There is a common misconception that declarations of intent are always non-binding. Declarations of intent can indeed be binding, non-binding or partially binding and partly non-binding, depending on the intention of the parties and the exact wording of the letter of intent. But uncertainty is rarely a good thing in the context of legal documents, and a poorly worded letter of intent with binding provisions has the potential to sue signatories in court if the proposed substantive agreements are never signed. It may also prevent you from raising and negotiating new items that were not included in the Letter of Intent. For a MoU to be legally binding and enforceable, attention should be paid to the wording of the MoU when the general interpretative act enters into force. For example, the use of “shall” instead of “may”, “OR “should be” instead of “might be”, etc.; that is, terms that represent a binding nature and intention and not at will. If an offer, acceptance and consideration have been exchanged instead of the Memorandum of Understanding and are expressly mentioned in this Memorandum of Understanding, they shall also be considered a valid contract in the eyes of the law. It is important to note that although memoranda of understanding are considered non-legally binding, they may contain clauses that may make them legally binding, such as: Although a letter of intent is an official document, it is generally not legally binding. Rather, the letter of intent is used to demonstrate each party`s willingness to take all necessary steps to advance a treaty. The MoU also sets out the objectives and scope of the negotiations. In other words, the MOU serves as the basis for negotiations.
These types of agreements are commonly used in: Although not a legally binding document, the Letter of Intent is an important step because of the time and effort required to negotiate and produce an effective document. In order to establish a memorandum of understanding, the parties involved must reach a mutual agreement. Each party learns what is most important to the others before moving on. The legally binding nature of a letter of intent was discussed in Southernport Developments (Pty) Ltd v. Transnet Limited  OJL 13030 (SCA), in which the Tribunal concluded that there was no agreement between the parties and that the mere fact that there was a duty to bargain in good faith did not allow any further progress — response to the decision in Premier, supra, Free State and Others v. Firechem Free State (Pty) Ltd, in which it was stated that: Not to mention that memoranda of understanding are legally inviolable even without all the express clauses mentioned above, if properly executed. Sometimes, however, parties enter into legally binding letters of intent at an initial stage when all conditions have not been finalized and negotiations are still ongoing. But the agreement is reached and the parties intend to legally bind themselves to the commitment and, later, after the negotiations, reach a formal agreement and finalize all the crucial conditions. It is important to ensure that each letter of intent makes it clear that, except for matters expressly agreed to be legally binding, each party considers the other terms of a letter of intent to be non-binding, so that the parties can avoid being involuntarily bound by conditions that should remain open for further negotiations. 3.
Hybrids – vague combination of the above two elements: The binding nature of these letters of intent is left to the discretion of the courts, which may or may not apply them by analyzing the wording of the agreement. All dubious cases that hang by a thread, where it is difficult to know the binding nature of the letter of intent, fall into this category. As a rule, these statements of intent do not clearly express the intention of the parties due to poor wording. It is difficult to identify the true nature of the Letter of Intent for the following reasons: 3. Legal Intent: The intent of the parties plays an important role in identifying a letter of intent as legally binding or non-binding. But how do courts consider the intent of parties who may or may not make a letter of intent legally binding? Here are some scenarios against which the intention of the parties is examined: One of the essential foundations of a valid contract is the establishment of a legal relationship between the parties, and therefore the letter of intent is only legally binding if it is drafted in such a way that the intention of the parties is to create a legal relationship between them. Key elements that can make a letter of intent legally binding include: Since the UAE Civil Code does not define the “essential” elements of a contract, there is a risk that once the parties have agreed in principle on a number of elements that they consider “important”, they may inadvertently be legally bound by all the terms of a letter of intent. unless they expressly state which conditions are not legally binding on each other. The big disadvantage of a memorandum of understanding is that it is not legally binding. Therefore, a letter of intent makes it very easy for any affected party to withdraw from the agreement or not to comply with the requirements described, as these measures generally have no consequences. 2.
Non-binding: These agreements are entered into in the preliminary phase of a transaction and are subject to the signing of a formal agreement at a later date. The parties may enter into a non-binding letter of intent for a variety of reasons, such as when the terms are not fully established, negotiations begin, or simply formally announce that the parties are proposing an agreement. Memoranda of Understanding can be useful in targeting preliminary discussions between the parties, to clarify the high-level terms on which the parties have tentatively agreed, and to define the framework within which the parties will work together to finalize the binding formal final agreement(s). Examples of provisions in a MOU that are generally binding or non-binding: Before the parties enter into a MOU, it is necessary to decide which provisions should and should not be legally binding on each other. It is imperative that the parties agree on this, as any ambiguity may result in the parties inadvertently linking the parties through certain terms of the Letter of Intent, which should be further negotiated.