Thought leadership from our experts

Important Lessons in Contract Formation from The Wolf: What Are Letters of Intent?

Many of you no doubt remember Harvey Keitel playing Winston "The Wolf" Wolfe in Pulp Fiction where he said to Vince, played by John Travolta, "If I'm curt with you it's because time is a factor. I think fast, I talk fast and I need you guys to act fast if you wanna get out of this." The courts in New York recently educated Mr Keitel about the risk of thinking, talking and acting fast when trying to enter into a binding contract. The lessons that can be discerned from Mr Keitel's lawsuit against the online broker E*Trade are important for aviation deal teams and their attorneys alike, including, as to whether and to what extent "non-binding term sheets," "binding term sheets" and "agreements to agree" have legal effect. The case also highlights the impact that e-mail has when courts grapple with the question of contract formation and how the parties' words and actions will be viewed in hindsight.

Before all of you commercial types turn to the next article, think about how often you exchange e-mails with potential counterparties about the terms of a "transaction" before signing a termsheet. This scenario is precisely the one that gave rise to Mr Keitel's claims against E*Trade.

Now many of you might also say "Why should I care about a New York court's decision on contract law?" As we all know, most contracts entered into throughout the world in connection with commercial aircraft choose either New York law or English law to govern any dispute that might arise between the parties. In addition, the law on this topic in other common law jurisdictions (such as in the United Kingdom) is similar to New York law, which can be viewed as guiding.1

Keitel v. E*Trade Financial Corp.

In January 2014, E*Trade established am abbreviated timeframe in which it asked its advertising agency to procure the services of Christopher Walken as a spokesman to record several commercials for television and radio on February 10, 2014. However, Mr Walken was not interested. The talent agency, also representing Mr Keitiel, suggested using him instead.

E*Trade's agent then sent an e-mail to Mr Keitel's agent, attaching a "non-binding Term Sheet." The term sheet contained language that "neither party shall be bound until the parties execute a more formal written agreement" and that everything would be "subject to good faith negotiations." The term sheet also identified several terms which needed to be addressed before an agreement could be finalized. If this was the end of the story, it is easy, no contract has been formed.

Now the trouble begins. E*Trade's still wanted Mr Walken, leading its agents to tell Mr Keitel's agent that no offer existed at that time. Upon approaching Mr Walken again, he again declined.

Time was now short and E*Trade's agent needed to "act fast" and thus went back to Mr Keitel's agent. The term sheet was sent again as an e-mail attachment, but this time the subject line was changed by replacing "non-binding" with "firm and binding." Similarly, the body of this e-mail read "Please consider the attached term sheet a firm and binding offer … contingent upon … of course coming to terms on scripts, compensation, etc."

That same day, through email, Mr Keitel's agent agreed to the offer for him. In doing so though the agent also asked for "the Long Form contract" and for additional information that Keitel considered important. Two days later, E*Trade opted to work with someone else and Mr Keitel sued claiming a contract had been formed and breached.

Was he right?

Both a New York trial court then appellate court held no contract was formed, thereby dismissing Mr Keitel's lawsuit. The courts articulated two reasons why no contract had been formed. First, they looked solely at the language of the term sheet itself. The version of the term sheet that E*Trade's e-mail had described as "firm and binding" still contained the statement that "neither party shall be bound" by it. The courts also relied on the fact that the "firm and binding" term sheet continued to have open material terms as to which no agreement had been reached. Accordingly, both New York courts held that E*Trade's offer was not "firm and binding" even though its agent described it as such in the cover e-mail. Accordingly, at best the parties had an "agreement to agree," requiring no more than the parties negotiate in good faith towards a binding, firm offer.

The courts also considered the actions of Mr Keitel's agent in allegedly accepting E*Trade's offer. Like the offer, the e-mail accepting it contained contradictory statements about whether there was unequivocal acceptance of E*Trade's offer, including asking for information about additional contract terms that Mr Keitel considered "very important." In light of these open issues, the courts decided that no meeting of the minds took place on all materials terms and therefore no contract existed despite that Mr Keitel's agent's e-mail began by stating that Mr Keitel "agreed" to do the commercials.

PMJ Capital v. PAF Capital

Mr Keitel's lawyers relied heavily on an earlier decision, known as PMJ Capital v. PAF Capital, in which the same appellate court reversed a lower court decision dismissing a complaint alleging breach of contract before an answer filed. This case, like Mr Keitel's, highlights the risks involved when one or both parties make contradictory statements or actions about whether a document is binding in the course of negotiating a transaction. PMJ Capital submitted a bid to PAF Capital to buy two loans. The bid stated that neither party would have any contractual obligation until a formal written agreement was executed and delivered by both sides. The bid went still further, stating that PMJ Capital "hereby agrees that neither this bid/proposal, nor any letters, communication, nor correspondence is intended to, nor shall it create, any binding obligation between" the parties. PAF Capital neither executed nor delivered the formal written contract but instead sold the loans to another entity.

So you might say, the bid form could not be clearer as to the parties' intention that it was never meant to be a binding agreement. Three of the five appellate judges in the PMJ Capital case looked beyond the language of the bid and looked at the actions of the parties post-bid. They pointed to the facts that (1) the parties had completed negotiations of all material terms, (2) PMJ Capital had executed the contract and paid a deposit, (3) PAF Capital's president responded via e-mail once PMJ Capital signed the contract that he intended to sign it once he received it, and (4) the deposit was held in escrow for two-weeks before being returned to PMJ Capital. The appellate court ruled that "based on the negotiation process that resulted in a written document containing all the agreed-upon terms, e-mail communications between the parties, and payment and retention of the down payment, it cannot be said, on a pre-answer motion to dismiss, that defendant gave forthright, reasonable signals that it intended only to be bound by a written agreement signed by both parties." The dissenting judges believed that the analysis should end with the language in PMJ Capital's bid. The reality of the PMJ Capital case is that the judges who examined the exact same record split as to whether contract formation was proveable despite unequivocal language to the contrary.

Lessons from these Cases

So what lessons exist in this for those of you negotiating term sheets/letters of intent? First and foremost, before communicating with your counterpart, decide whether you want the term sheet/letter of intent to be binding or not. Once you make that decision, be consistent in all your communication, especially correspondence, with the other side. In both of these cases it was the contradictory deeds and words that created the legal possibility for a dispute as to whether a contract was made. Finally, as you can see, in both cases, e-mail communication was a big part of the dispute. Most people, including some attorneys, treat e-mail like another form of oral communication. That is a mistake because unlike oral communication, e-mails create a record and can constitute the equivalent of a written document.

Like the Wolf, you might encounter a situation where time is a factor and you need to think fast and act fast. It can save you time and money later, however, to take a moment to decide whether you intend to be bound or not and then act accordingly in all your communication with the other side.


  1. The similarity between New York and English law on this topic was the subject of a discussion lead by John McCarthy at Smith, Gambrell’s 2017 Aviation Summit in Dublin. The video recording of the Summit is available on the Firm’s YouTube page and the discussion can be found in the segment “Impactful Aviation Cases across the Globe.” (https://youtu.be/Gt16ElHWhYU?t=8771).