Open conditions: A court will carry out a flexible analysis to determine whether the parties have agreed on the necessary aspects of their agreement and will assess the importance of the open conditions as well as the object, complexity and purpose of the agreement. Federal courts applying New York law1 classify binding preliminary agreements into two types: a type I preliminary agreement is a writing that contemplates the negotiation of a more definitive agreement, but nevertheless sets out all the essential terms of a transaction and attests to the agreement of the parties, even if other conditions may remain open. A Type I provisional agreement is fully binding, notwithstanding the expectation that a subsequent, more definitive agreement will be concluded, and whether or not the new final agreement envisaged is actually concluded (unless that provisional agreement clearly makes the performance of the envisaged final agreement a condition precedent for the conclusion of a contract). A type II provisional agreement is a writing which similarly envisages the negotiation of a more definitive agreement, but which lays down only some of the essential conditions of the agreement, while other essential conditions remain open for the negotiation of the envisaged final agreement. Notwithstanding the fact that a type II interim agreement would not normally pass the test of the existence of an agreement, the courts of New York will impose an implied obligation to negotiate in good faith the terms of the envisaged final agreement, which are consistent with the “general framework” established in this provisional agreement. In other words, despite the old rule that the agreements that must be concluded are nullities, a type II provisional agreement is indeed a binding treaty to negotiate in good faith, to try to accept an agreement. However, the obligation to negotiate in good faith, imposed by a Type II pre-agreement, does not justify any responsibility for the fact that no final agreement was reached despite good faith efforts. However, in the event of bad faith during the negotiation, there may be liability (usually for follow-up costs based on trust and not for expected damages).2 Otherwise, non-binding statements of intent, which contain explicit obligations to negotiate in good faith the terms of a final agreement, can sometimes fall into the pre-contractual spoon type II3. Agreements such as declarations of intent, memoranda of understanding and memoranda of understanding can have serious and binding consequences as well as unintended tax implications, emphasizing the need to draft them by a lawyer to ensure that commercial parties are only legally bound in accordance with their intentions. Type of contract: In determining whether the agreement is the type normally established in writing, a court takes into account the size and complexity of the transaction, the object and the amount of money. These factual issues are largely marked by industry practices and practices.
Preliminary agreements can be very useful when negotiating a transaction. The SIGA case shows that a legally binding preliminary agreement can protect the legitimate economic expectations of the parties. It also stresses the need to define the type of preliminary agreement to be concluded and the legislation in force, as such decisions can have a dramatic impact on the outcome in the event of a dispute. In a sense, the term “provisional agreement” is an oxymoron. If the so-called agreement is really provisional, in that it does not show an agreement that is fully cooked and complies with all the essential conditions, it is really not an agreement at all. In both England and the United States, an enforceable treaty can only exist if the parties have an objective agreement on all the essential provisions of their agreement. On the other hand, in writings that clearly indicate that they are only provisional and that do not contain all the essential provisions necessary for the creation of a binding contract, it is sometimes stated that certain conditions set out in this letter are indeed binding. . .