Letter of intent

As a Memorandum of Understanding ( also agreement in principle or English letter of intent ) are understood in the legal system some more or less legally binding unilateral declarations of a negotiating partner that will express interest in negotiations or at the conclusion of a contract.

General

In particular, in the run-up to complex corporate acquisitions, major IT projects, or other time-consuming transactions represent the potential contractors often called the " Letter of Intent" from. Prior to the start or during the ongoing negotiations hereby mutual seriousness of the talks and the will to be documented to conclude a corresponding agreement. Under no circumstances should a claim of intent to enter into the proposed contract justify, from the potentially gives rise to a liability for damages. Rather, each time breaking off the negotiations without giving reasons remain possible. To ensure this, the statements must be formulated to arise about the scope of a declaration and in the judicial interpretation no doubt in any litigation.

Species

Under the heading of the letter of intent with which an Explanatory tells his action goals or plans, there are various institutionalized forms. Common goal is to limit the bargaining power and the channeling of the negotiating process. In the literature it is "soft" and distinguished between a "hard" Letter of Intent ( LoI ), a Memorandum of Understanding or negotiated agreements (Instruction to Proceed ). The " soft" comfort letter is an institutionalized form under the Memorandum of Understanding. Declarations of intent are one-sided, receiving needy declarations of intent. They usually represent neither an offer to enter into a main contract or the conclusion of a preliminary dar.

Soft LoI

A "soft" LoI is a non-binding memorandum of understanding, which merely confirms that the parties to the LoI are in contract negotiations. It can be written as a unilateral statement that reflects a determination of the bargaining position of the exhibitor. In practice, the LoI is often used as both parties to be signed document. You should make clear the status of the negotiations and their seriousness, but are not legally binding, so that a claim for completion of the intended contract does not exist. Nevertheless, the otherwise non-binding LoI contain any provision as exclusivity clauses and confidentiality agreements, which are very probably authentic for the agreed duration.

In this form, the LoI is a non-binding letter of intent yet not have any legally binding effect; the legal consequence will is lacking. Therefore, the LoI the potential buyer not force later actually complete the purchase contract. Yet nevertheless can be connected to a LoI already secondary duties. When the LoI established a statutory obligation under § 311 § 2 in this case, the general principles to be applied to the trust liability.

The "soft" LoI is subject to the provisions of § 311 Section 2 No. 3 BGB. " Similar business contacts " are those which are not aimed at the immediate conclusion of the contract, but this only prepare. Under these facts fall of the "soft" LoI. Even with a " soft" LoI can 241 paragraph 2 BGB arise a duty of protection within the meaning des §. It is the duty to act in execution of the contract so that the body, life, property, and other legal interests of the other part are not violated. If a party to an issued a letter of intent, although she was sure already at the time of submission of the declaration that they do not want to complete the intended contract, a breach of duty is protection under § 241 paragraph 2 BGB before. The sender of the LoI commits a breach of duty if he can fail arbitrarily the contract and therefore violated unused by the recipient trust. In this case, he shall compensate the beneficiary the trust damage, so the damage that is incurred by the beneficiary in that it has relied on the conclusion of the main contract.

Is the LoI taken concrete and contains some legally binding declarations, there is a "hard" LoI. However, these statements must be limited to essential elements of the contract ( purchase item, purchase price ) relate. This includes not binding side agreements such as the confidentiality clause that already "soft" in a LoI are binding. A "hard" LoI is not a pre-contract, but the parties have obligations ( § § 311 Section 2 No. 1 in conjunction with § 241 paragraph 2 BGB). These include the duties of protection and, in particular due diligence ( breakdown of contractual negotiations, breach of duty of disclosure ).

Memorandum of Understanding

If a Memorandum of Understanding between several negotiators issued and signed, one also speaks of a " Memorandum of Understanding" ( MoU), a term used in the U.S. legal system. There also is a declaration of intent for which the same principles as apply to the LoI. In practice, the terms are sometimes used interchangeably. As the document is titled, is legally irrelevant. The decisive factor is the content design, stating that it is a non-binding letter of intent - ie around a LoI or MoU.

Preliminary

Even the "hard" LoI is not classified as preliminary. The preliminary contract is indeed not regulated by law, but is it a contractual legal agreement, which establishes the obligation for future completion of a major contract. A preliminary thus obliges the parties to conclude the main contract. In a preliminary contract the essential elements of the contract of the later main contract are included. The execution of the main contract is enforceable in this case, in contrast to the LoI or MoU. The conclusion of a preliminary contract is advisable, for example, if the main contract nor practical or legal impediments exist (eg building permit ). The obligation to conclude the main contract may be made in such a case in the pre-contract under the condition that a certain event occurs or the obstacle falls away. A preliminary agreement can also be designed so that only one party is bound, however, the other assumes no duty to conclude a contract.

Interpretation

If, for litigation, the courts ( § 157 BGB § § 133, ) as to the interpretation of the Declaration of content due to the rules of interpretation committed. It must be determined by interpretation, whether actually a bond was intentional or whether only a letter of intent was issued. The "soft" LoI not have any legally binding effect, he does not create any obligation to conclude a contract. Single points as preliminary agreements basically have no binding effect ( § 154 para 1 BGB). The clearest are clauses that indicate the missing binding will ( "no binding clause" ). Make clear that the LoI does not contain a binding agreement or commitment to conclude the contract in regard to the desired conclusion. Lack of Assertiveness, linguistic relativizations or incomplete agreement indicate the lack of performance bond. Do these observations, the self-referential statement that an obligation is not to be justified, are non-binding letters of intent.

Contents of a letter of intent

Although the intent is usually not legally binding, but is intended to emphasize the moral and psychological significance of the transaction and may include the following points, for example in the area of ​​corporate acquisition:

• Name of contractor
• Expression of interest in carrying out the transaction referred
• Summary of recent discussion results
• Concretization of the transaction project
• Schedule ( the due diligence )
• Power of attorney in favor of the sale ( eg as part of a due diligence) tested party
• Limits, conditions and reservations
• Confidentiality obligation with respect to the information received, specifying exceptions, if necessary penalties for infringement ( penalty )
• Surrender or destruction claim of surviving documents
• Note the lack of binding effect of the LoI
• Grounds for termination of the ongoing negotiations
• Reimbursement of expenses rules
• Exclusivity clause