§ 2.8 Partial Agreements-Agreements to Agree and Agreements to Negotiate

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[a] Agreements to Agree

This section and the following § 2.9 of this treatise are devoted to an analysis of one of the most difficult and important areas of contract formation.n1 The facts of the cases discussed here involve two interrelated areas: intent to be bound and definiteness of terms. If sometimes the cases confuse the two issues, this is largely because indefiniteness of terms bears upon the solution of both questions. Indefiniteness may show a lack of finality, a lack of intention to be bound. Definiteness may show finality and the presence of an intention to be bound. Even if an intention to be bound is manifested by both parties, too much indefiniteness may invalidate the agreement, because of the difficulty of administering the agreement. On the other hand, the parties may have satisfied the definiteness requirement but have manifested an intent not to be bound until a final integrated writing is drawn up, signed and delivered.n2 This part of § 2.8 concentrates on the kind of case where the intention to be bound is clear enough, but the parties have left some terms open with a statement that these ''will be mutually agreed upon at a later date'' or words to that effect.

Communications that include mutual expressions of agreement may fail to consummate a contract for the reason that they are not complete, some essential term not having been included.n3 Frequently agreements are arrived at piecemeal, different terms and items being discussed and agreed upon separately. As long as the parties know that there is an essential term not yet agreed on, there is no contract. The preliminary agreements on specific items are mere preliminary negotiation building up the terms of the final offer that may or may not be made.n4 Even though one of the parties may believe that the negotiation has been concluded, all items agreed upon, and the contract closed, there is still no contract unless this party is reasonable in the belief and the other party ought to have known of this belief.

The same result exists in cases where a complete and operative offer is made, but is not unconditionally accepted. The reply may be a partial or a conditional acceptance, in which case certain terms of the offer are agreed upon while others are not. The parties may proceed with their negotiations as to these others, without any new and distinct reference to the terms already assented to. There is no contract until agreement is reached on all material terms, the preliminary and partial agreements being expressly or impliedly incorporated into the final offer and acceptance.n5 There has been evolution from a situation of pure negotiation to that of contract.

Further illustrations are to be found in the cases of a so-called contract to make a contract, or agreement to agree. It is quite possible for parties to make an enforceable contract binding them to prepare and execute a subsequent final agreement.n6 In order that such may be the effect, it is necessary that agreement shall have been expressed on all essential terms that are to be incorporated in the document. That document is understood to be a mere memorial of the agreement already reached. If the document or contract that the parties agree to make is to contain any material term that is not already agreed on, no contract has yet been made; the so-called ''contract to make a contract'' is not a contract at all.n7

We must not jump too readily to the conclusion that a contract has not been made from the fact of apparent incompleteness. People do business in a very informal fashion, using abbreviated and elliptical language. A transaction is complete when the parties mean it to be complete. It is a mere matter of interpretation of their expressions to each other, a question of fact.n8 An expression is no less effective that it is found by the method of implication. The parties may not give verbal expression to such vitally important matters as price,n9 place and time of delivery, time of payment, amount of goods, and yet they may actually have agreed upon them. This may be shown by their antecedent expressions, their past action and custom, and other circumstances.n10 If the parties have manifested an intent to be bound, the agreement should not be struck down because of the difficulty of administration unless it is quite clear that the court can only fill in the gap in the dark.

Even though certain matters are expressly left to be agreed upon in the future, they may not be regarded by the parties as essential to their present agreement.n11 Furthermore, the terms left for future settlement may be within definite and prescribed limits.n12 The exact price may be left for future negotiation within a specified maximum and a specified minimum. In such a case it may be intended that the buyer shall have a binding option to buy at the maximum, or the seller shall have one to sell at the stated minimum, or both may have such options.n13 An agreement to grant a license in a ''standard form'' to be thereafter adopted by the patentee granting it becomes enforceable as soon as the patentee adopts such a form.n14 The agreement may have been such that the patentee promised to prepare such a form, so that the parties were bound by a bilateral contract prior to its preparation. There may be a valid contract even though one of the parties must still submit specifications as to assortment of sizes and qualities.n15

So where a lease provided that the lessee should have an option to purchase ''for the sum of $18,000 on terms to be agreed upon,'' it is obvious that the time of payment and the security for deferred payments are not yet settled, and yet the court held that a contract had been consummated and decreed specific performance.n16 The lessee had an option to buy for cash unless the lessor should specify other reasonable terms.

The court will be more ready to find that an apparently incomplete agreement was in fact complete and required the payment and acceptance of a ''reasonable'' price or a performance on ''reasonable'' terms, where the parties have already rendered some substantial performance or have taken other material action in reliance upon their existing expressions of agreement. The fact that they have so acted is itself a circumstance bearing upon the question of completeness of their agreement.n17

The court may be more ready to reach such a result in case the remedy asked and given is the equitable remedy of specific performance than in a case where the remedy to be given is a judgment for money damages.

