Court said that leaving matters “to be negotiated in the future is some evidence” that a letter was not meant to be binding, and that “tentative language” might show “mere expectations or intentions rather than contractual promises.” But the Court also warned against assuming that a document is not a contract just because it looks incomplete.

Whether the parties meant to be bound only by a formal final document “is a question of fact, not a question of law.” In Opdyke, the letter was “not free from ambiguity” and the evidence pointed both ways, so the Court held that the judge could not decide the question before trial. When the words are clear and the evidence does not genuinely conflict, a court can decide it without a trial, as the Court of Appeals did in Kamalnath.

Changes between drafts

In Opdyke, an earlier letter of intent between the parties said that neither side would be liable to the other for costs incurred in pursuing the deal. That sentence was missing from the later letter of intent. The Supreme Court said the deletion “suggests at least an inference” that the parties did intend to be liable this time. The Court did not decide that the later letter was binding; it sent the case back for a factfinder to decide. The point for anyone drafting is that a court may compare drafts, so what you take out can matter as much as what you put in.

What the document actually promises

Even a binding document only requires what it says. In Branch Line, a memorandum of understanding said the landlord and tenant “will engage in negotiations to extend the lease.” The Court of Appeals held that, even assuming the memorandum was binding, it required negotiation, not an extension, and the landlord had negotiated. The decision is unpublished, so it is persuasive rather than binding on other courts.

Many letters of intent are binding in part

A letter of intent does not have to be all binding or all nonbinding. In practice, many say that the deal terms are not binding until a final contract is signed, while making a few promises binding right away. Common examples include:

• Exclusivity, sometimes called a “no-shop” clause, which bars the seller from negotiating with anyone else for a set period. The Heritage Broadcasting letter had one, and the parties later disputed what happened when its 45 days ran out.
• Confidentiality of the information the parties share during due diligence.
• Who pays the costs of the negotiations if the deal falls through.
• A promise to negotiate toward a final agreement, sometimes in good faith. A promise to negotiate is not a promise to agree, and the Branch Line opinion did not address what good-faith negotiation requires.
• An end date, after which the letter expires if no final contract is signed.

Whether each provision binds anyone depends on its own wording, so it pays to state plainly which parts are binding and which are not.

Signed writings and the statute of frauds

Some agreements ordinarily must be evidenced by a signed writing to be enforced. Michigan’s statute of frauds covers, among other things, a lease of land for more than one year and a sale of land or an interest in land (MCL 566.108), as well as an agreement that by its terms cannot be performed within one year (MCL 566.132(1)(a)).

A letter of intent can cut either way here. In Opdyke, the Supreme Court held that the letter of intent was sufficiently specific to satisfy the applicable statutes of frauds. Whether the Red Wings side had signed or otherwise accepted it remained disputed. In Kamalnath, the physician’s claim to a three-year deal failed in part because the only signed document mentioning three years was a letter of proposed revisions, not a contract.

When there is no contract, a party sometimes argues promissory estoppel, which can enforce a clear promise that the other side reasonably relied on. Opdyke allowed that claim to go forward. In Branch Line, it failed because no one had promised an extension. It is a fallback, not a substitute for clear drafting.

Drafting a letter of intent that says what you mean

These are general practices the cases illustrate, not rules from any one decision:

• Decide first whether you want to be bound. If the document is a roadmap for negotiations, say so plainly. If it is the deal, include every essential term and say that it is binding.
• Label each provision. If exclusivity, confidentiality, or expense terms are meant to bind while the rest does not, state that provision by provision.
• Do not rely on the title. Both Opdyke and Heritage Broadcasting involved documents called letters of intent, and the courts looked past the label to what the documents said.
• Read promises about the future word for word. “Will negotiate,” “will agree,” and “will sign” are different promises.
• Watch your conduct. Under the objective test, what you do during and after negotiations can be evidence of what you meant. Starting work, as in Kamalnath, or spending money before the final contract is signed carries risk if the deal collapses.
• Set deadlines and say what happens when they pass. An end date avoids an argument later about whether the letter is still in force.
• Compare drafts before you sign. A sentence deleted from an earlier version may be read as a choice.

Frequently asked questions

Is a letter of intent legally binding in Michigan?

It can be. Michigan courts look at the words of the letter and the parties’ conduct. A letter that settles every essential term and shows an intent to be bound can be enforced as a contract, as in Heritage Broadcasting. One that leaves essential terms open, or only records an exchange of proposals, generally is not, as in Kamalnath.

Can a letter of intent be binding if it says a final agreement will follow?

Yes. The letter in Heritage Broadcasting said its terms would be incorporated into a definitive agreement, and the Court of Appeals still enforced it because no essential terms were left open. Saying a later contract is expected is some evidence against an intent to be bound, but it does not settle the question by itself.

Is there a legal difference between a letter of intent and a memorandum of understanding?

Not by name alone. Whatever the document is called, the questions are what it says, whether its essential terms are settled, and whether the parties intended to be bound.

If a document only says we will negotiate, do we have to reach a deal?

Not if the document only requires negotiation. In Branch Line, the Court of Appeals held that a promise to “engage in negotiations” to extend a lease required the parties to negotiate, not to agree, and the landlord met that obligation. The decision is unpublished and did not address what good-faith negotiation would require.

Related reading: how a contract lawyer can review a letter of intent or term sheet before you sign, the Michigan lease case where a promise to negotiate was not a promise to renew, what a buy-sell agreement should cover, and working with a Grand Blanc business lawyer.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. The law may change, and the outcome of any case depends on its specific facts; confirm the current law and consult a qualified attorney before acting. This content may also be considered attorney advertising.