Saturday, January 03, 2009

Discussion on Binding Letters of Intent

Discussion on Binding Letters of Intent

The binding letter of intent might be the one A used as evidence of non-compliance if B orally rejects the content of the letter as being non-contractual. In the cases of many Asian nations MOUs are often made as a form of opening to negotiations which are not seen as contracts but more as inter-state policy recommendations up for discussion and negotiation.

Is it good faith to repudiate the contractual terms setting which a binding letter of intent might have? The Canada - Korea FTA is a good example. MOUs have been on the books for nearly a decade or more and little progress has been made towards a negotiated agreement. Neither party appears ready or willing to sign an agreement or cry breach of faith.

"Rethinking and Re-energizing the Canada-South Korea Relationship" (Asia Pacific Foundation)

If the binding letter of intent includes securing shared financing then contingencies regarding money and deadlines on formal proposals would imply contractual obligations. With expense of venture capital, divulging confidential information and or moral/legal obligations then the binding letter of intent appears contractual in nature. If progressive negotiations have an agreed time frame and progressive requirements to a firm deadline then the binding letter of intent again appears contractual.

At the outset both parties would have needed to agree to legally enforcable terms for this binding letter of intent to be seen as a contract. To jump to non-contractual obligation then terms such as "non-binding letter of intent", or "does not constitute legally binding agreement" would need to be included.

Binding letters of intent are essential tools in international trade and should not be entered lightly. While intent could cause confusion, agreeing to the terms of the intent should provide plenty of opportunities to prove good faith and honesty.

While my employer does not utilize letters of intent directly with me it probably does in negotiating its offshore campuses in China and exchange student programs in the Philippines and China or Russia as these are small but growing facets of the university's long-term plans.

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