The Enforceability of Promises to Negotiate in Good Faith: Rethinking Traditional Common Law Attitudes

A clause in a commercial contract which expressly requires the parties to negotiate an issue in good faith may be a preliminary to dispute resolution through arbitration or litigation. It may also be part of a long term contractual relationship necessary to settle variations in quantity, price, or other terms where flexibility is needed. Because, in common law, one cannot have “an agreement to agree”, these provisions are scaffolded by the consequences of the parties failing to agree, commonly a method of dispute resolution. This might be autonomous such as a reference to a formula or an index, but usually it will be a form of engagement through arbitration. If there is no such provision and the parties do not in fact agree, then the contract will be void for uncertainty. It is in this context that a contract will expressly provide that these negotiations must be conducted “in good faith”. The negotiations are usually in the context of a contractual gap, but they may precede the formal contract, and be included in a “memorandum of understanding”, a preliminary record of heads of agreement. There may be also a need because of changed circumstances for the parties to make adjustments to restore a balance between the parties. Less commonly, haste or incompetence may create gaps or obscurities that need filling or clarification.