Dangers of starting work with only letter of intent
The defendant, M?ller, supplies dairy products. The claimant, RTS, supplies and installs machinery for packaging food products. M?ller selected RTS to supply it with a system to package yoghurt pots and it was agreed that RTS would start work under a letter of intent. The letter set out the full contract sum and it also stated that the final contract would be based on M?ller's amended form of MF/1. The letter was for a limited four-week period (initial period).?
The four-week deadline came and went. The letter of intent was not reissued. RTS continued to carry out the works. M?ller continued to pay RTS.? Then, in dispute, RTS refused to finish installing the equipment. M?ller refused to pay. RTS issued a claim against M?ller.
The Supreme Court decided, among other things, that:?
1.?the letter of intent had expired at the end of the initial period; and?
2.?the parties' conduct after the letter of intent had expired suggested that they intended to enter into a contract and it also amounted to a waiver of the "subject to contract" clause.?
On the facts, the Supreme Court therefore decided that the parties had entered into the full contract incorporating Muller's MF/1.
There is no substitution for parties setting down the agreed terms of a commercial endeavour in a formal written contract from the outset, or (failing that) as soon as is practicable thereafter bearing in mind that once work starts the incentive to formalise the contract can dissipate.
Case: RTS Flexible Systems v M?ller