Commercial Law
Guide 2023
,Chapter 2: Negotiations
Reaching an agreement
The content of an agreement can be derived either from national law or an international treaty such as the
Convention on the International Sale of Goods. There is no specific written law or treaty in negotiations during the
period in which the ‘contracting parties to be’ conduct talks on, for instance, conditions of sale.
The stage of negotiations is referred to as the preliminary stage, the stage prior to the final agreement between two
parties. In the figure below it is from stage 1 to 5.
Defective consent is an error or misrepresentation, lack of will is wrong pricing.
Lack of performance (late, inferior, no performance)
Performance
Dissolution
Damages
An agreement consists of an offer and an acceptance of that offer.
The agreement is reached between two parties when one party accepts the offer of the other. But before the
agreement is reached the two parties negotiate over the content of the final agreement.
A Offer
B B Acceptance
A
1 2 3 4 5 6
1. A draws up offer and sends it to B
An offer is only legal when:
An object is described
A price is determined
The number of objects is stated
2.The offer is delivered to B
An offer is a valid offer when it has reached the other party = reception theory.
At this stage it’s still possible to withdraw the offer if it is done in time. After withdrawing in time the offer doesn’t
become valid and thus an offer no longer exists.
3.B takes time to think things over
Period of time is mentioned: then the length of stage is clearly determined.
No period of time mentioned: the offer must be accepted immediately.
Verbal offer: offer must be accepted immediately.
Written offer: offer is valid for a reasonable time period, the length of this period depends on the object and
the persons involved.
4.B comes to a decision and sends his acceptance to A.
The offeree is letting the offeror know he has accepted the offer.
Up to this point A can still revoke the offer he made.
Revoking an offer means that A needs to inform B that he is no longer interested in selling the goods to B and that
he therefore withdraws his valid offer.
Sometimes it’s not possible to revoke an offer:
If the offer has already been accepted by the other party
When it can be deduced from the text of the offer that the offer is irrevocable
, B can also refuse to accept A’s offer by rejecting the offer explicitly or by making a new offer. If a new offer is made =
counteroffer , the first offer does no longer exist.
5.B’s acceptance reaches A
A receives acceptance sent by B and the agreement becomes final. Here the agreement is reached to the reception
theory.
6. Just after the moment an agreement becomes final.
In circumstances where the offer was made with the reservation ‘prices subject to change’ or ‘prices not binding’, it
is still possible for A to revoke his offer after it has been accepted but it then must be done immediately.
This is called a revocation of the offer after an agreement has become final.
Legal aspects of negotiations
A letter of intent is often used to establish the current status of negotiations between the parties involved. It’s
intended to be a draft version of the final agreement. Parties have to be accurate about the way the content of the
letter of intent is drawn up.
Case law: judgements given in courts of law which establish the law for subsequent cases of a similar nature, this has
shown that preliminary stage is governed by the rules of good faith. The following verdict of the Dutch Supreme
Court lays down this rule, which is a principle widely accepted by other international courts of law.
Rules of good faith: govern the preliminary stage and thus places an obligation on both negotiating parties to take
the other party’s interests into consideration. Both parties have to give each other accurate information and not
mislead each other during negotiations. Each party should examine the information given by the other, but has the
right to rely on the information of that party without further investigation.
Breaking off negotiations: breach of contract or tort?
Breach of contract
If parties have reached an agreement on these two essential issues, object and price, then there is an agreement. In
that case, a party breaking off, what he or she refers to as ‘negotiations’ is really committing a so-called breach of
contract. This party is therefore liable to pay damages to the other party. This liability consists of compensation of
costs covering the amount that is considered reasonable in that line of business and may also include a loss of profit
by the other party.
Tort
What if parties did not agree on price or object? Then there is no agreement and no way of getting one’s costs
compensated by claiming damages as a result of a breach of contract. The only option left to the party that suffered
damages is to claim compensation for these damages based on tort.
When does one commit tort?
- A tort is a wrongful act between two private individuals
- Either party’s action is wrongful when it can be regarded as conflicting
- The party breaking off negotiations failed to take the other party’s interests into consideration, which is
required of both parties when entering into negotiations
- Taking the other party’s interest into consideration could mean paying an amount of money to
compensate for the other party’s costs
If needed a tort can be established on these 4 points, then it may be possible to claim damages.
The damages one party can claim depend on the stage the negotiations were at when other party broke them off.
