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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

Supp. To CHAPTER 4 INDEFINITENESS AND MISTAKE IN EXPRESSION

1-4 Corbin on Contracts Supp. to § 4.4

Supp. to § 4.4 Agreed Methods of Determining the Price or Amount

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(A) The following cases cite this section:

(1) Scamardella v. Illiano, 126 Md. App. 76, 727 A.2d 421 (1998) . A woman, her infant daughter and her mother were in a traffic accident. The woman died; her mother was severely injured, and her daughter, slightly injured. The woman's husband, as guardian of their daughter and representative of his wife's estate, joined his wife's parents in a suit against the teenager and the teenager's employer. The teenager's car had jumped the center line and smashed head-on into the wife's car. The three plaintiffs were represented by the same attorney. In order to maximize settlement, they agreed to accept an offer by the defendants without apportionment of the proceeds. They agreed that they would later agree to a division of the settlement, and that if they could not reach agreement, the parties would obtain other counsel and ask the court to apportion the settlement.

The wife's parents refused to accept an allocation suggested by the joint counsel. Counsel withdrew after filing a Motion to Allocate the Proceeds of Settlement, and was replaced by one for the husband and another for the wife's parents. The wife's parents appealed the trial court's apportionment, arguing that the trial court had abused its discretion in the apportionment, and that the substitute for apportionment-the agreement to seek consensus concerning apportionment or, failing that, to petition the court to divide the proceeds-was void as an ''agreement to agree.''

The Court of Special Appeals held that while the agreement as to apportionment of the settlement may be unusual, it was not void for vagueness as an agreement to agree. Nevertheless, the court reversed the trial court's assignment of attorney fees and remanded the case to the trial court to determine: (1) when the plaintiffs' joint counsel's representation of the wife's parents concluded; (2) whether that conclusion was a discharge by the wife's parents or a withdrawal by the counsel, and, if it was a discharge, what the grounds for the discharged were; (3) when the contingency triggering the attorney fee, i.e., the settlement, occurred; and (4) information with which to calculate a quantum meruit fee should that be the required result.

(2) Roussalis v. Wyoming Medical Center, Inc., 4 P.3d 209 (Wyo. 2000) (citing § 4.1 and quoting § 4.4 of Corbin). This case is also noted in § 4.4 and fully discussed in § 13.3 of this supplement.

(B) The following case cited the predecessor to this section:

(1) Stone v. Golden Wexler & Sarnese, 341 F. Supp. 2d 189 (E.D.N.Y. 2004) . Stone obtained a credit card from the defendant bank. The bank's customer agreement contained a provision stating that the bank could amend or change any part of the agreement and promised to give notice of any such change. In October, 2001, the bank mailed Stone a notice indicating that unless she opted out within one year, the bank would add an arbitration clause to the customer agreement. Stone did not take any steps to opt out and asserted that she was unaware of the arbitration provision until the commencement of the subsequent litigation, in which she challenged the propriety of arbitration. The Court concluded that the change-in-terms provision in the agreement should be afforded a narrow interpretation, and that such a provision did not authorize the bank to unilaterally add an arbitration clause. The court stated the issue as whether a person in Stone's position should have anticipated that the Bank would change the method and forum for resolving disputes. The Court concluded that there was nothing in the customer agreement suggesting that Stone intended to grant the Bank any such latitude. The change-in-terms provision contained no mention of dispute resolution mechanisms. Rather, both the change-in-terms provision, and the customer agreement as a whole, addressed issues relating to finance charges and similar matters. The court held that the terms discussed in the change-in-terms clause must supply the universe of terms which could be altered or affected pursuant to that clause. To hold otherwise would permit the Bank to add terms to the customer agreement without limitation either as to substance or the nature of such terms. As one court noted, a contrary holding would allow a bank to ''amend'' the agreement to include a clause permitting the bank to take a security interest in the customer's home, or to require the customer to pay a penalty if she failed to convince three friends to sign up with the bank. ''Such provisions were as much within the agreement at the outset of the relationship as the arbitration provision.'' Accordingly, the change-in-terms provision did not authorize the Bank to unilaterally add an arbitration clause. The court cited Corbin's explanation that a reservation of a power to vary price or other performance is not fatal so long as the exercise of such power is subject to prescribed or implied limitations such that the variation is in proportion to some objectively determined base or must be reasonable.

(C) The following case is noteworthy:

(1) Acosta v. District Bd. Trustees, 2005 Fla. App. LEXIS 7877 (3d Dist. May 25, 2005) . After the second class graduated from the recently created two-year medical assistant program at Miami-Dade Community College (MDCC), the plaintiff graduate and his thirty classmates brought this action for breach of contract. At the time the plaintiffs submitted their applications for this program, the MDCC brochure advised applicants that the total cost of the program for two years would be $5,032.50 including all books and necessary equipment. When the applicants received their acceptance letters, however, they were advised that the tuition would increase, but the exact amount of the increase had not been determined. The letter stated that ''It still should be a very economical program and be under $6000 for the two years of education.'' To accept entry into the program, the applicants had to sign an enclosed document stating that the student was aware of the increase or forfeit the right to matriculate. The applicants signed the document. Subsequently, the director of the program provided an account of necessary additional expenditures that would increase tuition to over $18,000 for the two year program. The students reacted angrily and wondered how they would pay the tripled tuition. Two students chose not to proceed, but the plaintiffs proceeded with the program, paid the tuition and graduated. They then brought this action. The trial court granted summary judgment for the defendants. On appeal, the majority of the instant court stated that it is well established that ''a meeting of the minds of the parties on all essential elements is a prerequisite to the existence of an enforceable contract.'' Since price is generally recognized as an essential element and no price was quoted in this case, there was no contract to be breached. The court also concluded that, even assuming a valid and enforceable contract, the students by their conduct may be said to have acquiesced in the higher tuition. Where a party continues to perform after learning of a breach, such a party may be deemed to have agreed to the altered terms of the contract. A dissenting opinion argued that a price was quoted, to wit, the ''under $6000'' price in the letter requiring the student to agree to an increase in tuition. The dissent also suggested that the students had a viable promissory estoppel claim in detrimentally relying on the statements made by the school concerning a tuition that would still be under $6000 by forbearing other educational opportunities.

