Preliminary negotiations of the contract. Pre-contract responsibilities
The preliminary negotiations of a contract are those conversations that the parties establish with the aim of reaching an agreement. In general, responsibilities are not derived from these preliminary agreements, however the courts draw a line to differentiate the preliminary agreements that do not produce effects or responsibilities, from the agreements that do take effect. And that line is not always easily distinguishable.
One of the most controversial cases is the signing of documents where the parties establish parameters related to the negotiation, and which serve as a commitment for the final signature in the future.
Often they receive the generic name of precontracts, but in reality these agreements can cover different legal figures, some of which display effects with responsibilities for the parties signatories.
We will present this problem below to shed more light on which agreements signed in the preliminary phase may have some kind of consequence for the negotiating parties.
What is the pre-contract?
The pre-contract is the sharing of an intention by two parties to formalize a contract in the future. According to the Supreme Court ( STS June 17, 2008), the parties undertake to make the conclusion of the agreement effective in the future, but decide not to enter into it yet. The contracting parties determine the fundamental elements of the agreement, but postpone the moment in which they take legal effect.
When talking about pre-contract, the reference to “the promise to contract” is common, hence it is worth considering to what extent this decision to make cash a contract at a later time.
To what extent can legal or economic consequences be derived from that promise, and on what terms could compensation for damages be demanded?< /p>
Let’s assume that Company A and Company B sign a commitment to hire in the future; and A incurs expenses that are considered necessary to be able to sign the final contract.
If company B finally decides not to perform the contract, undoing the commitment made in the pre-contract, could company A claim the expenses it assumed to able to perform the contract? Could other damages be claimed, such as lost profits, given the expectation of a future profit as a result of the contract that was to be entered into?
Precontract and Pactum de Contrahendo
The jurisprudence differentiates these commitments to contract in the future into two large groups: Pre-contract and Pactum de Contrahendo or agreement to contract.
- In the pre-contract , according to what the courts tell us, there is an agreement between the parties according to which they mutually oblige each other to sign a definitive contract. The pre-contract is an agreement in itself that imposes the obligation on both parties to execute the final contract. All the benefits have been set and only subsequent acceptance is enough.
- In the agreement to contract or Pactum de Contrahendo the commitment to formalize the contract is acquired but a subsequent activity of the parties is required to specify the bases of the agreement. In these cases, the benefits have not been clearly established, as occurs in the pre-contract.
It could therefore be said that the pre-contract is a valid agreement that takes effect from the moment it is signed, while in the contract agreement It would be included in the so-called preliminary agreements, without a firm commitment from either party being able to emerge from them.
According to this doctrine, the parties would have the power to demand compliance with the promise to execute the definitive contract when it is a pre-contract, while this power would not fit in the case of a agreement to hire.
However, it is not always easy to distinguish between the two figures. The title of the agreement, or the nomenclature that the parties would have used in signing the commitments is not enough to define the specific legal figure, which means that the parties could have signed a document whose title is “PRE-CONTRACT” and actually deal with an agreement to hire.
This is so because the name is indifferent to determine the true nature of the pacts and agreements, although it can be used as proof of what the parties really wanted to agree.
How then do we differentiate a pre-contract from a contract agreement?
The courts have been defining the difference between both figures in the existence or non-existence of all the essential elements of the contract. So if the agreement on the fundamental elements was closed, it would be possible to speak of a pre-contract.
On the other hand, if there were substantial elements to be defined and agreed, we would be in the application scope of the agreement to contract that corresponds to the preliminary negotiations of a contract.
In other words, the agreement in which all the benefits have been set in advance would be a pre-contract and only subsequent acceptance is sufficient. And it would be a contracting agreement, the commitment to formalize the contract but that requires a subsequent activity of the parties to specify the bases of the agreement.
Responsibilities for signing an agreement to hire in preliminary deals
In the case of a contracting agreement, we would be in the phase of preliminary negotiations, and we would not have crossed the line that we mentioned at the beginning of this article, after which responsibilities are derived between the parties.
Although it is possible to make an exception, if one of the parties has suffered damages as a result of a bad action by the other party during the development of the preliminary negotiations. In these cases, the party that had suffered the damage must prove that this negligent behavior actually existed, otherwise the legal claim for damages would be doomed to failure.
Responsibilities for signing a pre-contract
When the parties have established all the essential elements of the business in a pre-contract, either party may require the other to fulfill the promise to put the contract into practice definitive. And you can claim such responsibilities through the courts in the face of the refusal of the other contracting party.
In the event of a claim for damages, only the damages that are accredited as a result of the refusal to ratify the agreement would be compensated.
In any case, the burden of proof regarding the quantification of damages will fall on the party claiming damages; which means that the claimant must prove the existence of damage and the amount thereof.