The correctness of the foregoing is amply illustrated by the many decisions specifically enforcing a provision in a lease giving to the lessee an option for a renewal at a rental to be agreed upon or to be determined by appraisal or arbitration. In such cases, the lessee occupies and pays rent during the first period of the lease in reliance on the promise of a renewal. The lessee's case is strengthened if the lessee has also made valuable improvements or otherwise materially changed position. Specific performance has often been decreed at a ''reasonable'' rental determined by the court.n18

[b] Agreements to Negotiate

At times parties enter in agreements which do not purport to set the terms of the transaction, but merely express an engagement to negotiate. The context of such agreements frequently involve the employment of attorneys, accountants and industry experts to evaluate the economic soundness and legal obstacles to the consummation of a transaction. Particularly when the context is a prospective merger or acquisition, negotiations may involve the sharing of sensitive financial information and possibly even trade secrets. Traditionally, courts refused to recognize any validity to such agreements, or have failed to find a remedy to redress a violation.n19 A breakthrough was made in the case of Itek Corp. v. Chicago Aerial Industries, Inc. n20 A letter agreement outlined the bare bones of a corporate acquisition. One paragraph provided:

''Itek and CAI shall make every reasonable effort to agree upon and have prepared as quickly as possible a contract providing for the foregoing purchase by Itek and sale by CAI, subject to the approval of CAI stockholders, embodying the above terms and such other terms and conditions as the parties shall agree upon. If the parties fail to agree upon and execute such contract they shall be under no further obligation to one another.''

The parties met and reached oral agreement on every point that was raised. Meanwhile CAI negotiators were also meeting with a third party who made a better offer which CAI accepted and abruptly terminated negotiations with Itek. The court ruled that the trier of fact could find that CAI failed to exercise ''every reasonable effort to agree.'' If such a finding were made, CAI would be liable, presumably for expectation damages as the price terms had been resolved.n21 From such an express agreement to use reasonable efforts to agree, courts have taken the further step of finding reasonable or good faith efforts to agree in letters of intent and other preliminary agreements. Such cases will be the subject of the last part of § 2.9 of this treatise.

If the parties undertake to negotiate in good faith, what conduct or motives constitute a breach of that obligation? This is difficult to answer.n22 Clearly, if an impasse is reached, the termination of negotiations is permissible.n23

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawContract InterpretationParol EvidenceGeneral OverviewContracts LawFormationExecutionContracts LawFormationOffersGeneral OverviewContracts LawContract Conditions & ProvisionsGeneral OverviewContracts LawTypes of ContractsOption ContractsContracts LawTypes of ContractsBilateral ContractsContracts LawTypes of ContractsOral Agreements

FOOTNOTES:

(n1)Footnote 1. For more detailed discussion see Ralph B. Lake and Ugo Draetta, Letters of Intent and Other Precontractual Documents: Comparative Analysis and Forms (Butterworth 1989); E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum.L.Rev. 217 (1987). A seminal article is Charles L. Knapp, Enforcing the Contract to Bargain, 44 N.Y.U.L.Rev. 673 (1969).

(n2)Footnote 2. That is the principal topic of § 2.9 below.

(n3)Footnote 3. See § 4.1-4.6 below.

(n4)Footnote 4. ''It is not unusual for persons to agree to negotiate with the view of entering into contractual relations and to reach an accord at once as to certain major items of the proposed contract and then later find that on other details they cannot agree. In such a case no contract results.'' Upsal Street Realty Co. v. Rubin, 326 Pa. 327, 192 A. 481 (1937) .

N.Y. - Willmott v. Giarraputo, 5 N.Y.2d 250, 184 N.Y.S.2d 97, 157 N.E.2d 282 (1959) , one material term still to be mutually agreed on.

This section is quoted in Borg-Warner Corp. v. Anchor Coupling Co., 16 Ill. 2d 234, 156 N.E.2d 513, 156 N.E.2d 930 , dissenting opinion, id., at 930 (1958) in both the majority and the dissenting opinions. The negotiation involved the purchase by the plaintiff of the business and assets of the defendant corporation, the plaintiff asserting that a contract was consummated by certain letters and the defendant asserting the contrary. The court held that a contract was consummated, in spite of a considerable degree of ambiguity in the wording of the letters. Two judges disagreed. Both parties had referred to the plaintiff's closing letter as an ''offer''. The defendant's previous letter had stated the terms to which it agreed, but added several ''exceptions,'' one being ''suitable assurances'' that lower level executives would be retained, and another that ''mutually satisfactory arrangements'' be made for the employment of Conroy (the defendant's president). In spite of these ''exceptions'' the defendant's letter assured plaintiff that it was ''in legal effect ... an offer,'' and the court interpreted this as justifying the plaintiff in understanding that the said ''exceptions'' were merely items on which a subsequent agreement would be made. On this interpretation the dissenting opinion very positively disagrees. The facts reported are such as to show that the case is on the borderline, one on which a reviewer can not properly express an independent judgment. On one matter this author agrees with the majority and disagrees with the dissent. Extrinsic parol evidence was certainly admissible to aid in the interpretation of the letters, not to vary or contradict the terms of a written contract but to determine whether a contract was ever made and what were its terms. If, as the dissent asserts, no contract was made, the so called ''parol evidence rule'' has no application. The majority opinion further holds that the ''exception'' as to ''mutually satisfactory arrangements'' for Conroy's employment was in terms sufficiently definite for enforcement without any further expressions of assent. This is immaterial if the defendant's offer to sell was not conditional on such an arrangement; but if the offer to sell was thus conditional, it seems to the present writer that the condition was not fulfilled. Further, it is his opinion that if the letters as interpreted with the aid of parol evidence were sufficient to show mutual assent to a contract, they constituted a sufficient memorandum to satisfy the statute of frauds. Sections 1.23, 2.1 and 2.3 of this treatise are also cited in the opinions.

(n5)Footnote 5. See Metro-Goldwyn-Mayer, Inc. v. Scheider, 40 N.Y.2d 1069, 392 N.Y.S.2d 252, 360 N.E.2d 930 (1976) , where a contract was formed in a manner that can metaphorically be described as block by block. The final block was a custom in the television trade as to when performance was to begin.

See also Purrington v. Grimm, 83 Vt. 466, 76 A. 158 (1910) , where it was held that such a completed agreement was finally reached and a contract made.

