Letter of Intention in Crude Oil Transactions (LOI) - Legal Traps and Pitfalls of LOI for Crude Oil Buyers

Today, this document is described in many of the oil sellers and operators involved in the international public market crude oil sales, especially the brokers and distributors. This document is "letter of intention" or LOI. It should be used not only for documents essential for crude oil business but also for reliable people and companies involved in crude oil purchase to always start purchasing. For many of these operators, crude oil purchasers not only used LOI to initiate buy orders, they were the usual way buyers started purchase orders in such a way they purchased "Seriously" and has claimed to be committed worldly.

Seller's theory for finding LOI

This position is a broker based in Sweden, one representative of the seller, the belief that the buyer's future buyer's obligations are brokers & amp; anticipated buyers must first sign the LOI, We considerably summarize the traditional inconsistencies provided by the seller and / or its agent.

"Buyers who are serious, ready to buy [crude oil],Sign [an] LOI and all the documents necessary to protect the broker's rights and proceed with the procedure. It is normal and this is how to do it. "

In summary, the ratio of demand to seller's LOI can be summarized as follows:

1) Giving an LOI to a seller by a future buyer indicates that the buyer is "serious" and intends to purchase.
2) Using LOI is a normal way for buyers to initiate procurement proposals, appropriate and appropriate way. And
3) By signing the LOI by the buyer, none of the transactions will lose.

How is it effective for these general theoretical grounds by seller or agency?

Ironically, petroleum distributors and their agents frequently demand that prospective "serious" buyers involved in crude oil transactions need to provide LOI for the first time, but buyers generally need to think that way It is not fascinated by. In fact, what actually is being asked is to provide LOI to sellers that are not well known. In this regard, they may not be familiar with anything, they (the buyer) may have taken the initial communication with the "seller" via the Internet contacts. Crude oil purchasers, particularly well-known prominent buyers, rarely provide LOIs to the seller to initiate purchases, according to the knowledge of the certificate maker. In particular, what seems to be a seller is a virtual seller unknown to the buyer or a pure internet seller that the seller really knows next to what is signed with such seller at LOI We can almost certainly be sure that the possibility of a coarse purchaser of substances is virtually zero.

Contrary to the seller and an agency that is conscious of super sales, it is well known that "there is nothing to lose by signing these documents," but by actually signing the LOI to the seller, the buyer May be lost. why? In other words, LOI is actually doing many fraudulent acts of fraud such as legal flaws, traps, pitfalls. Many of them can be very expensive for buyers, according to legal authority and contract law experts. (See below for more details on this)

In fact, some experts have called LOI documents that amateurs and marginal dealers, or "joker brokers" of the crude oil trading business, especially those that are claimed or promoted by extreme sellers. Agents and brokers hurry to land some buyers in a hurry. Ziad K. Abdelnour, president and chief executive officer of Blackhawk Partners, Inc., an advisory firm to traders and suppliers of metals, minerals and crude products based in New York, New York, is the principal of the LOI document "Internet by an inexperienced trader", and "an inexperienced mid-seller" claiming to be a supplier.

The important point is that it is frequently asked by the buyer to use the LOI to initiate the purchase proposal, "it is a method that is normally done and what it is" , Some sellers or their harsh agents and brokers imagination, only within the applicants and dreams, especially to the more marginal ones that operate with fringes on the internet, their brokers and agents, It may be cautious. This is not the view shared by the trusted buyers' wide spectrum, especially if the "sellers" involved are unknown and ambiguous operators.

Reasons for buyers and experts to abandon the use of LOI and throw it away

They include:

1. LOI is used as an operation tool with immoral sellers and agent hands.

Frequently, a vague or fraud-oriented person who claims to be a crude seller, or expresses himself as a seller. Agencies, delegates or brokers use LOI as a tool to quickly "buy and surround" buyers into purchase transactions before future buyers demand to provide their business profiles and shows You can demonstrate that it is really a legitimate seller. Such sellers are constantly seeking to order LOI in a fairly pre-order as proof that purchasers are "serious" about making purchases in a hurry. That is, a prophet seller as a legitimate purchaser.

Many times, in particular if you are involved in a seller who is a fake seller, a seller who does not actually have unprocessed crude, or an agent of a malicious prominent seller who is effectively acquitting a gross supplier or Broker seller), the buyer issues LOI and can know that there is no seller on the other side. This happens a lot in situations where hungry agents and facilitators are still struggling to get real suppliers. By extracting this LOI from an indifferent buyer, this facilitator commits only the buyer and looks for a seller or a supplier.

2. LOI is a legally worthless document that does not substantially mean anything

As a matter of fact, legally, intention letters are meaningless documents of no value. LOI is a seriously flawed legal document. This is because experienced contract law experts say "a contract to agree that the contract is not binding and non-mandatory".

Blackhawk Partners, Inc., based in New York on such matters. Ziad K. Abdelnour, President and Chief Executive Officer (CEO), said: "Giving an intention letter only means that you can buy the product, but I can change my thoughts at any time.The intention letter is not a binding contract. [Here is] The intention letter is wasting time on wasted paper. "

Therefore, a letter or document nominally or currently conveying the signer's "intent" or purchase intention is essentially meaningless and meaningless, it is not binding and can not be forced by the signer or anyone initially Do you want to waste valuable time and resources (or its expensive attorney) to engage in such wasteful exercise for the seller's interests? Not particularly known, in the case of ambiguous sellers?

3. LOI is plagued by many legitimate booby traps and pitfalls, especially for buyers.

But perhaps the most harmful reason most reliable crude oil purchasers have little or no use of LOI in purchase transactions, using LOI is a lot of huge legal traps and pitfall fraud There is, legal authority and contractual law experts, damaging the benefits of buyers.

