PRELIMINARY AND INCOMPLETE AGREEMENTS
A. The
Problem with Indefiniteness
i.
If
the indefiniteness can be explained only by the conclusion that the parties had
not really reached agreement on the essential terms of their relationship,
there is no contract to enforce.
ii.
However,
if a court is persuaded that, despite
the indefiniteness, the parties really did intend to contract, it should make
every effort to try to resolve the indefiniteness and enforce the contract.
iii.
UCC
2-204 (3) states that in sale of goods, if parties intended to make a contract
and there is a reasonably certain basis for giving a remedy, a contract should
not fail for indefiniteness even though the terms are left open.
iv.
An
agreement may be indefinite because it:
1.
Completely
omits some matter vital to exchange
2.
Does
not fully, unambiguously deal with the matter
3.
Deliberately
leaves that matter open for negotiation
B. Case
Summaries
i.
Academy of Chicago
Court
stated that agreement did not provide means of determining the intent of the
parties, as it did not shed light on the minimum number of stories to be
included or which stories.
Rule: A contract will be enforced if there is some ambiguity,
but if the essential terms are so uncertain that there is no basis for deciding
whether the agreement has been kept or broken, there is no contract.
ii.
Martin Delicatessen v. Schumacher
Deferred
agreement…“Annual rentals to be agreed upon” leaves no room for legal
construction or resolution of ambiguity.
Rule: Agreement to agree is too indefinite to constitute a
contract.
C. The
Effect of an Agreement Reduced to Writing
i.
Where
the parties have not yet signed a contemplated formal agreement, there may be a
question of whether they are bound.
ii.
The
parties may intend to be bound immediately on reaching agreement, even though
they contemplate the later execution of a formal writing. To determine if they are bound immediately or
will not be bound until the writing is executed, the court must interpret their
intent from their language and dealings in context.
iii.
There
is a third possibility argued by some: the parties may not yet have formed a
contract, but they may have bound themselves to a preliminary agreement to
continue negotiating in good faith – to continue to make a good faith effort to
try to reach agreement.
1.
Agreement to agree: The
court will generally supply a missing term if the parties intentionally leave
that term to be agreed upon later,
and they then don’t agree. See, e.g.,
UCC §2-305(1)(b), which allows the court to supply a reasonable price term if “the price is left
to be agreed by the parties and they fail to agree.…”
D. Part performance: Even if an agreement is too indefinite for enforcement
at the time it is made, the subsequent
performance of the parties may cure this indefiniteness.
i.
Example: A contracts to make a suit for B, without specifying the type or
color of material to be used. This is
probably unenforceable for indefiniteness when made. But if A
begins to make the suit with gray cotton cloth, and B raises no objection, the
indefiniteness will be cured by this part performance.
E. The
Tort of Interference with Contract Relations
i.
Liability
could be imposed for enticing a party to abandon the duty to negotiate in good
faith or renege on an agreement in principle.
ii.
Requires
that the defendant had knowledge of the contract rights and actively induced
the breach of those rights (e.g. Texaco
v. Pennzoil Case)
II.
STATUTE OF FRAUDS
A. The
Basic Principle
i.
Most
contracts do not have to be in writing to be legally enforceable, though it may
be harder to prove their existence.
However, certain contracts are required by law to be in writing –
relatively small and discrete list.
ii.
Three
requirements that must be satisfied before a contract subject to the Statute of
Frauds can be enforced: a writing, signature, and
sufficient content to evidence the contract.
B. Writing: The agreement must be recorded in writing.
i.
Restatement 2nd 132: “The memorandum may consist
of several writings if one of the writings is signed and the writings in the
circumstances clearly indicate that they relate to the same transaction.”
ii.
Restatement 2nd 133: “The statute must be signed by a
single writing not made as a memorandum of contract” – which implies that the
purpose of the statue is evidentiary; even an internal memorandum or an
informal letter addressed to third party can satisfy the writing requirement.
C. Signature:
i.
The writing must be signed by the party against whom the contract
is to be enforced. The writing can also
be signed by the agent of party to be charged, but most statutes require that
the agent be authorized in writing to sign on behalf of the party. (****ONLY enforceable for the QUANTITY of
goods specified in this writing.)
ii.
“Signature” is broad: any symbol made or adopted with an
intention, actual or apparent, to authenticate the writing as that of the
signer. (Initials, thumbprint, arbitrary
code, writing, printing, stamping, or by other means will qualify). If writing contains 1++ documents, signature
doesn’t need to be on every page, as long as the document on which it appears
can be tied to other writings.
D. Content:
i.
The writing need not be full and complete as long as it has enough
content, at minimum, to prove that a contract was in fact made, and to identify
its subject matter and reveal its material terms.
E. Why mount a defense based on
the Statute of Frauds?
i.
To submit a motion to dismiss or an application for summary
judgment. The alleged oral contract that
the P has said exists is declared non-existent if Statute of Frauds defense
prevails, which saves judicial resources and costs of trail.
ii.
Narrow and specific exceptions to the statute that allow
enforcement of the contract despite non-compliance with the statute:
F. Logical sequence of
questions to ask:
i.
Is this contract subject to the Statute of Frauds?
1.
If NO, the contract is likely oral, no further questions.
2.
If YES, Question #2:
ii.
Is there a signed writing in a form sufficient to satisfy the statute?
1.
If YES, contract enforceable.
2.
If NO, contract is unenforceable unless answer to #3 is Yes.
iii.
Do the recognized exceptions to the statute of frauds apply?
G. What kinds of transactions
are covered under this statute?
iv.
An Executor or
Administrator of state who agrees to answer the duty of the deceased.
v.
Guarantor
duty: if not in writing
vi.
Consideration
of marriage: something you promise in exchange for marriage
H. UCC Article 2 (2-201) Formal
Requirements (this is currently being revised)
i.
Oral contract for $500 or more IS NOT enforceable unless there is
some writing to indicate a contract has been made, and it is signed by that
party against whom enforcement is sought.
I. Case Summaries
i.
C.R. Klewin, Inc. v. Flagship Properties, Inc.
Rule: An oral contract that does not specify
explicitly the time for performance is a contract of indefinite duration, and
is therefore not enforceable under Statute of Frauds.
ii.
Burns v. McCormick
Rule: Part
performance does not become sufficient grounds for recovery of a transfer of an
interest in land under the Statute of Frauds – a writing is still necessary.
J. Past Performance Doctrine
i.
Under some circumstances, courts acknowledge that conduct by the
parties following the alleged oral agreement may provide enough proof of the
contract so as to dispense with the need for a writing – sometimes referred to
as the “part performance” doctrine.
ii.
At common law, this exception has primarily been applied to
contracts for the sale of land but can sometimes be found in relation to the
one-year rule as well.
iii.
Restatement 2nd, § 129:
1.
A contract for the transfer of an interest in land may be
specifically enforced notwithstanding failure to comply with the statute of
frauds if it is established that the party seeking enforcement, in reasonable
reliance on the contract and on the continuing assent of the party against whom
enforcement is sought, has so changed his position that injustice can ONLY be
avoided by specific enforcement.
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