In the legal world, an “agreement to agree” is a commonly used term that refers to a situation where two parties enter into a contract with the understanding that they will reach a further agreement on certain terms at a later date. This type of agreement is often seen in commercial contracts, where parties may want to move forward with a transaction but are unable to agree on all of the details at the time of signing the contract.
In India, the concept of agreement to agree is recognized under the Indian Contracts Act, 1872. The Act defines a contract as an agreement that is legally enforceable. An agreement to agree can be a contract if the parties intend to create legal relations and the agreement is not too uncertain or vague.
However, the validity of an agreement to agree in India depends on certain conditions. The courts in India have held that for an agreement to agree to be legally enforceable, the parties must have agreed on the essential terms of the contract. Essential terms include things like the subject matter of the contract, the price, and the time for performance.
In the case of McDowell & Company Limited v. CTO, the Supreme Court of India held that an agreement to agree may be valid if the terms are clear and specific enough to enable a court to give effect to the intentions of the parties. In other words, the courts in India will enforce an agreement to agree only if the terms are clear and specific enough to be enforced.
Another important consideration in an agreement to agree is the intention of the parties. If the parties did not intend to create a legally enforceable agreement, then the agreement is not legally binding. The intention can be determined by looking at the circumstances surrounding the agreement, including the language used in the contract, the conduct of the parties, and any other relevant evidence.
In conclusion, an agreement to agree is a useful tool in commercial transactions, but it must be carefully drafted to ensure that it is legally enforceable. If the parties intend to create a legally binding agreement, they must agree on the essential terms of the contract and the terms must be clear and specific enough to be enforced. As always, it is important to consult with legal professionals to ensure that your agreement to agree complies with Indian law and is enforceable in a court of law.