Legal Effect of an Agreement Made Subject to Contract

When parties negotiate and reach an agreement, it is not uncommon for them to include a clause stating that the agreement is “subject to contract.” This means that the agreement is not binding until the parties have executed a formal contract that reflects the terms they have agreed upon.

But what is the legal effect of an agreement made subject to contract? Does it have any enforceable rights and obligations, or is it simply a preliminary agreement that can be disregarded if the parties fail to execute a formal contract?

The answer to this question depends on the specific language of the agreement and the intention of the parties. In general, a contract that is subject to contract will not be enforceable until a formal contract has been executed. However, there are some exceptions to this rule.

For example, if the parties have clearly intended to create a binding obligation despite the “subject to contract” language, then the agreement may be enforceable even in the absence of a formal contract. This might be the case if the parties have acted as though the agreement were binding, or if they have already performed some of the obligations set out in the agreement.

Additionally, even if an agreement is not enforceable as a contract, it may still create other legal obligations between the parties. For example, if one party has provided confidential information to the other party as part of the negotiations, the recipient of the information may be obligated to keep that information confidential and may be liable for any breach of that obligation.

It is important to note that the legal effect of an agreement made subject to contract can vary depending on the jurisdiction and the specific circumstances of the case. A professional should make sure that any published article on this topic includes this caveat and refers readers to seek legal advice in their specific situation.

In conclusion, an agreement that is subject to contract is not generally enforceable until a formal contract is executed. However, the specific language of the agreement and the intention of the parties can impact the legal effect of the agreement. Therefore, it is important to carefully review the agreement and seek legal advice if there is any uncertainty about its enforceability.