Also known as: preliminary negotiations · pre-contractual negotiation
Written by attorneys — see sources below.
Communications exchanged by parties exploring a possible contract that fall short of manifesting mutual assent sufficient to form a binding agreement. The surrounding circumstances determine whether the parties regard the discussions as incomplete and intend no obligation until further assent or a writing occurs.
A regional auto dealers' cooperative ran a newspaper ad offering in-stock sedans for $18,000 with no exceptions. Taylor presented the ad and tendered payment at Metro Motors, but the dealer refused citing financing and model limits. Taylor sued for breach. The court held the ad was preliminary negotiation rather than an offer, so no contract formed when Taylor responded.
Omega Catering told Henry during a phone call that it could supply meals at $45 per person for events of fifty or more attendees and described menu and delivery options. Henry said the price sounded workable and began advertising the packages. Omega later stated the call was only preliminary and refused to honor any bookings. Henry sued for breach, but the court found the discussion remained preliminary negotiation because the parties had not assented to specific events or reduced terms to writing.
Grantors and grantees completed a ranch sale through escrow instructions after preliminary negotiations. The deed reserved an option to repurchase but said nothing about whether the option was personal and nonassignable. When the grantees attempted to assign the option, the grantors objected. The court treated the earlier talks as preliminary negotiation that did not supply an unwritten personal restriction on the written option.
Dallas Masterson and his wife Rebecca owned a ranch as tenants in common. On February 25, 1958, they conveyed it to Medora and Lu Sine by a grant deed. The deed reserved unto the grantors an option to purchase the property on or before February 25, 1968 for the same consideration as being paid heretofore plus the depreciation value of any improvements the grantees might add after two and a half years from the date. Medora is Dallas's sister and Lu's wife. Since the conveyance Dallas has been adjudged bankrupt. His trustee in bankruptcy and Rebecca brought this declaratory relief action to establish their right to enforce the option. The case was tried without a jury. Over defendants' objection the trial court admitted extrinsic evidence that by the same consideration as being paid heretofore both the grantors and the grantees meant the sum of $50,000 and by depreciation value of any improvements they meant the depreciation value of improvements to be computed by deducting from the total amount of any capital expenditures made by defendants grantees the amount of depreciation allowable to them under United States income tax regulations as of the time of the exercise of the option. The court also determined that the parol evidence rule precluded admission of extrinsic evidence offered by defendants to show that the parties wanted the property kept in the Masterson family and that the option was therefore personal to the grantors and could not be exercised by the trustee in bankruptcy. The court entered judgment for plaintiffs, declaring their right to exercise the option, specifying in some detail how it could be exercised, and reserving jurisdiction to supervise the manner of its exercise and to determine the amount that plaintiffs will be required to pay defendants for their capital expenditures if plaintiffs decide to exercise the option. Defendants appeal.
Advertisements directed to the public are ordinarily preliminary negotiation even when they state a price and product. An ad becomes an offer only if its language and context show the advertiser intends to be bound without further negotiation upon the specified response. Courts examine whether customary sales conditions such as financing approval remain open.
An oral exchange remains preliminary negotiation when it lacks definiteness as to specific events, dates, or quantities and when one party later clarifies that no firm commitment was intended. The absence of a writing and the failure to identify particular transactions support the conclusion that the parties viewed the talk as incomplete.
Preliminary negotiations may be considered to determine whether the parties intended a later writing to be the complete expression of their agreement. If the writing is integrated, earlier discussions that contradict or add to it are excluded unless they show the writing was not meant to be final.
Yes. A claim for intentional interference with prospective economic relations can succeed when a defendant disrupts a near-final relationship with a reasonable probability of forming a contract. The fact that the talks have not yet produced a binding agreement does not automatically bar the tort.