The Crucial Importance Of Understanding The Understanding

Memoranda of Understanding : UK vs Italian Law

A Memorandum of Understanding or letter of intent is usually defined as an agreement between two parties in the form of a legal document that expresses the willingness of both parties to do business or enter into a merger. It indicates that a partnership, a merger or an acquisition between companies is being considered seriously and that both the parties wish to have further discussions before entering into a contractual agreement.

The Memorandum is aimed at promoting good standards of cooperation between the parties, indicating an intended common line of action and setting out a framework to facilitate liaison on areas of mutual interest. It also clarifies respective roles and responsibilities and outlines mechanisms in place to promote effective liaison relationships.

Although a Memorandum of Understanding does not necessarily imply a legal commitment and lacks the binding power of a contract, it is a more formal choice to a gentlemen's agreement, which relies upon the honour of the parties for its fulfilment, and is not enforceable.

The question of whether such documents are in fact legally binding on the parties under English or Italian Law can only be answered by looking at its content in more detail.

The fact that the parties to the future agreement often are of different nationalities makes it impossible to provide a general answer without giving a brief overview of the legal position under civil law and common law.

Pre-contractual responsibility in civil and common law systems

Italian law does not recognise legal structures in the course of the negotiations preliminary to a contract which can be totally assimilated to the Memorandum of Understanding as defined by Common law; what normally happens is that the parties sign a preliminary contract whereby they assume the obligation to complete the transaction at a later date; this document is a binding contract in its own right and its breach gives rise to contractual liability.

Under English law on the other hand, these type of documents are considered non binding unless they include the material terms of the agreement. For the purposes of...