Duty To Negotiate In Good Faith: Much Ado About Nothing?

Much ado has been made over the North Carolina Business Court's ruling this past summer in RREF BB Acquisitions, LLC v. MAS Properties, LLC, 2015 NCBC 58, recognizing a cause of action for so-called "duty to negotiate in good faith." Undoubtedly, this is a noteworthy development in the law of contracts and a caveat for practitioners and their business clients. A closer consideration, however, reveals that the claim may not be as novel as it appears at first blush and the risk of unintended liability perhaps not as significant. Below are four relevant points for consideration.

1. The claim is based in contract, not tort.

   Describing the claim as "duty to negotiate in good faith" could be misleading since this suggests an independent legal duty. In actuality, the claim is predicated on the parties' entry of a binding preliminary agreement to negotiate some prospective transaction and is more aptly described as "breach of preliminary agreement to negotiate." The added duty of good faith is merely a variation of the duty of good faith and fair dealing implied in every contract. Stated another way, the duty to negotiate in good faith is the duty of good faith and fair dealing recognized in the context of a preliminary agreement to negotiate. In this way, the duty to negotiate in good faith is not a new development. The new development is recognizing an agreement to negotiate as something other than an unenforceable "agreement to agree."

   Some have misinterpreted the duty-to-negotiate claim as a stand-alone legal theory, believing that if the parties get far enough in negotiations, the law implies a duty to continue negotiating. This is inconsistent with precedent in other jurisdictions and clearly not what Judge McGuire intended in RREF, as he defined the claim as being based on an "agreement to continue negotiating." Op. ¶ 88. An implied duty spontaneously arising from participation in negotiations is not the theory recognized in RREF, which is based in the law of contracts and predicated on a binding preliminary agreement to negotiate.

2. Intent is the key to enforceability.

   A common argument in opposition to the duty-to-negotiate claim is that it validates "agreements to agree," which contract principles dictate are unenforceable as a matter of law. As indicated above, this is a legitimate objection and one that cuts to the heart of the claim. In the seminal opinion Teachers Ins. & Annuity Assoc. of Am. v. Tribune Co., 670 F. Supp. 491, 497-498...