Key Takeaways

  • An “agree to agree” contract refers to a preliminary agreement where key terms are left to be finalized later.
  • These agreements are often unenforceable due to uncertainty unless objective criteria or mechanisms for resolution are specified.
  • Courts evaluate enforceability based on language, intent, past dealings, and industry norms.
  • Distinctions exist between enforceable preliminary agreements and non-binding understandings.
  • Certain jurisdictions may enforce “agreements to negotiate in good faith” under specific conditions.

Agree to agree contract law exists when two or more people, or groups, exchange a promise and agree to do something or provide something for one another. A contract exists on the condition that both these individuals or groups agree to the deal.

A contract is defined as an enforceable and legally binding agreement between two or more individuals or groups. It consists of one party offering goods or services to the other in exchange for value. This value could take the form of financial compensation, the maintenance of a relationship, or a commitment.

In order for a contract to be legally binding and enforceable, all parties involved must be in agreement. Everybody needs to fully understand what they are agreeing to and must be willing and able to freely enter into the agreement.

Different Forms of Legal Contracts

Legal contracts can take three forms:

  • Written.
  • Oral.
  • Implied.

In a written contract, the parties sign a document in which the terms and conditions are specified. The written contract will also cover issues related to payment, as well as any other provisions by which the parties are bound. This is the easiest type of contract to enforce.

For an oral contract to be legally binding, both parties have to verbally agree on a value exchange, including several fundamental aspects. There can often be a lack of evidence to prove nonperformance or wrongdoing related to a verbal contract, which makes them more difficult to enforce than written contracts.

An implied contract is not a written agreement. Rather, it is based on the parties' behavior in relation to an exchange. These contracts face a similar challenge to oral contracts when it comes to a lack of proof. While implied contracts are challenging to enforce, intent to complete an implied contract can be shown by looking at a history of the relevant behaviors of the parties.

In some states, contracts in which the duties and obligations of the parties will extend for longer than one year are required to be written. Examples of such contracts include commercial construction projects and real estate transactions.

A contract is a two-way street, and its essence can be found in the obligations that each party makes to one another at the moment they enter into that contract. After accepting the agreement and all its terms, each participant is legally required to fulfill his or her obligations in terms of the agreement.

If one of the parties in a contract wants to dissolve the agreement, there are ways in which he or she can do so. However, if one party fails to meet his or her commitments in terms of the contract, then he or she can be sued by the other party.

Every agreement is made up of two parts:

  • An offer.
  • Acceptance of that offer.

The person making that offer offers to make a promise, and at the moment when the other party accepts that promise, a contract is created. Simply discussing an offer or the idea of making a promise does not put a contract in place. There needs to be a firm offer and firm acceptance in order for a legally binding contract to be created.

In order for a contract to be valid, it needs to be proven that both parties shared the same vision at the time of the signing of the contract. That and the establishment of an exchange of value are required in every contractual relationship.

In certain circumstances, the terms of a contract may be challenged. This is particularly true if these terms prove to be unethical, illegal, or impossible to make good on. However, the contract will still be valid as long as mutual assent and an exchange of value can be proven.

What Is an “Agree to Agree” Contract?

An “agree to agree” contract is a preliminary understanding between two or more parties indicating their mutual intent to finalize an agreement in the future. While it shows a willingness to negotiate and cooperate, such an agreement typically lacks essential terms and is often too indefinite to be legally binding.

Courts generally view “agree to agree” contracts as unenforceable unless they contain enough detail to demonstrate a clear intention to be bound. If key terms—such as price, quantity, or timeline—are left open, the agreement may be deemed void for uncertainty.

However, courts may uphold such agreements in the following scenarios:

  • If the document includes mechanisms (e.g., arbitration, valuation methods) to determine unresolved terms.
  • When the parties have a history of similar agreements that can clarify the intent.
  • If the agreement obliges the parties to negotiate in good faith and outlines a clear framework for doing so.

Legal Challenges of Enforcing “Agree to Agree” Provisions

The enforceability of “agree to agree” provisions is frequently litigated. Courts typically assess the following factors:

  • Clarity of Language: Phrases like “subject to contract” or “subject to further agreement” often signal that no binding deal was formed.
  • Intent of the Parties: Courts look at whether the parties intended to be legally bound by the preliminary agreement.
  • Completeness of Terms: The more terms left unresolved, the less likely the agreement will be enforced.
  • Context and Conduct: Prior dealings, industry customs, and post-agreement behavior can influence judicial interpretation.

A landmark case illustrating these principles is Teekay Tankers Ltd v STX Offshore & Shipbuilding Co Ltd [2017] EWHC 253 (Comm), where the court ruled an option agreement unenforceable due to the absence of essential commercial terms.

Parties to a Contract

There is no upper limit to the number of parties that may be signatories in a contract. However, each party is required to abide by all the terms and conditions contained in the agreement — whether these are stated or implied.

There is also the possibility of nonsignatory third parties being involved. A classic example of this would be the beneficiary of a life insurance policy. However, his or her only legal action can be to receive a benefit that is a result of the contract between the two original parties. This third party would never be entitled to sue one of the signatory parties over the terms contained in the agreement.

Drafting Tips to Avoid an Unenforceable “Agree to Agree” Clause

To reduce the risk of unenforceability, consider the following drafting strategies:

  • Specify all essential terms or establish objective methods for determining them later.
  • Include a binding obligation to negotiate in good faith, with a clear time frame.
  • Use conditional language carefully, avoiding phrases that suggest a lack of finality.
  • Clarify intent—explicitly state whether the agreement is intended to be legally binding or not.
  • Incorporate dispute resolution provisions, such as third-party mediation or arbitration, for any unresolved terms.

Jurisdictional Variations and Key Case Law

The enforceability of “agree to agree” clauses may vary depending on jurisdiction. For instance:

  • In the United States, courts often uphold preliminary agreements to negotiate in good faith if supported by consideration.
  • In English law, courts are reluctant to enforce vague agreements unless they include sufficient certainty or mechanisms to fill in the gaps.
  • In Australia, courts apply the principle that a contract must include agreement on all essential terms to be enforceable.

Key cases include:

  • Walford v Miles [1992] 2 AC 128, where the House of Lords held that an agreement to negotiate in good faith was inherently unenforceable under English law.
  • RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14, where the court found an informal contract enforceable based on conduct, even though formal terms were not finalized.

Frequently Asked Questions

  1. What does “agree to agree” mean in contract law?
    It refers to an arrangement where parties express an intent to finalize terms later. Such agreements are typically non-binding due to lack of certainty.
  2. Are “agree to agree” contracts ever enforceable?
    They may be enforceable if they contain enough detail or specify objective ways to resolve remaining issues.
  3. How can I make an “agree to agree” clause legally binding?
    Ensure essential terms are covered, include a good faith negotiation obligation, and specify mechanisms for resolving open terms.
  4. Can preliminary negotiations become a contract?
    Yes, if the communications show mutual assent and agreement on key terms, courts may find a binding contract exists.
  5. Does the law differ by jurisdiction?
    Yes. For example, U.S. and Australian courts may enforce preliminary agreements more readily than courts in England and Wales.

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