An agreement in principle

What are the elements of an agreement in principle?

There are four elements of an agreement in principle:

• The parties have a genuine and mutual agreement regarding the terms of the contract.
• The parties intend to formalize their agreement in a binding contract.
• The contract defines the main terms of the agreement.
• The agreement in principle is meant to put the main terms of the agreement in writing, but it is not a formal agreement.

Case Examples

• In Bennett v. Behring Corp., 737 F.2d 982, 984 (11th Cir. 1984), the parties signed a settlement that acted as the agreement in principle from which the Court determined attorney’s fees and costs.
• Parties cannot use an agreement in principle to circumvent state or federal laws. For example, in AMISUB, Inc. (St. Joseph Hosp.) v. Shalala, 12 F.3d 840, 843 (8th Cir. 1994), the Court rejected an agreement in principle to purchase a hospital because the agreement in principle violated state law.
• Agreements in principle can be used to predetermine how damages will be determined in the case of a conflict between the parties. In Biodynamic Techs., Inc. v. Chattanooga Corp., 658 F. Supp. 266, 270 (S.D. Fla. 1987), the parties ended up in a contract dispute that involved a royalty fee. At the time the parties created the contract, they had determined what the royalty fee would be in the event of a dispute. Hence, the court enforced this previously determined amount.