Breach Of Preliminary Agreement

If the parties do not intend to make a pre-agreement mandatory, the following points should be taken into account: even if the pre-agreement is binding, it does not create rights such as those provided for in the main contract, such as. B property rights. Therefore, it is not possible, for example, to resell an object of a pre-agreement on the sale of the object in question. The “risk rule”. Venture included the proposed acquisition of certain assets of Zenith Data Systems Corporation by Venture Associates Corporation. Venture sent a letter to Zenith proposing the terms of the acquisition. The letter stated that this was not a binding obligation for one of the parties, but merely a “letter of intent” subject to the performance of a final sales contract, with the exception of one paragraph of the stimulus letter that the parties agreed to negotiate in good faith the conclusion of a definitive sales contract, and that until the performance of a final sales contract, the seller would not negotiate with other companies. The seller responded to the letter, agreed to negotiate the sale of the business and accepted the principle of the terms proposed by the buyer. The seventh circle noted that the exchange of letters “established a binding agreement to negotiate in good faith the conclusion of a contract of sale.” The scope of the “risk rule” is limited. Although the company`s case creates uncertainty, parties who violate case law resort to case law that rejects the idea that the “benefit of the agreement” or the reimbursement of damages in advance are expressly available for the violation of binding provisions of non-binding preliminary agreements. Second, only damages that can be proven with sufficient certainty are eligible. Damage cannot be due to speculation and assumptions.

Two layers of speculation in each claim for damages based on the breach of a binding provision in a non-binding memorandum of understanding: first, because the parties have never agreed to be bound, it cannot be established without recourse to speculation and presumptions that a final agreement would have been reached without the infringement; and, secondly, because the declaration of intent did not set natural conditions, it cannot be determined without resorting to speculation and suppositions, what would have been the final terms of the agreement. Although this justification appears in some court reports, it appears to be only a small part of the explanation for the existence and application of bona foi bargaining obligations. The parties opt for a standard such as good faith, as it can cover a large number of other measures and objectives. If protecting trusted investments had been the only objective, simpler methods could protect trusted spending: for example, a simple promise to reimburse adequate expenses if negotiations are successful. We also find that the courts are prepared to enforce the duty of good faith with expectation – and not just with confidence – if the plaintiff demonstrates that a contract would have been entered into if the defendant had acted in good faith. In addition, the facts of many court cases reflect the fact that the parties agree to negotiate in good faith, even if the investments expected under the pre-agreement are small. The existence of other objectives is reflected in several facts and characteristics of the case-law and can be explained by analysing the parties` motivation for conducting their negotiations. Preliminary agreements are, in principle, binding, even in the event of a substantial change in circumstances.

First, the rule of Hadley v. Baxendale, 9 exch. 341, 156. Rep. 145 (1854), requires that the contractual damages be the “natural and necessary consequence” of the infringement and that at the time of the conclusion of the contract they were in the consideration of the parties. If the parties expressly refuse any intention to be bound by the material terms set out in an interim agreement, this goes against Hadley and goes against the logic that the non-injuring party`s damages at the time of the conclusion of the contract were in the parties` view, given that this is the same compensation that would be available for breach of the concluded contract. . . .