Preliminary agreement damages, also known as pre-contractual damages or reliance damages, are a type of compensation awarded to a party who has suffered losses as a result of relying on a preliminary agreement that was not followed through. These damages are meant to put the injured party in the position they would have been in had the agreement been properly executed.
Preliminary agreements, such as letters of intent or term sheets, are often used in business negotiations to set out the terms of a proposed deal and to signal an intention to enter into a binding contract. While these preliminary agreements are not typically legally binding, they can still give rise to obligations and expectations between the parties involved.
For example, suppose a company offers to purchase goods from a supplier and provides a letter of intent outlining the terms of the proposed transaction. The supplier relies on the letter of intent and begins producing the goods, only to find out that the company decides not to follow through with the purchase. In this case, the supplier may be entitled to preliminary agreement damages to compensate for the costs incurred in producing the goods.
To recover preliminary agreement damages, the injured party must demonstrate that they reasonably relied on the preliminary agreement in good faith and that the other party breached the agreement. The damages awarded will depend on the extent of the injury suffered by the injured party, and can include direct costs, lost profits, and other expenses incurred as a result of the breach.
It`s important to note that the injured party has a duty to mitigate their damages by taking reasonable steps to minimize their losses. For example, in the case of the supplier mentioned earlier, they would be expected to try and find another buyer for the goods to minimize their losses.
In conclusion, preliminary agreement damages can be an important tool for parties relying on preliminary agreements in business negotiations. It`s important to carefully review and negotiate these agreements to ensure that they accurately reflect the parties` intentions and to seek legal advice if necessary. If you have suffered losses as a result of a breach of a preliminary agreement, you may be entitled to preliminary agreement damages.