Tuesday, April 27, 2010

agreement in principle

An agreement in principle (like a “letter of intent”) is an “agreement to agree”— the parties want to make a deal but they haven’t agreed on the details. Because it doesn’t contain all of the essential elements for a contract, an agreement in principle cannot bind the parties to particular terms. However, most courts agree that once an agreement in principle is made, the parties have a duty to act in good faith as they proceed to finalize the agreement. If one party fails to negotiate in good faith, the other may sue for damages. On the other hand, if the parties reach an agreement in principle, and then take action on it—that is, they act as if a contract is in place—courts will presume that a contract exists and will do their best to determine and enforce its terms.

See: Letter of intent

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