There are plenty of reasons for “agreeing to agree.” The future is hard to forecast; we don’t want a hang-up to impede a venture in the here-and-now; and a dozen others.
I don’t need to tell you that this invites uncertainty into your business relationships. But at what point does an agreement rife with future promises become so uncertain that it really isn’t an agreement at all?
The Issue of Uncertainty
When a contract includes the obligation to agree on a provision at some future point, you’re dealing with an agreement to agree. These half-agreements make the overarching contract uncertain to various degrees, which creates an issue of contract validity: in order to be enforceable, a contract must be sufficiently certain. If terms are too ambiguous or necessary terms are altogether missing, how do we know how a party should act?
Key Factors to Consider
Throughout case law, three key factors have emerged as indicators of certainty (or lack thereof). They all wrestle with the same concept: understanding enough about the agreement to know when it’s been breached, and, if so, what remedy should follow. If a court doesn’t know these key facts, how can it enforce anything?
Necessary Terms. Most important is the existence and clarity of necessary terms. Particular components of an agreement are key to contractual understanding. These include: the identity of the parties, price, subject matter of the transaction (such as goods or services), and the time and place for performance. The more of these terms that are present, the more likely a contract is sufficiently certain.
Surrounding Circumstances. If the contract language lacks certain terms, courts will look to circumstances surrounding the writing. This includes conduct by the parties after contract formation, previous dealings between the parties, and industry custom. By looking at context, courts can sometimes infer terms where none are written. Note, however, that there is a limit to such inference; courts are loath to put words in the mouths of the parties and would rather void a contract than bind them improperly.
Intent of the Parties. Finally, we must consider the intent of the parties to be bound. To do this, we must distinguish “agreements to agree” from “agreements to negotiate.” With the latter, the parties only intend to negotiate in good faith to try to reach an agreement. The former, however, evidences actual intent to be bound – the only question is: to what? When a contract uses language like “shall” or “must,” the intent is to bind. “May,” “can,” or “in the event that” are all examples of soft language without binding effect.
Contracts You Can Rely On
An enforceable contract is a reliable contract. And we now know that to be enforceable, your contract must have a degree of certainty to it. You can add certainty to your agreements in the following ways:
Set deadlines. If you leave a provision for a later date, be sure to set a deadline or create a trigger for negotiations to begin. Doing so shows initiative and the desire for a complete agreement.
Record communications. Keep a record of discussions and negotiations surrounding the unfinished provisions. This secondary evidence can shed light on intent, terms, and customs.
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