Many of you have read our popular Seven Deadly Business Sins outline. One of those sins is the incomplete contract (which admittedly happens unintentionally through vague or forgotten terms). Perhaps even worse than the incomplete contract is the agreement-to-agree contract.
What is an Agreement to Agree Contract?
An agree-to-agree contract is one where the parties agree to determine a business or legal term later. From a legal standpoint, certain contracts must be in writing (and are not binding if they are not documented in writing). Examples include agreements concerning real estate, agreements to answer for the debts of another, etc. This concept under English common law was known as the Statute of Frauds. In Nevada, it can be found in NRS Chapter 111.
Also from a legal standpoint, certain key terms must be pre-agreed, most notably, price, to be enforced. Most often a court will enforce a contract that has a mechanism for determining price, such as an appraisal, but absent such a process, the contract will most likely not be deemed enforceable.
From a practical perspective, a key point in drafting all of the terms of an agreement is to be clear about each party’s obligations so that the deal goes smoothly. If points are left to be discussed and determined later, even well-meaning parties can honorably disagree.
The fate of disagreements under the agree-to-agree contract is typically litigation, unless the contract addresses what happens when negotiations go awry. An example might be authority granted to a specific person to determine a specific term. My opinion is that the challenge of determining that person and process is greater than just agreeing now on the particular agree-to-agree term.
By Guest Blogger Mary J. Drury, Esq.