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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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.8

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

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[a] Agreements to Agree [Go To Main]

(A) The following cases cite this section or a predecessor section:

(1) C & Y Corp. v. General Biometrics, Inc., 896 P.2d 47 (Utah App. 1995) . Citing this section in noting that the ''crucial question is whether the parties agreed on the essential terms of the contract,'' the court decides that a letter from a former director of a corporation offering to buy a division and a letter from the corporation offering to sell the division did not form contract where (a) one letter referred to a sale of assets while the other referred to a sale of assets and liabilities; (b) one letter specified a price of $500,000 but a payment schedule amounting to $450,000 and the other sought reworking of the schedule to amount to $500,000; and (c) second letter notes a plan to take the proposal to the corporation's board of directors for formal approval.

(2) Jack Baker, Inc. v. Office Space Development Corp., 664 A.2d 1236 (D.C. App. 1995) (oral agreement concerning complex contracting job not proven to be enforceable bargain as it lacked expression of material terms to be incorporated into later document).

(3) Northington v. Michelotti, 121 N.C. App. 180, 464 S.E.2d 711 (N.C. App. 1995) (whether handwritten summary of terms of bargain reflected a ''meeting of the minds'' or was instead an agreement to agree was question for jury).

(4) City of Rome v. Glanton, 958 F. Supp. 1026 (E.D. Pa. 1997) (applying Pennsylvania law). An art museum proposed to loan an art collection to the City of Rome in exchange for $3,000,000, conditional on obtaining a necessary court order allowing the exhibit to travel outside Philadelphia. The museum had outlined this proposal in a series of letters to the City-to which the City never replied-and the two parties had conversations about the exhibit in Rome. After the museum loaned the collection to another city, the City of Rome sued, alleging that a contract had been formed on the basis of the letters and the site visit. The court dismissed the complaint, finding nothing more than an agreement to agree. Essential terms were missing from the letters-such as the terms of payment-which the court refused to supply.

(5) Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996) . Distinguishing between an agreement to agree and an option contract depends on ascertaining the intentions of the parties and the definiteness of the terms. In this case, the parties signed a writing granting an option to purchase real estate on specified terms and optionee sought to exercise it. The optioner refused to proceed, claiming the writing was merely an agreement to agree, and offering instead a sale on different terms. The optionee sought specific performance. Although one paragraph of the writing expressly contemplated that the parties would ''enter into'' a subsequent written purchase agreement, taken together with all the other provisions (price, duration of option, an environmental study/remediation of the property, method of exercising option, confidentiality, and type of standard form sales contract to be used), this writing manifested an intention of both parties to be bound. These terms, moreover, amounted to all the essential terms of the bargain and indeed the specification of the standard form of sales contract also reflected the non-essential terms of the ultimate contract. Accordingly, this writing was a binding option contract, not a mere agreement to agree. This case is also noted in §§ 2.9 and 11.1.

(6) Mays v. Trump Indiana, Inc., 255 F.3d 351 (7th Cir. 2001) . When the plaintiff investors found the existence of a contract by piecing together several documents, the defendant corporation said no binding deal was reached: although the parties had engaged in various negotiations and had put forth various ideas, proposals, and plans, there had been no finished contract upon which the investors could have sought damages or specific performance in court. The appellate court determined that these discussions had constituted only an agreement to agree, which was unenforceable under state law. Because so many material terms of this complicated deal were never reduced to the kind of solid contract that could be comfortably enforced in a court of law, the judgment of the district court was reversed.

The court distinguished between a contract and a mere agreement to agree, citing Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996) , which quoted Corbin at § 2.8, page 133-34 (rev. ed. 1993), stating that ''it is quite possible for parties to make an enforceable contract binding them to prepare and execute a subsequent final agreement. 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.'' The Wolvos court clarified this statement by noting, ''The question of whether an agreement is an enforceable ... contract or merely an agreement to agree involves two interrelated areas: 'intent to be bound and definiteness of terms.' '' Wolvos at 675 . ''Without an express statement of intent, the focus is on whether the contract is too indefinite to enforce. Thus, the existence or nonexistence of a contract turns on whether material terms are missing. And here, material terms are absent in spades.'' Mays, 255 F.3d at 358 .

(7) Kandel v. Center for Urological Treatment and Research, P.C., 2002 Tenn. App. LEXIS 260 (Tenn. Ct. App. Apr. 17, 2002) . The plaintiff claimed breach of an agreement to negotiate in good faith. The plaintiff signed a contract with a group of urologists stating that, after he was employed by the group continuously for a period of one year, the employer would negotiate with him in good faith to allow him to purchase equal ownership in the practice. After one year, he began negotiating with the group. The stock purchase price was to be based upon the group's net asset value. The group proposed a stock redemption calculation that excluded accounts receivable and further proposed that the physician would be entitled to severance pay equal to 90% of the accounts receivable attributable to him if he were terminated. They also insisted that the physician could be terminated without cause. The physician rejected the stock redemption calculation as it allowed the possibility that he would receive nothing upon redemption of his stock. He alleged that he could purchase stock, be fired one day later, and receive nothing upon stock redemption. A non-compete clause would have precluded him from working within a 50-mile radius for a period of one year. As the parties were unable to reach agreement, the plaintiff's employment was terminated.

