Postposed Bargaining: The “Agreement to Agree”
Walker v. Keith
Kentucky Court of Appeals 382 S.W.2d 198 (1964).
Parties are not named explicitly. However, the plaintiff won in the trial court, receiving a judgement establishing the amount of rent. Defendant appealed.
Question
Did the court error in providing this judgement?
Rule
A renewal option is just like any other contract. All the terms of a contract must be decided on for a renewal option to take effect.
Holding
The terms for rent were not agreed upon. Therefore, the court errored in enforcing this contract (because there was nothing to be enforced). Judgement reversed.
Facts
Plaintiff is a lessee who was given an option to renewal their lease. The initial amount of rent was $100/month. The amount of rent was to be agreed upon by both parties at a future time. The plaintiff wants to renew the lease. However, there was no agreement made on the amount of rent and the action was brought to the court to determine whether the lease is enforceable and what the rent should be. The trial court extended and renewed the rent at a set price of $125/month.
Analysis
The court considers the concept of “Agree to agree”. Meaning, the parties are creating an agreement that they will agree on a certain term at a future time. The issue at hand is the option provided alongside the agreement to agree. Here, you can’t have both. Why? Because the agreement is undefined. There can be no terms to enforce. Consider for a moment that this was an original contract and that there was no fixed term. Would the court be able to enforce that agreement? No, because they don’t know what the term was!
I am still a little confused on the complete reasoning, so my notes will expand during lecture with any inconsistencies.
Additional Notes
The terms in this case were lacking. What could have worked was if
- There was a provision that set the price
- There was a method to determine what the price would be.
Here, there was no such provision. So, the contract was so indefinite and uncertain. The court has no business doing the job of the parties. Meaning, the parties are required to establish their terms. The court only makes sure that those terms can be met.
Takeaway
There is a lot of conflict on whether or not these “Agreements to Agree” are enforceable. Here, this agreement was unenforceable. However, many courts have found similar agreement to be enforceable. Additionally, most agreements not involving a lease tend to also be enforceable.
Additional Notes
Agreements to agree are not a good idea. If at all possible, set an agreement before making any announcements.
Quake Construction, Inc. v. American Airlines, Inc.
Supreme Court of Illinois 141 Ill.2d 281, 152 Ill. Dec. 308, 565 N.E.2d 990 (1990)
Quake Construction Inc is the plaintiff and American Airlines and Jones Brother Construction are the defendants. Quake’s complaint was dismissed in the trial court, and reversed int he appellate court. Defendants appealed.
Question
Was the letter of intent from Jones to Quake an enforceable contract? Did Jones intend the letter of intent to be a contract?
Rule
Letters of intent may be enforceable. However, they are only enforceable if the parties intend them to be contractually binding.
Intent can be evaluated using the following factors
- Is the type of agreement usually put into writing
- Does the agreement contain few or many details
- How much money is in the agreement?
- Does it require formal writing for the full expression of the agreement
- “Whether the negotiations indicated that a formal written document was contemplated at the completion of the negotiations.
Holding
The letter is ambiguous. Therefore, the court holds that the letter of agreement is a contractually binding agreement.
Facts
Jones was looking for bids and offered Quake a chance to bid. Quake did so. Next, Jones offered Quake the opportunity to accept as long as they provided certain information. Quake said that it would take a contract for him to get the information. Therefore, Jones sent a letter of intent. This letter had a cancellation clause. As the time to begin construction approached, Quake went to a meeting where he was informed that he had the work authorization. Following the meeting Quake was told that his involvement in the project was revoked. Quake sued.
The plaintiff here claims that the letter of intent constituted a contract.
The defense says that this letter was only negotiations.
In the trial court, the case was dismissed because of the cancellation clause. The appellate court reversed because they said that the letter and cancellation clause was ambiguous.
Analysis
The letter could have been interpreted either as binding, or as having no intent to be binding. Therefore, the letter is ambiguous. The terms, agreement, and timing was sufficient enough to say that the letter constituted a binding agreement. Additionally, the letter authorized work to begin. Because work would likely begin before a fully completed contract was written, this letter of intent sufficiently outlined the terms necessary for the agreement to be enforceable.
However, the court says that because intent is ambiguous, it needs to be remanded to the circuit court for trial so other facts can be provided to prove the intent or lack thereof.
The concurrence agreed with the judgement, but thought that there should be a third option. See below:
- There was intent
- There was no intent
- The parties are bound by the letter of intent to execute “good faith negotiations”.
Because there was no good faith negotiation, the concurrence agrees with the judgement.
Takeaway
Be very clear in your intent!
Additional Notes
Jones is trying to have it both ways. They are trying to claim that the letter hired the defendant but that they could let it go.
Enforceability is a function of intent. If the letter of intent is ambiguous, then you use other facts to determine intent. In that case, those are facts for the jury to find based on evidence.
Additional Notes
Takeaways:
- Walker said that terms need to be defined for an agreement to be enforceable.
- However, UCC made a provision (§2-305) said that a reasonable price can be determined later. If not, then the courts can set a reasonable price. This is to account for real world situations. It’s odd, weird, but it happens. If at all possible do not use this provision as a standard!
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