The same result was reached in the following case, where the court said: ''It should be first noted that every term of the contract, assuming it to be such, was assented to by each of the parties as it was reached during the progress of the negotiations. The evidence is without conflict on this point... After the negotiations had been concluded there was no haste about the preparation and signing of the memorandum, although the advertised foreclosure sale was but two days away. All parties treated the negotiations as a finality.'' Priest v. Oehler, 328 Mo. 590, 41 S.W.2d 783 (1931) .

The following is an illustrative case: After the defendant had quoted a price on wheels, the plaintiff ordered 3000 sets for the next year. The defendant replied that he could not make so many, and said that he ''could not at most undertake over 100 sets per month... If it will be of any advantage to you to get the wheels in lots about as above mentioned, 100 sets per month, I will do my best to serve you.'' The plaintiff replied ''enter my order for the 100 sets per month as your letter indicates.'' The defendant replied ''I will enter your order for 100 sets per month for the coming year, and if I can ... do better than that, will do so.'' It was held that there was a contract. Ames v. Pierson, 174 Pa. 597, 34 A. 317 (1896) .

Fire Ass'n of Philadelphia v. Allis Chalmers Mfg. Co., 129 F.Supp. 335 (D.Iowa 1955) is another case in which the terms of the contract were contained in a series of letters over a long period of time, the later ones making changes in specifications and prices, at the same time referring to the previous letters. The provisions of the earlier letters were held to be incorporated in the final operative ones, except so far as they had been modified by the later ones.

In Smith v. Onyx Oil & Chemical Co., 120 F.Supp. 674 (D.Del.1954) , vacated, 218 F.2d 104, 50 A.L.R.2d 216 (3d Cir.) a continued negotiation that led eventually to a complete agreement is illustrated.

See, in greater detail, § 2.9 below.

(n6)Footnote 6.

Del. - Clark v. Bradford Gas & Power Corporation, 11 Del.Ch. 178, 98 A. 368 (1916) .

Ind. - Navin v. New Colonial Hotel, Inc., 88 N.E.2d 51 (Ind.App.1949) , superseded, 228 Ind. 128, 90 N.E.2d 128 .

Md. - Peoples Drug Stores, Inc. v. Fenton Realty Corp., 191 Md. 489, 62 A.2d 273 (1948) .

Mass. - Parkway, Inc. v. U.S. Fire Ins. Co., 317 Mass. 428, 58 N.E.2d 646 (1944) , oral contract to execute and to pay premium on a renewal policy of insurance.

Mo. - Young v. Lanyon, 242 S.W. 685 (Mo.App.1922) .

N.Y. - Pratt v. Hudson R.R. Co., 21 N.Y. 305 (1860) .

In Shepard v. Carpenter, 54 Minn. 153, 55 N.W. 906 (1893) , the court said: ''A contract between two persons, upon a valid consideration, that they will, at some specified time in the future, at the election of one of them, enter into a particular contract, specifying its terms, is undoubtedly binding, and upon a breach thereof the party having the election or option may recover as damages what such particular contract to be entered into would have been worth to him, if made. But an agreement that they will in the future make such contract as they may then agree upon amounts to nothing.''

In Ridgway v. Wharton, 6 H.L.Cas. 268, Lord Wensleydale said: ''An agreement to be finally settled must comprise all the terms which the parties intended to introduce into the agreement. An agreement to enter into an agreement upon terms to be afterward settled between the parties is a contradiction in terms.''

See M.F. v. F., 40 Del.Ch. 17, 172 A.2d 274 (1961) , agreement ''to renegotiate'' the terms of a contract to support an illegitimate child, noted under § 4.1.

A contract is not invalid by reason of a provision that its terms shall be subject to revision in case of changed conditions and for arbitration as to the change to be made in case the parties themselves can not agree. On an application for a declaratory judgement, the court held that the parties were bound by the arbitration provision. Shepard v. Carpenter, cited in this note was distinguished. Zelle v. Chicago & N.W.R. Co., 242 Minn. 439, 65 N.W.2d 583 (1954) .

(n7)Footnote 7. Agreements to agree on price are discussed in § 4.3 below.

In Brown v. New York Cent. R., 44 N.Y. 79 (1870) , the plaintiff proposed to lease to the defendant a small railroad line for $60,000 a year, with an option to buy outright and terminate the rental ''at a time to be agreed upon'' by payment of $1,000,000. Rent was to commence on April 1, next. The letter further stated that the form and covenants of the lease and other details would require consideration and would be thereafter arranged. The defendant wrote accepting this proposal. Nothing more occurred until July, four months later, when all details were agreed on and the lease executed. This lease provided that rent should be payable as of May 1, but without prejudice to the plaintiff's claim to the agreed rent for the month of April. The court held that this claim was unfounded because no contract existed prior to July.

In Ansorge v. Kane, 244 N.Y. 395, 155 N.E. 683 (1927) , reh'g denied, 245 N.Y. 530, 157 N.E. 845 , the parties signed a memorandum of agreement for the sale of land for the ''price of $32,625; payable $12,625 cash, balance of $20,000 to remain on first mortgage for four years. The sum to be paid on signing of contract on March 26 to be agreed on. The balance of cash payment on passing of title on May 26.'' The memorandum acknowledged receipt of $500 as a binder. The seller refused to convey, never having agreed on the amount to be paid on March 26. The court refused specific performance on the ground that the amount of the payment to be made on March 26 was an essential matter and that no contract had been made.

