An Agreement To Agree Is A Valid Contract: Everything You Need to Know
The idea that an agreement to agree is a valid contract may be supported by some.4 min read
2. Agreement to Agree Indicators
3. Agreement to Agree Legal Issues
4. Agreement to Agree v. Agreements to Negotiate
Is an Agreement to Agree is a Valid Contract?
The idea that an agreement to agree is a valid contract may be supported by some, but the fact of the matter is that, in the eyes of the law, agreeing to agree to future terms that are not certain is not sufficient grounds to make a legally enforceable agreement. Thus, an agreement to agree remains an unenforceable agreement that merely implies the binding of two parties to a future agreement but does not guarantee it.
Agreement to Agree Indicators
In order to tell if an agreement is an agreement to agree and thus unenforceable, the following should be looked for:
- Clarity of terms. If the subject matter of the agreement cannot be easily ascertained, the agreement is likely an agreement to agree. If the legality of agreement comes to court, the court will be unlikely to substitute or insert terms into the agreement to make it legally binding.
- Intentions of parties. If the intentions of the parties are made unclear by the lack of an arbitration clause, for example, the insertion of which would indicate an intention to agree, then the contract may not be legally enforceable.
- Language used. If terms such as “shall,” which convey an absolute obligation to agreement, are missing, then it is more likely that the agreement is an agreement to agree.
Agreement to Agree Legal Issues
Agreements to agree have repeatedly run into a variety of legal issues when cases involving them have been disputed in the courts, with courts ruling against the binding strength of agreements to agree again and again. Examples of such cases include:
- Cyberlock Consulting, Inc. v. Information Experts, Inc. In this case, the U.S. Fourth Circuit Court of Appeals upheld a district court’s dismissal of a breached “teaming agreement,” since agreements to agree are not enforceable in Virginia. Language in the agreement included, for example: “...agrees to execute a subcontracting agreement...containing provisions...reasonably necessary to...the prime contract.” Such language was deemed by the court to be too vague and indefinite, and thus unenforceable. In addition, external evidence was not allowed for determining the meaning of unclear language.
- Fish Net, Inc, v. ProfitCenter Software, Inc. In this case, a federal district court in Pennsylvania ruled against the enforceability of agreements to agree for similar reasons. Specifically, this case revolved around an executive at a meeting stating that he wanted to meet with someone who had the authority to make a deal. This and other language was deemed to be too vague to constitute a legally binding agreement, and at best was merely an agreement to negotiate.
- Butler v. Balolia. This case also distinguished between agreements to negotiate and agreements to agree. In this case, a letter of intent stated that the parties in question would “negotiate and enter into a separate Purchase Agreement.” Such language was ruled by the court to constitute a valid agreement to negotiate, which may be enforceable, but not an agreement to agree, which is not.
Agreement to Agree v. Agreements to Negotiate
An agreement to agree should not be confused with an agreement to negotiate, for although the former is not enforceable, the latter sometimes can be. An example of this in principle, though not in fact (since the case was lost due to an unrelated issue), was the case of Copeland v. Baskin Robbins, U.S.A.
In this case, Copeland entered into negotiates to buy an ice cream manufacturing plant with the condition that Baskin Robbins would buy the ice cream made at the plant for three years, after which time a new packing agreement and negotiated pricing would be determined. An agreement to the initial terms was made, while negotiation to the packing terms was still ongoing, until Baskin Robbins broke off negotiations two months later because the deal was no longer beneficial to their overall business strategy. Copeland then sued for breach of contract, but initially lost because a court ruled that the basic terms of the packing agreement were never finalized.
However, an appeals court disagreed with that aspect of the ruling because it deemed that what was breached was not an agreement to agree but rather an agreement to negotiate, and since the negotiations were not concluded, the terms of the agreement were not kept. It was not required of Baskin Robbins that they reach an agreement over the contract, but only that they negotiate in good faith, and breaking off the negotiations for reasons unrelated to the negotiations was deemed to have violated this requirement. Copeland still lost the case, however, because it had sought damages that it could not by rights recover under the rules of its complaint.
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