The fundamental deficiency of LOI is that Vasilios J. Kalogredis, attorney at Wayne, Pennsylvania, calls "uncertainty and potential risk of such business". Kalogredisis, a business contract law expert, explains like this.

"An intention letter is required to explicitly state in writing what the business operator is writing in connection with the transaction, as being legally not binding. [True, that's] One of the attractive elements of intention letters [its purported non-binding nature]. The letter itself does not explicitly state that it has binding force ... certain clauses in the document certainly [still] It has legal effect. "

Kalogredis calls the basic fact that documents that are commonly seen as casual and non-binding documents can still be binding under unpredictable circumstances as "one of intention letter traps" ,

"My advice [to parties contemplating having an LOI] Be cautious before proceeding with signing such documents. "In principle (and there are exceptions), the parties are going to the final document to the right," by filling everything and passing through this provisional step of intent letters with many potential traps Not, "T"

Another contract lawyer named Ivan Hoffman in California shows essentially the same point.

"Parties to transactions intentionally create a letter of intention as an indication of intent to agree, sometimes when certain circumstances arise. [whatever happens]That document is not binding and it is not feasible until those circumferences occur. , Intention letters are inherently legally worthless documents. The reason for not disturbing the creation of such documents is not clear, but I am using it in many situations. Otherwise, you should sign a binding contract, not a letter of intention.

However, after a high-level litigation, a document that believes to be a valid and executable agreement only to find non-binding nonbinding agreements to strictly agree on rather than binding agreements, Intention letter "

4. Origin of negligence lawsuit or LOI as organizer

Apart from the legal issues of ambiguity and uncertainty inherent in the LOI, from a legal point of view, there is another serious problem unique to the document. In other words, since LOIs are essentially vague and indeterminate in nature, they often appeal easily to different interpretations and understandings in the hands of different parties (or courts), thus fertile information sources for unjust lawsuits , A legal battle for those involved in using that document in transactions.

Attorneys at Coollawyer.com are often easy to sign LOI, explain the legal "paradox" inherent in LOI that raises more lawsuits and places it in this way rather than reducing litigation To do.

Legally, the intention letter is the worst of all the world. "Writing intention letters should not be taken lightly, in the law, you have a contract or not." LOI is legally equivalent to "almost pregnant". It is emphasized in the intent letter. They stated that they are not formal consensus and frequently proceed to present the agreed terms of the proposed transaction. The agreed point is actually agreed upon a binding contract. Also, in some cases, parties rely on LOI and may suffer financial damage based on such dependence. "

The lawyer adds as follows. "This is a legal issue of intention letters, I can not state that you legally agree with something, I am saying it is not in the same document.

Famous incident of intention letter worsened: case of GETTY OIL v. PENNZOIL trial

A famous example frequently quoted by law scholars was the case where Getty Oil and Pennzoil were involved in the very early days of 1984. Both parties signed a "Memorandum of Understanding" as a letter of the time as a party at the time Phenzoil purchased the shares of Getty Oil, clarified the general conditions of investment reached in conversation, a memorandum of understanding was written by Getty Oil Director It was stipulated that conditions should be subject to the approval of the Association. The Board of Directors immediately approved the transaction and the parties announced on 4th January 1984 in a press release "principle agreement" against the terms of the memorandum. The final agreement on the merger of Texaco and Getty Oil was signed by the parties on January 6th - 8th.

However, another public oil company Texaco appeared on Texaco and Getty Oil announced on January 6 that it will merge in the same period. Pennzoil protested the proposed merger and filed a lawsuit against the court to make a declaratory judgment that Getty Oil is not bound by a contract with Pennzoil.

Not only the memorandum but also the story's long and short, after reviewing the words of press releases and other documents issued by Getty Oil and Penzoil in the course of trading, the court "get in violation" of the memorandum of understanding of Getty Oil - Documents considered by the parties as intention letters. Therefore, the documents (intention letters) that the parties began to regard as unenforceable, unenforceable, then changed to a final agreement! Meanwhile, Pennzoil obstructed the transaction with Getty Oil, so Texaco gained 10.6 billion dollars (later settled at 3 billion dollars).

Lessons of this story? If you are always thinking about using intention letters in business transactions, you may not be as simple as you think you should look. It is likely that you are very cautious as it may lead to unexpected and unexpected results!

Overview

To put it briefly, it is difficult to imagine documents that may have numerous problems in the signer's legal vulnerability, traps, and pitfalls as legal or business documents. As a result, in the international buying and selling world of crude oil, aggressive brokers and agents' troops obsessed with sellers and crude sellers are generally not misled by the idea of ​​having an LOI document generally Even if the person commonly uses it, most crude oil purchasers, in particular more reliable and substantial lots, are more disgusted or unacceptable in order to start purchasing purchase applications , Furthermore, on top of all the definitively negative nature of this document, the LOI is not legally meaningless, worthless, unenforceable and non-binding document, in virtually all laws of the site A party or anyone who is a document awarded by an expert may cause immunity and unexpected legal complications and problems for the signatory.

In conclusion, rather than quoting a very reasonable statement of California contract law lawyer Ivan Hoffman,[Given that] Intention letters are inherently legally worthless documents [but yet one that could potentially cause many serious legal problems for the signer]. The reason for not disturbing the creation of such documents is not clear, but I am using it in many situations. "

For follow-up

Do you want to find a seller that does not request an LOI? Or as a seller to know how you make up your transaction for non-Roy offers? Please refer to the explanation of the following author's resource box