Illustrative cases:

U.S. - Beech Aircraft Corp. v. Ross, 155 F.2d 615 (10th Cir.1946) , specific prices of goods per unit to be subject to revision ''by mutual agreement.''

Nebo Constr. Co. v. Southeastern Electric Constr. Co., 200 F.Supp. 582, 587 (W.D.La.1961) , ''sheer indefiniteness,'' citing this section.

Ala. - Hinrichs v. Tranquilaire Hospital, 352 So.2d 1130 (Ala.1977) .

Ark. - Somers v. Musolf, 86 Ark. 97, 109 S.W. 1173 (1908) .

Cal. - Louis Lesser Enterprises, Ltd. v. Roeder, 209 Cal.App.2d 401, 25 Cal.Rptr. 917 (1962) , incomplete writing a mere part of complex negotiations, quoting this section; Dillingham v. Dahlgren, 52 Cal.App. 322, 198 P. 832 (1921) ; Fly v. Cline, 49 Cal.App. 414, 193 P. 615 (1920) .

In Gould v. Callan, 127 Cal.App.2d 1, 273 P.2d 93 (1954) , specific performance of a contract for the sale of land was denied because essential provisions were left for future agreement. See also § 1174.

Colo. - Baum v. Rock, 106 Colo. 567, 108 P.2d 230 (1940) .

D.C. - Garzon v. District of Columbia Comm. on Human Rights, 578 A.2d 1134 (D.C.App.1990) . The Commission ordered enforcement of a settlement agreement without making findings of fact on the allegations of the claimant that matters to be agreed upon included whether the employer should pay claimant's attorneys fees and whether claimant would waive reinstatement.

Kan. - St. Louis & S.F.R. Co. v. Gorman, 79 Kan. 643, 100 P. 647 (1909) .

Mich. - Socony-Vacuum Oil Co. v. Waldo, 289 Mich. 316, 286 N.W. 630 (1939) .

Md. - Simmons v. Simmons, 37 Md.App. 202, 376 A.2d 1147 (1977) , separation agreement contained provisions for the parties to review the question of support payments.

Minn. - Shepard v. Carpenter, 54 Minn. 153, 55 N.W. 906 (1893) .

Mo. - Amaan v. Eureka, 615 S.W.2d 414 (Mo.1981) , cert. denied, 454 U.S. 1084 ; P.R.T. Inv. Corp. v. Ranft, 363 Mo. 522, 252 S.W.2d 315 (1952) , stated herein at § 2.1.

Mont. - Livingston Waterworks v. Livingston, 53 Mont. 1, 162 P. 381 (1916) ; Esselstyn v. Meyer & Chapman State Bank, 63 Mont. 461, 208 P. 910 (1922) .

N.C. - Seawell v. Continental Cas. Co., 84 N.C.App. 277, 352 S.E.2d 263 (1987) , jury found no intent to contract.

N.Y. - Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 436 N.Y.S.2d 247, 417 N.E.2d 541 (1981) , critically noted in § 4.3 below; Read v. Henzel, 67 A.D.2d 186, 415 N.Y.S.2d 520 (1979) , absence of intent to be bound is clear.

Or. - Dimitre Electric Co. v. Paget, 175 Or. 72, 151 P.2d 630 (1944) ; Holtz v. Olds, 84 Ore. 567, 164 P. 583 (1917) , reh'g denied, 84 Ore. 567, 164 P. 1184 .

Pa. - Driebe v. Fort Penn Realty Co., 331 Pa. 314, 200 A. 62, 117 A.L.R. 1091 (1938) .

S.C. - Savannah Guano Co. v. Fogle, 112 S.C. 234, 100 S.E. 59 (1919) .

Tex. - Barrier v. Brinkmann, 130 Tex. 350, 109 S.W.2d 462 (1937) .

Wash. -In Sandeman v. Sayres, 50 Wash.2d 539, 314 P.2d 428 (1957) , the plaintiff was employed by the defendant as a sales manager, by a written contract at a stated salary of $750 per month with an ''incentive provision'' for payment of a ''commission and/or bonus,'' the amount to be determined after operation for three months should afford data as to business done. At end of three months the parties agreed that it was too soon to determine the amount. After a year's operation, the defendant having operated without profit, the plaintiff sued for reasonable compensation (his stated salary having been paid). The court dismissed the suit, holding that this was merely an agreement to agree on any additional payment and not a contract to pay a ''reasonable'' amount. The decision would have been otherwise had the defendant's promise been one to pay a ''reasonable'' bonus or to pay a bonus of ''between $400 and $500'' as in Sibley v. Stetson & Post Lumber Co., 110 Wash. 204, 188 P. 389 (1920) . In this cited case there was a ''fixed minimum'' of $400, leaving uncertain only a further amount within a ''range'' of $100. In the case here noted, there was certainly a valid employment contract at $750 per month. It was merely the subsidiary provision for additional compensation that was void for the reason that it was conditional on mutual agreement as to the amount. The defendant's failure to assent to a bonus was not in bad faith; and the plaintiff did not prove that his services rendered were reasonably worth more than the salary received.

Eng. -Scammell v. Ouston, (1941) All Eng. 14 (H.L.), reversing Ouston v. Scammell, (1940) 1 All Eng. 59 (C.A.).

In Lucier v. Norfolk, 99 Conn. 686, 122 A. 711 (1923) , the agreement provided that it might be renewed at its expiration, if satisfactory to both parties, on terms then to be agreed upon.

