Enforceable or not enforceable – that is the question…
What is an agreement to agree?
An agreement to agree is an agreement between parties to conclude a further agreement. For example: if person A wants to buy person B’s house but before a sale agreement is signed, A and B agree that they will enter into a written sale agreement. That agreement to conclude another agreement is what is commonly referred to as an agreement to agree.
So are agreements to agree valid and enforceable?
An agreement to make another agreement has historically been held by our courts to be invalid and unenforceable due to the uncertainty that exists in such a contract. Likewise, an agreement to negotiate a contract (i.e. an agreement between parties that they will negotiate a further contract) has also traditionally been considered too uncertain to be unenforceable.
But times are changing, mostly as a result of the introduction of the Constitution into our law, and although our courts are – for now – reluctant to move away from the historical view of agreements to agree, when one considers recent judgments emanating from our courts relating to agreements to negotiate, it is possibly only a matter of time until agreements to agree are considered to be enforceable.
“Please Call Me” – the Vodacom judgment
Our Constitutional Court has of late been under the spotlight, no more so than in a recent matter in which it was asked to decide whether an employee of Vodacom, who is now acknowledged as being the person who came up with the concept of a “Please Call Me”, could enforce an agreement that required Vodacom to negotiate a further agreement with the employee, that would provide for the employee to receive a portion of the proceeds generated by Vodacom from the “Please Call Me” concept. In its judgment the Constitutional Court held that Vodacom was bound by the agreement and as a result Vodacom was ordered to commence negotiations “in good faith” with the employee to determine the compensation payable.
The approach of our courts of late, in respect of agreements to negotiate, has been that they create an obligation on the parties to engage in negotiations fairly, honestly and in good faith. This has been evident in not only the Vodacom judgment, but also in several other recent judgments in which our courts have considered the impact that our Constitution has on the manner which contracts are interpreted. In another judgment by the Constitutional Court, it was held that the principles of ubuntu require parties to negotiate in good faith, with a view to reaching an agreement.
So what about agreements to agree?
Although recent case law has made significant advances in recognising that agreements to negotiate are valid and enforceable unfortunately the same advancements have not been seen in respect of agreements to agree. However, the recognition given to agreements to negotiate indicates that our courts recognition of the enforceability of agreements to agree might not be far away.
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By: Gareth Robert Harley – Commercial and Litigation