A letter of intent generally means the intention from the writer to enter into a contract in future in other words an Interim agreement that summarizes the main points of a proposed deal. In the case of BBC & AC controls Limited, the defendant forwarded a document stating its intention to enter into a formal agreement, condition of the contract, the total agreed lump sum, a spending cap and duration of work. The defendant then agreed to the document by signing it and forwarded to BBC. Since both parties accepted to the document was constituted as a contract.
The claimant based on the document carried out initial works and sent an interim payment request to the consultant appointed by the defendant. Since BBC was not finalized with its decision over the design and materials, no formal contracts were made, and the dispute continued. But the claimant carried on with all the preliminary works.
The document which was signed by both partied does not include the phrasing “Letter of Intent” but then the parties referred the document to be the letter of intent. Since the document was called or treated by both the parties as letter of intent it gave rise to a binding contract. If both the parties agreed to the terms negotiated and singed to bring into effect it will be therefore constituted as a contract document and need not to be accepted.
In this case there was another letter of intent sent by the defendant stating to carry out the works and an increased spending cap. By the interpretation of the second letter which clearly phrased as “works” to be carried out. The work scope includes the design, procurement, installation and testing. Considering the language and intention of a letter of intent, the fact that the letter of interest must be taken into consideration. While drafting a letter of intent or a document, the use of phrases must be authenticated before signing.
if the parties indicated their agreement on the essential terms of the transaction and the matter of its subject, the purpose may be considered a control agreement. Parties may wish that the party’s purpose is legally controlled contracts. However, most transactions are not discussed until the draft of a full agreement, so the parties must be careful and use only legally binding letters. A letter of interest is useful because it usually catches many advantages as a contract drawer and retains the power to choose a party that is privileged. It should be taken into account that in this case, the defendant or the consultant did not a notification to the claimant when the works exceeded the spending cap.
The term means binding promise or obligation that comes from an agreement or contract by both the parties. On this case the letter of intent was a contract whose terms had been negotiated and which had been signed by both parties. On accepting/signing the document the claimant became contractually committed to perform the obligations imposed on it by the terms of the letter. But it also mentioned that the claimant can carry only limited works i.e., preliminary works and they cannot start the work until reaching into a formal contract agreement. If this fact is considered the claimant failed to perform their contractual obligation according to the contract terms which may be a breach of contract. Contract obligation usually depend on a particular subject of the contract. The claimant after not receiving the payments, stopped the work progress in a short notice. The Construction law states, the parties can suspend the performance if the notified payment has not been made. The contract document which is the letter of intent does not include the payment terms, but the letter of intent had a statement that during the course of drafting a formal agreement, the work executed shall be valued by the consultant and the payment will be made in accordance with the provisions of contract as set out in the invitation to tender document. When inviting tenders, a party may inadvertently create legal obligations. Since the tender bid was accepted by the defendant it formally became as a process contract, hence the clauses made in the tender documents should be taken into consideration.
The Court held that the spending cap on the contractor’s expenditure did not limit the defendant’s financial obligation as intended. Rather, the defendant had the right to terminate when the cap was reached. As the Defendant did not terminate, the claimant was entitled to continue with the works in excess of the cap and to be paid on a reasonable basis.
Law states in a contract to provide unpaid services, an obligation to pay a reasonable amount of money to the services requested by the defendant. If incase there is no contract quantum meruit operates within the law of unjust enrichment based on the following approaches.
· Whether the defendant is enriched?
· Was the enrichment at claimant’s expense?
· Whether the enrichment is unjust?
· Are there any defence available for the defendant?
In ACC v BBC case a legal contract has been made which is the letter of intent including the tender document clauses. Hence the ACC the claimant succeeded with a reasonable sum based on quantum meruit.
When there is an explicit contract for a particular condition and the terms of compensation for services, the claimant cannot suspend the work and resort to an action of quantum meruit. But if there is a total loss or failure in consideration the claimant has the right to seek the compensation.