In Pure Oil Co. v. Petrolite Corp., 158 F.2d 503 (5th Cir.1946) , cert. denied, 330 U.S. 834 , a lease of certain machinery provided that the lessee should have an option to buy it at a specific price, ''subject to the terms of a sales and purchase agreement to be entered into between the parties.'' Since the use of the machinery involved the use of a process owned by the lessor, the ''agreement to be entered into'' would involve terms as to license and royalty. On this supposition, the court would not supply those terms by ''implication'' or otherwise. Cf. Ouston v. Scammell, supra.

In Greenley v. Janesville Mills, 204 F.2d 526 (7th Cir.1953) the parties agreed upon a sale of soy beans at a stated price, to be processed and resold, profit or loss to be divided. It was further agreed that, if the product could not be sold, the seller would be notified so that ''a decision might be arrived at as to what future action would be to (the parties') mutual benefit.'' The product was not salable. The agreement was held too indefinite for enforcement. The stated price was not payable, for the reason (it seems) that it was promised only on the condition that the product could be sold.

This section is quoted in Betty Lee Shoes, Inc., v. Karl's Shoe Stores, Ltd., 293 F.2d 429 (5th Cir.1961) , holding that a provision in a written contract for the sale of stock-in-trade that the parties would execute a 5-year employment contract at $1,000 per month and ''shall be drawn satisfactory to both parties'' showed on its face that essential provisions were still to be agreed on. The plaintiff attempted to show that the ''employment'' provision was a ''sham''; and the court held that this was not admissible, at the same time holding, however, that the evidence offered showed that the parties had never been able to agree upon the terms of the contemplated ''employment'' contract, whether it was ''sham'' or not. Of course, the ''parol evidence rule'' has no application unless the terms of a valid contract have been ''integrated.''

Pacific Hills Corp. v. Duggan, 199 Cal.App.2d 806, 19 Cal.Rptr. 291 (1962) , contract as to one parcel of land provided for a future agreement for development of a second parcel, $35,700 ''to be used by the parties for the purpose of developing and improving said property for sale.'' No specification as to the sort of development or improvement, this being regarded as ''essential''. The court distinguishes Los Angeles v. Superior Court of County of Los Angeles, 51 Cal.2d 423, 333 P.2d 745 (1959) , where indefiniteness as to location of a plot of 5 acres as a drilling site was held not vital.

(n8)Footnote 8.

Mich. - Opdyke Invest. Co. v. Norris Grain Co., 413 Mich. 354, 320 N.W.2d 836 (1982) .

N.Y. - Four Seasons Hotels Ltd. v. Vinnik, 127 A.D.2d 310, 515 N.Y.S.2d 1 (1987) .

(n9)Footnote 9. As to agreements to agree on price, consult § 4.3 below.

(n10)Footnote 10.

U.S. - Great American Ins. Co. v. Maxey, 193 F.2d 151 (5th Cir.1951) , effect and terms of an oral ''binder.''

In insurance, what is known as a preliminary ''binder'' is a contract for the subsequent issuance of a formal policy containing the standard provisions, or those that are customary in like cases. Such a policy, when subsequently executed, states in full the terms on which both parties are bound. Fisher v. Underwriters at Lloyd's London, 115 F.2d 641 (7th Cir.1940) .

This section is cited by the court in John Deere & Co. v. Mississippi Shipping Co., 170 F.Supp. 479, 481 (E.D.La.1959) , where a shipper sued a carrier for damages for injury to goods in the process of loading. The carrier had executed a ''dock receipt'' but not a bill of lading. The court said: ''Normally, the contract takes final form in a bill of lading issued by the carrier. But where, as here, the details of the bill of lading are agreed to in advance, the contract is complete at the time of the agreement.'' The shipper was held bound by a limitation of liability of $500 per package although this was not in the dock receipt.

Cal. -An oral ''binder'' was held to be enforceable in Parlier Fruit Co. v. Fireman's Fund Ins. Co., 151 Cal.App.2d 6, 311 P.2d 62 (1957) , in spite of its informality and indefiniteness. See also § 2.9, § 4.1, § 245, § 562.

Ill. -A writing entitled ''Option of purchasing'' and signed by the owner of property is neither an ''option'' nor an operative offer to sell, if it is so worded as to indicate that the amount of the down payment and the time for beginning monthly payments are terms still to be agreed upon and are not blanks that the purchaser is authorized to fill as the purchaser desires. Whitelaw v. Brady, 3 Ill.2d 583, 121 N.E.2d 785 (1954) .

R.I. -In Fliger v. Pennsylvania Fire Ins. Co., 48 R.I. 274, 137 A. 470 (1927) , the plaintiff asked for new insurance on furs to go into effect at once, and the defendant assented. This was held to make a contract at the customary rate for furs; for a ''standard'' policy, and for the customary period of one year.

In Roig v. Electrical Research Products, 57 F.2d 639 (1st Cir.1932) , the court said: ''Where parties make a preliminary agreement which deals with the subject-matter in a general way and provides that essential details shall be elaborated and defined in a later instrument, the parties are bound to what is expressly said in the preliminary contract, and to what is included in it by reasonable implication. Sanders v. Pottlitzer Bros.' Fruit Co., 144 N.Y. 209, 39 N.E. 75 . This latter is, to some extent at least a question of fact depending on the nature of the business to which the contract relates, the ordinary usage therein, the circumstances under which the parties dealt, and perhaps upon other surrounding facts. Neither party is bound to accept in the formal instrument anything to which he has not already assented, either expressly or by implication, in the preliminary agreement.''

