Letters of Intent

carta de intenciones

 

In the negotiations of some significance, used the letters of intent as a preliminary stage before reaching the execution of the contract.

The letters of intent lack of regulation in Spanish law, since it is an imported figure of common law.

They are a manifestation of unilateral willingness to start negotiating a contract, in certain aspects described as their object or deadlines.

Distinction of similar figures

“Memoranda of understanding”: These go one step beyond the letter of intent and are private documents containing partial agreement on a future contract. Partial agreements are not considered sufficient for the perfection of the final contract and whose relationship is conditioned on the same firm: are subject to the condition consisting of signing the final contract.
Its usefulness lies in preventing and agreed to renegotiate aspects and provide proof whether to claim for unjustified breakdown of negotiations. The effects of memoranda of understanding are:
1.- Potential to cause pre-contractual liability or guilt in contrahendo.
2.- Binding agreements unless there is good cause.

Preliminary contract: is a contract whereby the parties agree to grant other contract: In this case, there is complete agreement to carry a projected contract and may demand perfection of it. With letter of intent, there is no such obligation.

Oferta contractual: The final contract offer, be accepted if it becomes a contract (art. 1.262 Civil Code). Collect the full content of all essential points of the contract, there is the intention to be bound if the other party accepts and if, does not require further negotiations.

The letters of intent are a starting point for further negotiations in which relevant aspects of the future contract provided (as the calendar, share costs, the obligation to negotiate in good faith, no negotiation with third parties or the duty of confidentiality). Some essential elements of the proposed procurement are still undetermined at this not just be set. But set out the rights and duties within the bargaining phase. Namely, letters of intent are valid contract that sets out obligations and rights enforceable by the parties under negotiation.

In the company acquisitions, the letters of intent is most frequently used in bilateral processes. While nothing prevents its use when the mechanism is by auction.

The usefulness of the letters of intent is basically to the following points:

1.- Avoids confusion with other similar institutions as the option to purchase or pre-contract: makes clear that it is a non-binding document on the proposed procurement.
2.- Forces follow rules during the negotiation as mentioned (good faith, time schedule, sharing of costs and expenses and other).
3.- Refine the terms of the pre-contractual liability, if necessary demand it.
4.- Can prove the existence of negotiations towards third (for example, financial institutions or public authorities).
Content

The letters of intent essentially containing the following:

1.- Identification of the contracting parties.
2.- Purpose of proposed procurement.
3.- Nature of the provisions, generally:
a) Not binding on the contract was projected.
b) Binding as to certain aspects as has been discussed.
4.- Exclusiveness.
5.- Notice.
6.- Pricing mechanisms.
7.- Damages for wrongful termination of negotiation.
8.- Jurisdiction applicable in case of conflict.

In summary, the letters of intent "Encarrilan" the negotiation process and can avoid wasting time and expense when it comes to business of some significance, as in the purchase or sale of businesses.

 

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