A major unresolved issue in international business transactions relates to the enforceability of preliminary agreements. Preliminary agreements cover a long list of instruments commonly used in most sectors of the economy. The common presumption is that these agreements are not enforceable. The correct answer is much more nuanced. For example, a preliminary agreement may be held to be unenforceable but at the same time be the basis for legal liability. There are strong differences between the civil and common laws on the issues of good faith negotiations and the enforceability of preliminary agreements, but there is also sustained uncertainty within legal systems. This article reviews Chinese, French, German, and Anglo-American law on the twin issues of enforceability and liability. It shows that the trend has been in favor of greater judicial scrutiny of such agreements that has led to greater enforceability and the expansion of available remedies, whether an agreement is deemed to be enforceable or unenforceable.
The issue of preliminary agreements and their place in the overall legal scheme has become less clear as courts have recognized their necessity as modern contract transactions have become more long-term and complex. The countries selected for review provide a three-part taxonomy. First, preliminary agreements are unenforceable due to the lack of certainty of terms and party intent. Second, preliminary agreements that are detailed may be recognized as enforceable contracts. Third, there is a broad middle area in which preliminary agreements are unenforceable as a whole but can be the basis for liability for independent obligations found in the agreements. These independent obligations include an implied-in-law or an implied-in-fact obligation to negotiate in good faith, duty of confidentiality, and duty of exclusivity to not negotiate with other parties. It is in this middle area where there has been a convergence in legal systems and, at the same time, where the issues of liability and remedies have become more uncertain. Because of the ubiquity of these agreements, the possibility of unexpected liability remains pronounced in international business negotiations.
Marta Infantino, Larry A. DiMatteo, Jingen Wang & Eleni Zervogianni,
Crossing the Abyss: A Comparative Analysis of the Enforceability of Preliminary Agreements,
Emory Int'l L. Rev.
Available at: https://scholarlycommons.law.emory.edu/eilr/vol37/iss4/3