This section is cited (also § 2.1) in Ontario Downs, Inc. v. Lauppe, 192 Cal.App.2d 697, 13 Cal.Rptr. 782 (1961) , where a long detailed escrow agreement was held to be a valid contract, the requirements of the statute of frauds being satisfied by the writing. It purported to be a contract for the conveyance of a 450-acre tract of land in specified installments on fully stated terms, the first instalment of 15.87 acres to be selected at the option of the purchaser ''subject to approval by the optionor'' (vendor). Since this limited tract was merely a part of the large tract that the vendor promised to convey, the fact that it remained to be identified by a selection did not cause the agreement to be mere preliminary negotiation or cause the writing to be insufficient to satisfy the statute. The vendor did not have the privilege to refuse his approval of a ''reasonable'' selection; he was bound to use reason and good faith. If the parties did not agree on selection, the purchaser could waive his ''option'', and the vendor would be bound to make the selection. If the vendor refused to approve or to make a selection, the court could compel conveyance of a reasonable selection made by the purchaser. See note under § 1174.

Duggan v. Matthew Cummings Co., 277 Mass. 445, 178 N.E. 825 (1931) , is another illustration: ''There was evidence that on May 4, 1930, the plaintiff submitted to the defendant the written proposal, set out in the declaration, for the erection of structural steel in a building, referred to therein, at the price of $17 a ton on terms therein stated, and that on June 4, 1930, the defendant wrote the letter to the plaintiff, set out in the declaration, which was received by the plaintiff, and which stated that'' we hereby accept your proposition to erect the structural steel at the Administration Building, City Hospital. Please come into the office and we will draw up our standard form of contract. ''The proposal contained the following provisions, among others:'' Price for said work $17 per ton. This price is based on the present scale of wages. This price is based approximately ____________________ tons of 2000 pounds and is subject to prompt acceptance. Steel to be ready for erection ____________________ Shipments completed ____________________ Field Paint ____________________ Field Painting ____________________ ... Terms of payment shall be as follows:-On or before the ____________________ day of each month 85% of the value of labor performed the previous month. Final payment of the balance of 15% within thirty days after the work included under this contract is completed. ''The blank spaces indicated were not filled in. There was evidence also that on June 10, 1930, the plaintiff and the defendant's president met at the defendant's office and its president then asked the plaintiff if he had received the letter of June 4, and receiving an affirmative reply, asked if that was a good enough contract for him, and the plaintiff replied that'' it was enough-all we had before ...''.

''A finding that a contract was made, as alleged in the declaration, was warranted. The written proposal of May 4, 1930, if made by the plaintiff to the defendant, as seems to be undisputed, amounted to an offer for a contract. The failure of the plaintiff to include therein an estimate of the amount of steel required for the work, and to fix the times at which portions of the work were to be completed, and the day of the month upon which each monthly payment was to be made, did not prevent this proposal's being an offer. Such provisions were not essential elements of an offer since without them an offer, if it ripened into a contract, was not too indefinite for enforcement.

''Nor was the proposal indefinite because the price fixed was stated to be ''based on the present scale of wages.'' This statement in the proposal was an explanation of the provision that the price was ''subject to prompt acceptance.'

''The letter of June 4, 1930, was in terms an acceptance of this offer and did not purport to make acceptance conditional upon the execution of the defendant's ''standard form of contract.''''

See further Chapter 4, dealing with vagueness and uncertainty of terms.

(n11)Footnote 11. Heritage Broadcasting Co. v. Wilson Communications, Inc., 170 Mich.App. 812, 428 N.W.2d 784 (1988) , nothing to be agreed upon but the mechanics of closing the sale of the television stations.

Four Seasons Hotels Ltd. v. Vinnik, 127 A.D.2d 310, 515 N.Y.S.2d 1 (1987) .

Mallozzi v. Carapelli, [1975] 1 Lloyd's Rep. 229 , contract to sell grain in Argentina and deliver it to a port on the west coast of Italy to be agreed upon.

(n12)Footnote 12. In Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F.Supp. 1176 (N.D.Miss.1970) , a merger agreement was subject to a named employee's employment contract being settled to the mutual satisfaction of the parties. The court found that the merger agreement was binding, saying:'' It is a long-standing rule of construction that the word ''satisfaction''will be construed by the courts to mean reasonable satisfaction. In fact the evidence shows that [the parties] were negotiating within well-defined limits and probably headed toward a final understanding.''

In Stevens v. Stevens, 798 S.W.2d 136 (Ky.1990) , a separation agreement provided that the husband would pay for a college education for his daughter'' the amount and nature thereof shall hereafter be mutually agreed upon... ''The court found the agreement sufficiently definite. Although there are more and less expensive colleges, the daughter had enrolled in Northeastern and there was some evidence that the husband acquiesced in this choice. The courts below erred in finding that there was no binding obligation under this part of the contract.

(n13)Footnote 13.

U.S. - Wood County Grocer Co. v. Frazer, 284 Fed. 691 (8th Cir.1922) .

Mass. - Mutual Paper Co. v. Hoague-Sprague Corporation, 297 Mass. 294, 8 N.E.2d 802 (1937) , lessee given option for a renewal at rental not more than 10 per cent above present rental.

In Holt v. Swenson, 252 Minn. 510, 90 N.W.2d 724 (1958) a client agreed to pay his attorney a contingent fee'' equal to one-third to one-half of the amount recovered. ''This was enforceable as to the minimum of one-third even though any excess above that amount was left for further agreement. See also note under § 4.3.

The text is well illustrated by Biothermal Process Corp. v. Cohu & Co., 119 N.Y.S.2d 158 (Sup.1953) , modified, 283 A.D. 60, 126 N.Y.S.2d 1 , aff'd, 308 N.Y. 689, 124 N.E.2d 323 (1954) , banker's contract to make available the money necessary to finance construction, expressly leaving the details as to commissions and sale of securities for later agreement. Banker repudiated after action by the promisee in obtaining construction contract.

