![]() ![]() For ascertaining the enforceability of the MoU, the intention of parties is to be seen through the clauses of the MoU. v Vinod Kumar Alag (1991), it was held by the Delhi High Court that the legality of the MoU would depend on the contents and nature of the agreement. (2006), it was held by the Honorable Supreme Court that if the conditions to the MoU are otherwise acted upon, the parties to the MoU are entitled to get the benefit out of the MoU. If any party suffers loss because the other party refuses the acceptance of the MoU, the aggrieved party is entitled to recover damages. The MoU is not legally binding but the parties are bound by estoppel. The memorandum of understanding is a more formal document than any verbal proposal but less formal than the final contract. It can be said that this document lays the foundation for a future contract. ![]() Before signing the memorandum, both the parties should have discussed all the major aspects of the agreement and both the parties stand on the same footing regarding the contract. Limits the scope of a better deal- While preparing the letter of intent, all the essential terms of the contract are already decided, and parties have to work on the pre-decided terms only that do not leaves much scope of variation in the future Thus, the chances of negotiating a better deal are lost by the parties.Ī Memorandum of Understanding (MoU) is a document between two or more parties that enumerates the details and instructions of the contract that they wish to enter in the future.Thus, imposing unnecessary liability on the parties. A liability for the parties- In some cases, even though the parties did not intend the letter to be binding yet because of wrongful drafting, the letter of intent becomes binding and the transaction takes place against the interests of the parties.This ensures the protection of the interests of all the parties involved. And generally, it is observed that the negotiating parties do not indulge in the negotiation of the same contract with other parties. Protection of interest- It gives certain security to the parties and hence big projects like mergers or joint ventures can be announced publicly, before entering into the contract.This mutual trust will make the transaction process more smooth. Establishment of trust and confidence- Ordinarily, the terms and conditions of the letter of intent are not binding, but deciding the particular matters and the intention of parties to enter into an agreement, builds trust and confidence between them.One can prepare the essentials of the contract based on the letter of intent because all the deal-breaking points are already discussed and clearly laid down. Guide to the deal- As all the major pointers of the deal are already drafted, it acts as a guiding principle to the final agreement.This ‘cutting to the chase’ method is effective as well as convenient. It also aids in ruling out any existing or potential misunderstandings before the parties get legally bound to the agreement. Deciding material terms of the deal – It helps to ponder over broad strokes of the contract before delving into finer points which ensures that the parties are on the same page from the beginning.Budget and financial aspects of the transaction.The letter of Intent is generally written in the format of a formal letter and primarily includes the following contents: These do not lead to any kind of legal relationship between the parties. Ltd (1996), the Honorable Supreme Court held that the letter of intent only indicates the willingness and intention of the party to enter into the contract. In the case of Rajasthan Co-op Dairy Federation Ltd versus Mahalaxmi Migrate Marketing Service Pvt. It is also referred to as a ‘letter of inquiry’ or a ‘concept paper’. It also prescribes the tasks or procedures that are to be followed by the parties, till the time the final agreement is entered into. The letter outlines the material terms of the prospective deal which are negotiable and can be altered accordingly while entering into the final contract. Letter of intentĪ letter of intent is a formal letter or a document, sent by one party to another, that elucidates the intention of entering into a contract in the future. The whole concept of these three instruments is discussed in the article. These terms are used synonymously by people on an everyday basis but these terms vary based on their usage and objective. The commercial transactions revolve around a letter of intent, a memorandum of understanding, and contracts. Differences between the letter of intent, memorandum of understanding, and contract.The contract entered should not be expressly void.Essential elements for the valid contract. ![]()
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