LOI's are the legal equivalent of "almost pregnant." Letters of Intent emphatically state that. They state that they are not formal agreements, and then often proceed to set forth agreed terms of the proposed transaction. Given this paradox, if the deal goes sour, one party can argue [in court] that those agreed_upon points were, in fact, agreed upon _ or, in fact, a binding contract. And, in some cases, furthermore, that the party relied on the LOI and has monetary damages based on such reliance."
In the business world letters of intent are often used to prove to potential investors that a potential deal or merger may take place. Without such proof, investors may not be so willing to loan out the much needed money. While letters of intent are common in the business world there are also other instances where letters of intent are used.