Saturday, October 10, 2009

Open terms -- is there an contract even if the terms of the agreement haven't been stated?

Open terms can indicate there is no enforceable agreement, but they don't necessarily mean there is no enforceable agreement. The central question is whether the parties intended to make an agreement, and that question can only be answered by looking at the actions and words of the parties in each case. A secondary question, closely related to the first, is whether, even if there is evidence that the parties intended to make an agreement, the omission of terms makes determination of a remedy too vague to permit recovery.

One way of understanding what is required under the Restatement is to begin with §33, which states, in subsection (1), that “[e]ven though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.” Thus, you need to first determine whether the parties intended to make an offer, promise, or agreement. How you show someone intends an offer? By examining the facts and showing it is intended (or not). The fact terms are left open may help to show someone did not intend to make an offer, but the mere fact they are left open is not conclusive. As Comment a to §33 states, “the actions of the parties may show conclusively that they have intended to conclude a binding agreement, even though one or more terms are missing or are left to be upon.”

Under the Restatement, however, even if you conclude the parties intended to make an agreement, you still need to show that the “terms of the contract are reasonably certain.” Comment a suggests, however, that if the evidence shows the parties did intend to make an agreement, courts should “endeavor, if possible, to attach a sufficiently definite meaning to the bargain.” (emphasis added)

These rules reflect the underlying purpose of contract law: to enforce the parties’ intent or, as Comment b to §33 puts it, the fundamental policy that contracts should be made by the parties, not by the courts. Thus, “[w]here the parties have intended to make a contract and there is a reasonably certain basis for granting a remedy, the same policy supports the granting of the remedy.”

As Comment b also states, “the degree of certainty required may be affected by the dispute which arises and by the remedy sought.” In other words, the questions whether the parties intended to agree and, if so, whether there is a sufficient basis to supply a remedy depend on the facts of the specific case being decided. “Courts decide the disputes before them, not other hypothetical disputes which might have arisen.”

In Fries v. United Mine Workers, 30 Ill.App.3d 575, 333 N.E.2d 600 (Ill. App. 1975), the court affirmed a trial court verdict finding that that the defendant union’s oral promise of pension benefits to the plaintiff, who had been employed as an arbitrator by the union and an association of mine workers, constituted an enforceable promise. The court held that the promise, made by the union’s president, by that the plaintiff would receive a pension and that it would be based on his salary as an arbitrator was sufficiently certain to constitute an offer that the plaintiff had accepted it by continuing to work until his retirement. The court also rejected defendant's contention that there was no contract because there was an insufficiently certain basis on which to compute the amount to be paid under the pension. The court found that conversations with the plaintiff by union officials promising that his benefits would be computed on the same basis as the union’s pension plan, despite the fact the plaintiff was not eligible for that plain, provided a sufficient basis to provide a remedy. In reaching its conclusion, the court quoted at length from 1 Corbin, Contracts §97 (1963):
In the process of negotiating an agreement, a term that is most frequently left indefinite and to be settled by future agreement, or by some other specified method, is the price in money-the compensatory exchange for the subject matter of purchase. This is true both of agreements for the rendition of service and of those for the purchase and sale of goods. If the parties provide a practicable, objective method for determining this price or compensation, not leaving it to the future will of the parties themselves, there is no such indefiniteness or uncertainty as will prevent the agreement from being an enforceable contract. The same is true if they agree upon payment of a ‘reasonable’ price or compensation. There are many cases, however, in which it is clear that the parties have not agreed upon a ‘reasonable price,’ and also have not prescribed a practicable method of determination. Where this is true, the agreement is too indefinite and uncertain for enforcement. The court should be slow to come to this conclusion if it is convinced that the parties themselves meant to make a ‘contract’ and to bind themselves to render a future performance. Many a gap in terms can be filled, and should be, with a result that is consistent with what the parties said and that is more just to both than would be a refusal of enforcement. he dissent argued that there was no evidence that the oral contracts relied on were among the generally recognized duties of the officers nor was making them one of the things ordinarily entrusted to one in such a position.
 Fries, 333. N.E.2d at 605.

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