(n14)Footnote 14. In Hazeltine Corporation v. Zenith Radio Corp., 100 F.2d 10 (7th Cir.1938) , cert. denied, 306 U.S. 656 , a patentee promised to grant a license to the defendant'' in the standard form which is to be adopted. ''Later, the patentee did adopt and use such a'' standard form. ''The contract was held to be specifically enforceable thereafter. The court said:'' the new standard form was prepared and adopted for use in the trade, and we are not confronted by any questions that might have arisen if Hazeltine had failed to formulate and offer the new license to prospective licensees. By the formulation and adoption of the new form Hazeltine defined its obligations as a licensor under the option contract with Zenith. There is no suggestion by either party that the new form of license does not satisfy the standard of certainty which the law requires as a prerequisite to the incurring of contract obligations. If Hazeltine had not formulated and tendered its new standard form of license, and if Zenith were seeking relief in some form of the basis simply of the letter of January 31, 1934, it is obvious that it would be futile to contend that such letter constituted a license, or a contract for the issuance, of a license which could be enforced in equity. But when the new standard form was adopted by Hazeltine it became a part of the option contract.''

(n15)Footnote 15. Uniform Commercial Code § 2-311(2) provides:

''An agreement for sale which is otherwise sufficiently definite ... to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.''

Subdivisions (2) and (3) indicate how such a provision should be implemented. This section implements the broad policy announced in Uniform Commercial Code § 2-204(3).

(n16)Footnote 16.

Md. - Gressitt v. Anderson, 187 Md. 586, 51 A.2d 159 (1947) .

In Morris v. Ballard, 16 F.2d 175, 56 App.D.C. 383, 49 A.L.R. 1461 (1926) , the court said:'' The plaintiff had taken possession of the property under the contract, and had expended money in making alterations and repairs upon it in reliance upon the option, which was one of the terms of the agreement. Under these circumstances, it became the duty of defendant, upon proper demand, either to accept the agreed purchase price in cash or to specify such terms as were acceptable to him. He had no right to refuse arbitrarily and unconditionally to accept payment solely for the purpose of defeating the option. Such a refusal would operate as a fraud upon the plaintiff.

''The agreement of the defendant, under the circumstances, to accept the agreed purchase price ''on terms to be agreed upon,''was in good conscience a stipulation that he would in fact agree with plaintiff upon reasonable terms of payment, and would not arbitrarily refuse to proceed with the sale. His refusal either to accept cash or to name any terms whatever was a wrongful violation of that agreement, for which the plaintiff had no adequate remedy except a decree of specific performance.'' The facts that the option to buy was a part of a lease and that in reliance thereon the lessee had occupied and made valuable improvements without doubt made the court more ready to fill gaps and make implications.

In Volk v. Atlantic Acceptance & Realty Co., 139 N.J.Eq. 171, 50 A.2d 488 (1947) , aff'd, 141 N.J.Eq. 364, 57 A.2d 365 , where an option to buy at a stated price was contained in a lease and the lessee gave notice of acceptance, specific performance was decreed, even though the provision for the option contained these words: ''The terms of the said sale to be determined and settled by the parties hereto at the time of the exercise of the option.''

In Sun Printing & Pub. Ass'n v. Remington Paper & Power Co., 235 N.Y. 338, 139 N.E. 470 (1923) , the court was considerably less liberal in its willingness to fill gaps and find sufficient definiteness as to price, in all probability not liberal enough. The case is clearly repudiated by Uniform Commercial Code § 2-305.

In Finch v. King Solomon Lodge, 40 Wash.2d 440, 243 P.2d 645 (1952) , a provision in a lease for a renewal ''on terms then to be agreed upon at that time'' was held to be unenforceable.

Similar to the Finch case, supra, is King v. Dalton Motors, Inc., 260 Minn. 124, 109 N.W.2d 51 (1961) , ''a first option to purchase'' at a price to be negotiated. Facts noted under § 261.

(n17)Footnote 17. In Morris v. Ballard, supra, the court quoted with approval from Pomeroy on Specific Performance: ''It should also be remarked, before proceeding with the discussion, that when a contract has been partly performed by the plaintiff, and the defendant has received and enjoys the benefits thereof, and the plaintiff would be virtually remediless unless the contract were enforced, the court, from the plainest considerations of equity and common justice, does not regard with favor any objections raised by the defendant merely on the ground of the incompleteness or uncertainty of the agreement. Even if the agreement be incomplete, the court will then, in furtherance of justice and to prevent a most inequitable result, decree a performance of its terms as far as possible, although, perhaps with compensation or allowance.''

A selling agency agreement provided that the agent ''shall automatically have the right of renewing this contract from year to year-providing he shall sign a new quota agreement for each year which shall be in excess of the previous year's quota and to be mutually agreed upon.'' Under this agreement the agency was continued for some years. It was held error to dismiss on the pleadings. The plaintiff might show that by the ''course of dealing'' a reasonable increase in 10%. May Metropolitan Corp. v. May Oil Burner Corporation, 290 N.Y. 260, 49 N.E.2d 13 (1943) .

Action in reliance by one of the parties may, however, be quite unreasonable. In Cleborne v. Totten, 57 F.2d 435, 61 App.D.C. 69 (1932) , a tenant occupying under a three year lease wrote to the landlord about papering and painting, and added: ''If I am to leave next February 1st and do the papering so as to give me the assurance that I am to remain, I will then know just exactly how I stand and what to do. You can think it over and come prepared to say just what you will do.'' The landlord made the improvements as desired, and later sent a renewal lease for three years. The tenant refused to sign it and moved out. There was no contract of lease made. The landlord should have completed the negotiation before doing the repairing.

