Contrary to the classic common law view of the United States and England, under this principle, parties to a contract owe one another a duty of good faith. The Contract Law of the PRC has formally adopted the German law principle of liability for negligence in contracting (缔约过失责任). Under this rule, if the written document clearly states it is non-binding, no liability arises. They just assumed they are covered by the rule that prevails many countries outside China: no party is exposed to liability during the negotiation period liability arises only after the parties have executed a formal, written contract. These US and British companies are making a major mistake and exposing themselves to substantial liability. The US company then usually says: “the document clearly states it is non-binding. We then explain to them that this type of detailed LOI or MOU will be viewed as a contract in China. They then show us a Letter of Intent (LOI) or a Memorandum of Understanding (MOU) that sets out in great detail the terms of their proposed China deal.
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