By suggesting that no contract could be found where the price is to be subsequently fixed by one of the parties, the majority failed to address the modern view that, where the parties otherwise intend to conclude a contract, the absence of a price term is not fatal. Thus, in a contract for the sale of goods, a price to be fixed one of the parties ''means a price for him to fix in good faith'' (Uniform Commercial Code § 2-305(2)). The Restatement (Second) of Contracts, § 33, recognizes this Code section and states, ''Similar principles apply to contracts for services'' (comment e). Absent the school's statement that tuition would remain under $6000 accompanying the document the school required applicants to sign or be denied entry, a contract could have been found that allowed the college to establish a new tuition in good faith. Other evidence indicated that even the $18,000 tuition for this particular two-year program may have been quite reasonable compared to similar programs in other schools. The critical issue, therefore, was raised by the dissenting opinion concerning the limitation of the tuition to less than $6000. Here, an analogous application of UCC § 2-305(1)(c) that is recognized in the Restatement (Second) suggests that, where ''the price is to be fixed in terms of some agreed market or other standard,'' the price will be so established. The ''other standard'' to which the students could be said to have agreed was a tuition that could be raised from the brochure price of $5,032.50 to a price under $6000, i.e., they had agreed to pay no more than $5,999.99. Contrary to the majority's holding, there was, in the majority's unfortunate phrase, a ''meeting of the minds'' at that ceiling price. Since the students were given no reasonable alternative but to sign the agreement concerning an increase to something under $6000, their conduct in pursuing the program and paying more than triple that amount might be seen as resulting from economic duress rather than acquiescence in the tripled amount. It is unfortunate that the majority did not see fit to address these issues. The facts suggest that the school seriously underestimated the cost of the program it offered and the court chose to allocate the risk of that mistake to the students who had, arguably, detrimentally relied on the schools' representations. Since the school was a community college which typically establishes tuition levels at a fraction of other schools, the facts do not suggest that the students should have been aware of that mistake.

(2) Swift & Co. v. Elias Farm, 2007 U. S. Dist. LEXIS 34225 (D. Minn. 2007) . Swift processes meat from hogs supplied by parties such as the defendants pursuant to contracts containing a price clause based on the USDA published price reports. When the USDA modified its price reporting system from live weight to carcass weight price reporting, Swift modified its pricing provisions and demanded that the defendants pay the balances of their adjusted accounts. The defendants disputed the adjustments, claiming that Swift had breached the contracts. Swift pointed to a provision of the pricing clause in the original contract stating that the price was to be based on the daily live weight price as reported by USDA ''or any replacement thereof or successor thereto.'' Swift also introduced expert testimony that it made reasonable efforts to address the change in this index and the resulting prices which the defendants should have received were at least as high or higher than they would have been under the unmodified USDA index. The defendants presented no contrary expert testimony, but they argued that the Swift expert report was inconclusive since the expert could not opine with exact certainty due to the absence of the original index. The court held that neither the Federal Rules of Evidence nor precedent interpreting those rules require expert testimony to achieve the level of a scientific absolute to be admissible. The standard is whether such the evidence is sufficiently reliable to assist the jury's determination. The defendants' challenge goes to the weight of the expert testimony, not its admissibility. Swift modified the pricing system only after the USDA modification occurred and, although the conversion was not precise, the defendants presented no evidence that it was unreasonable. The court granted Swift's motion for summary judgment on the defendants' breach of contract claims.

Supplement to Notes in Main Volume

1. Colo.- Hauser v. Rose Health Care Systems, 857 P.2d 524 (Colo. App. 1993) (contract providing compensation based on the costs saved from contracts renegotiated by plaintiff on defendant's behalf was not indefinite by reason of difficulty of calculating savings or dispute between parties over proper method of determining savings).

3. N.Y.- Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203 (1989) (option permitting receiver to purchase home ''at a price determined by the Department of Health in accordance with the Public Health Law and all applicable rules and regulations of the Department'' not so indefinite in price as to preclude enforcement).

9. U.S.- Larson v. Johnson, 184 F. Supp. 2d 26 (D. Me. 2002) . Where an agreement to pay a specific amount permits the promisor to select the form or nature of the payment, the promise to pay is not illusory or subject to the ''whim'' of the promisor. The court cited Restatement (Second) of Contracts, § 34(1) to the effect that reasonable certainty may be attained though the contract allows one or both parties to make a selection of terms in the course of performance. Cf. Uniform Commercial Code § 2-311 which recognizes a contract as sufficiently definite though it leaves particulars of performance to be specified by one of the parties.

14. U.S.- Auto-Chlor Sys. of Minn., Inc. v. JohnsonDiversey, 328 F. Supp. 2d 980 (D. Minn. 2004) . Where the defendants agreed to sell parts and equipment to the plaintiffs ''virtually at cost,'' the court rejected the defendants' assertion that U.C.C. § 2-305 should apply, since the price term was not left ''open'' as the defendants claimed. The court interpreted ''virtually at cost'' to mean that the defendants were obligated to sell parts/equipment ''at a price that is near their cost.''