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Suppose Party A and Party B sign a letter of intent wherein Part A is selling its assets to Party B. Over time, they are working together to nail down all the details of the agreement in a full contract. But the letter of intent already defines everything both parties see as important at the time that letter is signed.

Because everyone knows that the sale is in progress, Part A is severely hampered in many ways; its employees start leaving, other potential buyers disappear. Since Party B wants to be purchasing an intact business, it starts supplying some staff to work at Party A's offices while the details of the contract are worked out.

Before long, Party A becomes completely dependent on Party B's offer. It is no longer in a condition where it could find another buyer for remotely the original price if Party B backed out.

At this point, Party B adds an extreme demand which was not contemplated in the letter of intent, which is very deleterious to Party A's interests. It won't back down; it demands this new stipulation or it will back out of the sale.

It seems to me that this situation is extremely abusive, and that it should be possible to successfully sue Party B for severely damaging the prospects for a satisfactory sale of Party A's assets. Party B seems to be operating in an extremely manipulative manner which shows bad faith.

Is there any case law that supports this view (or supports the opposite view)? Is there a specific legal principle in play here which has a name?

garyrob
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There is probably already a contract between the parties and contracts cannot be changed unilaterally. Party A can go to court either to seek specific performance of the contract or damages for breach.

See What is a contract and what is required for them to be valid? While a letter of intent is generally not enough to create a contract, the letter combined with the subsequent conduct of the parties suggests that one may exist.

Notwithstanding, A has a case in equity for promissory estoppel. B has allowed A to believe that the sale would proceed on certain terms and has stood by and watched (in some parts has actively participated) as A, in reliance on that belief, has taken actions deleterious to its interests. B must restore A to its previous position or follow through on its promises.

Dale M
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