This section is quoted and applied in Muth v. J.W. Speaker Corp., 151 F.Supp. 188 (E.D.Wis.1957) , aff'd, 262 F.2d 797 (7th Cir.) , holding that a letter confirming an oral agreement, the terms of which were stated, assented to and acted on by both parties, showed that an enforceable contract had been made, even though the letter contained the following paragraph: ''It is further mutually agreed that: This agreement cannot be canceled and the cancellation clause will be incorporated in the final draft and the cancellation time is to be agreed on when making the final draft.'' No ''final draft'' was ever made, and the parties proceeded with performance for more than a year without giving ''cancellation'' another thought.

This section is cited (also § 2.10) in Fontainebleau Hotel Corp. v. Crossman, 286 F.2d 926 (5th Cir.1961) . An oral contract for a lease, with option to renew for 5 years, was specifically enforced, even though the parties contemplated further negotiation as to various matters. The lease was reduced to writing but never signed. Possession was taken, $50,000 spent on improvements by the lessee, and rent was paid for months. See also note under § 420.

See also, Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F.Supp. 1176, 1191 (N.D.Miss.1970) , stating: ''where one party begins performance, with knowledge and approval of the other, it is nearly always evidence of intention to be bound,'' citing § 4.1 of this treatise.

(n18)Footnote 18.

Mo. - Tureman v. Altman, 361 Mo. 1220, 239 S.W.2d 304, 26 A.L.R.2d 729 (1951) .

Ohio - Moss v. Olson, 148 Ohio St. 625, 76 N.E.2d 875, 36 Ohio Op. 252 (1947) .

S.C. - Rainwater v. Hobeika, 208 S.C. 433, 38 S.E.2d 495, 166 A.L.R. 1228 (1946) .

Some earlier cases and texts had stated the law otherwise. See Chapter 64, Special Reasons for Refusing Specific Enforcement, and Chapter 4, Indefiniteness and Mistake in Expression.

In Talamini v. Rosa, 257 Ky. 228, 77 S.W.2d 627 (1934) , a buyer promised, in exchange for the seller's interest in a corporation, ''to pay or properly secure the payment of $18,000.'' The buyer tendered the full price in cash; and the defendant's demurrer to a bill for specific performance was overruled. It did not appear that there had been any serious change of position in reliance. The contract seems not too indefinite for enforcement in an action for damages as well as for enforcement in equity.

Many additional cases are cited and discussed in § 4.3 below.

(n19)Footnote 19. In American Broadcasting Co. v. Wolf, 52 N.Y.2d 394, 438 N.Y.S.2d 482, 420 N.E.2d 363 (1981) , sportscaster Werner Wolf's employment contract with ABC provided that during the last 90 days of his employment under the contract he would enter into good faith negotiations for the extension of the agreement and that during the first 45 days of this 90 day period he would negotiate with no one else. He breached by negotiating with CBS during the proscribed period and ultimately entered into a contract of employment with CBS. The court agreed with ABC that Wolf had breached a binding agreement not to negotiate with anyone else, but denied injunctive relief. Damages were not sought; undoubtedly because they were too speculative. Query, would ABC have been in a better position if it had sued CBS for the tort of interference with the contract?

In Reprosystem, B.V. v. SCM Corp., 727 F.2d 257 (2d Cir.1984) , cert. denied, 469 U.S. 828 , the parties reached agreement in principle, but the seller abruptly changed the course of negotiations after final drafts had been prepared but not negotiated. The court recognized, however, the possibility that there might be an implied agreement to negotiate in good faith. However, it concluded that such an agreement is fatally indefinite under New York law. Such a conclusion, however, appears to have been contradicted by Goodstein Constr. Corp. v. New York, 67 N.Y.2d 990, 502 N.Y.S.2d 994, 494 N.E.2d 99 (1986) . Plaintiff sought $800 million in damages, most of which consisted of expectation damages. It has been held that the trial court was in error in granting the defendant partial summary judgment dismissing the claim for lost profits. 169 A.D.2d 229, 573 N.Y.S.2d 151 (1991) , rev'd, 80 N.Y.2d 366, 590 N.Y.S.2d 425, 604 N.E.2d 1356 .

(n20)Footnote 20. 248 A.2d 625 (Del.1968) .

(n21)Footnote 21. Ultimately judgment was entered on a jury verdict for defendant. 274 A.2d 141 (Del.1971) .

(n22)Footnote 22. Professor Farnsworth in the article cited at note 1, supra suggests some answers based on decisions under the National Labor Relations Act which in prescribed circumstances imposes the duty to bargain in good faith on labor and management. 87 Colum.L.Rev. at 270-285. He expresses the preference for the term ''fair dealing'' instead of ''good faith.''

(n23)Footnote 23. Feldman v. Allegheny International, Inc., 850 F.2d 1217 (7th Cir.1988) . The case goes further, however, and states: ''Good faith is no guide. In a business transaction both sides presumably try to get the best of the deal. That is the essence of bargaining and the free market. And in the context of this case, no legal rule bounds the run of business interest. So one cannot characterize self-interest as bad faith. No particular demand in negotiations could be termed dishonest, even if it seemed outrageous to the other party. The proper recourse is to walk away from the bargaining table, not to sue for bad faith negotiations.'' (Coffey, J). One wonders whether the judge would say this in the context of the Arcadian case discussed in § 2.9 below, or the Red Owl case cited in connection with that discussion.