The preliminary stage compromises two stages:
1. Parties start negotiating
2. Agreement is within reach, a follow-up on stage 1
Where negotiations are broken off at the first stage, no damages whatsoever can be claimed from the party that
broke the off. Only in the situation where an agreement has almost become final. (The second stage)
Guide 2023
,Chapter 2: Negotiations
Reaching an agreement
The content of an agreement can be derived either from national law or an international treaty such as the
Convention on the International Sale of Goods. There is no specific written law or treaty in negotiations during the
period in which the ‘contracting parties to be’ conduct talks on, for instance, conditions of sale.
The stage of negotiations is referred to as the preliminary stage, the stage prior to the final agreement between two
parties. In the figure below it is from stage 1 to 5.
Defective consent is an error or misrepresentation, lack of will is wrong pricing.
Lack of performance (late, inferior, no performance)
Performance
Dissolution
Damages
An agreement consists of an offer and an acceptance of that offer.
The agreement is reached between two parties when one party accepts the offer of the other. But before the
agreement is reached the two parties negotiate over the content of the final agreement.
A Offer
B B Acceptance
A
1 2 3 4 5 6
1. A draws up offer and sends it to B
An offer is only legal when:
An object is described
A price is determined
The number of objects is stated
2.The offer is delivered to B
An offer is a valid offer when it has reached the other party = reception theory.
At this stage it’s still possible to withdraw the offer if it is done in time. After withdrawing in time the offer doesn’t
become valid and thus an offer no longer exists.
3.B takes time to think things over
Period of time is mentioned: then the length of stage is clearly determined.
No period of time mentioned: the offer must be accepted immediately.
Verbal offer: offer must be accepted immediately.
Written offer: offer is valid for a reasonable time period, the length of this period depends on the object and
the persons involved.
4.B comes to a decision and sends his acceptance to A.
The offeree is letting the offeror know he has accepted the offer.
Up to this point A can still revoke the offer he made.
Revoking an offer means that A needs to inform B that he is no longer interested in selling the goods to B and that
he therefore withdraws his valid offer.
Sometimes it’s not possible to revoke an offer:
If the offer has already been accepted by the other party
When it can be deduced from the text of the offer that the offer is irrevocable
, B can also refuse to accept A’s offer by rejecting the offer explicitly or by making a new offer. If a new offer is made =
counteroffer , the first offer does no longer exist.
5.B’s acceptance reaches A
A receives acceptance sent by B and the agreement becomes final. Here the agreement is reached to the reception
theory.
6. Just after the moment an agreement becomes final.
In circumstances where the offer was made with the reservation ‘prices subject to change’ or ‘prices not binding’, it
is still possible for A to revoke his offer after it has been accepted but it then must be done immediately.
This is called a revocation of the offer after an agreement has become final.
Legal aspects of negotiations
A letter of intent is often used to establish the current status of negotiations between the parties involved. It’s
intended to be a draft version of the final agreement. Parties have to be accurate about the way the content of the
letter of intent is drawn up.
Case law: judgements given in courts of law which establish the law for subsequent cases of a similar nature, this has
shown that preliminary stage is governed by the rules of good faith. The following verdict of the Dutch Supreme
Court lays down this rule, which is a principle widely accepted by other international courts of law.
Rules of good faith: govern the preliminary stage and thus places an obligation on both negotiating parties to take
the other party’s interests into consideration. Both parties have to give each other accurate information and not
mislead each other during negotiations. Each party should examine the information given by the other, but has the
right to rely on the information of that party without further investigation.
Breaking off negotiations: breach of contract or tort?
Breach of contract
If parties have reached an agreement on these two essential issues, object and price, then there is an agreement. In
that case, a party breaking off, what he or she refers to as ‘negotiations’ is really committing a so-called breach of
contract. This party is therefore liable to pay damages to the other party. This liability consists of compensation of
costs covering the amount that is considered reasonable in that line of business and may also include a loss of profit
by the other party.
Tort
What if parties did not agree on price or object? Then there is no agreement and no way of getting one’s costs
compensated by claiming damages as a result of a breach of contract. The only option left to the party that suffered
damages is to claim compensation for these damages based on tort.
When does one commit tort?
- A tort is a wrongful act between two private individuals
- Either party’s action is wrongful when it can be regarded as conflicting
- The party breaking off negotiations failed to take the other party’s interests into consideration, which is
required of both parties when entering into negotiations
- Taking the other party’s interest into consideration could mean paying an amount of money to
compensate for the other party’s costs
If needed a tort can be established on these 4 points, then it may be possible to claim damages.
The damages one party can claim depend on the stage the negotiations were at when other party broke them off.
The preliminary stage compromises two stages:
1. Parties start negotiating
2. Agreement is within reach, a follow-up on stage 1
Where negotiations are broken off at the first stage, no damages whatsoever can be claimed from the party that
broke the off. Only in the situation where an agreement has almost become final. (The second stage)