The court had to decide whether agreements to negotiate in good faith were enforceable in Tennessee. The group argued they were not and cited case law indicating that when the parties fail to agree on all essential terms, no agreement exists at all. Corbin was cited for the basic concept that contracts to make a contract are not contracts at all. Case law compared two types of preliminary agreements: those where complete agreement has been reached with regard to all essential terms, and those where some essential terms remain to be negotiated. The court characterized the instant case as the second type and concluded that, even if such agreements to negotiate in good faith were enforceable under Tennessee state law, there was no evidence of a breach of a duty to negotiate in good faith. Even under the physician's worst-case scenario where he would have received nothing for his stock, he would still have received substantial severance pay. Furthermore, the non-compete term reflected his desires. While the plaintiff had proposed a stock redemption calculation including accounts receivable in addition to severance pay, this would have constituted a windfall to him. Moreover, the two physicians in the group had signed agreements on essentially the same terms as those proposed to the plaintiff.

(8) McLinden v. Coco, 765 N.E.2d 606 (Ind. Ct. App. 2002) . McLinden and Coco each owned 40% of the stock and each had a son who owned 10% of Southwick Homes, Ltd., which develops and markets residential subdivisions. Southwick signed a letter from a third party, Whiteco Industries, Inc., to develop a subdivision. Coco, who also was president of Mutual Development Co., contracted with Whiteco to be the developer and general contractor of the same subdivision. The McLindens brought an action against Coco for tortious interference with their Whiteco contract.

The trial court characterized a letter sent by Whiteco and signed by McLinden, upon which the plaintiffs had based their claims, as a letter of intent rather than an enforceable contract, and therefore held for the defendants on both matters. In concluding the letter was an enforceable agreement, the court of appeals considered the interrelations between intent to be bound and definiteness of terms, quoting this section of Corbin, and quoting Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996) , which suggests a guide to the determination of an intention to be bound: the more important the uncertainty, the stronger the indication that the parties did not intend to be bound; minor items are likely left to the option of the parties or to what is customary or reasonable. Here, the explicit language of the agreement revealed the parties' intent to be bound. The letter asked McLinden to indicate his acceptance of the terms and conditions by signing the document beneath the words ''AGREED AND ACCEPTED''. Further, the terms were sufficiently certain to provide a basis for determining breach and the existence of a remedy and specifically indicated the consideration.

Though finding a contract, the court did not find the plaintiffs' interpretation of the contract to be conclusive. It held that Coco had breached his fiduciary duty to Southwick shareholders by usurping a corporate opportunity, but did not find that Coco had intentionally induced Whiteco to breach its agreement with Southwick, and therefore affirmed the trial court's denial of the plaintiffs' claim of tortious interference with a contract.

(9) Devine & Devine Food Brokers, Inc. v. Wampler Foods, Inc., 313 F.3d 616 (1st Cir. 2002) . The defendant poultry manufacturer purchased the assets of a corporation but did not assume the contract between that corporation and the plaintiff food broker, which contained a substantial severance penalty. This was true even though the plaintiffs refused to acknowledge it and despite the fact that the defendant secured the plaintiff's services on terms similar to those of the other contract. This case is fully discussed at § 1.19.

(10) Prisma Zona Exploratoria de P.R., Inc. v. Calderon, 310 F.3d 1 (1st Cir. 2002) . To create a children's museum, the government of Puerto Rico created the Children's Trust Fund. Several private citizens with close ties to the current administration formed Prisma Zona (PZ) to take over the construction, ownership and operation of the museum. PZ requested $60 million from the trust fund to pay for museum assets and complete the construction of the museum as well as another $17.5 million to operate it for three years. The Trust Fund Board, chaired by the governor of Puerto Rico, sent a letter to PZ stating that its request had been approved conditioned on a review of the budget and the details of the initiative as well as a meeting with the officers of the Trust to verify the information and to finalize the service contract. No final service contracts were ever signed and the parties had not agreed upon the amount of the grant when elections produced a new administration that invalidated the arrangements. PZ brought this action alleging violation of its First Amendment, Due Process and Equal Protection rights. The trial court dismissed the action under Rule 12(b)(6). The appellate court affirmed. Recognizing that in the case of a politically motivated refusal to deal, a better argument for First Amendment protection exists if the parties entered into a contract, the court considered whether one existed here. The court rejected the plaintiff's contention that a contract for funding was formed by the Trust Fund's letter and the plaintiff's acceptance. The letter explicitly stated that funds would not be dispersed until service contracts were finalized. It also rejected the plaintiff's alternative argument that the parties had entered into a contract to make a contract. As this treatise explains, such a contract is enforceable only where agreement has been reached on all material terms and the parties had not yet agreed on the amount of the grant. The court declined to hold that the First Amendment requires politically immaculate state decision-making in a case such as this. Political considerations in such a case are permissible.

(11) King's Daughters & Sons Circle No. Two of Greenville, Mississippi v. Delta Reg'l Med. Ctr., 856 So. 2d 600 (Miss. Ct. App. 2003) . The plaintiff signed a letter of intent to sell its hospital to the corporation (Health Group) managing the defendant Delta Regional, the only competing hospital in the county. Upon learning of the signed letter of intent, the defendant informed Health Group that the defendant would be entitled to damages as a result of Health Group's contractual duty to the defendant to avoid a conflict of interest. Health Group terminated the letter of intent with the plaintiff. The plaintiff brought this action alleging intentional interference with contract and prospective business relations. The trial court granted the defendant's motion for summary judgment. On appeal, the instant court held that since the letter of intent captioned ''No Contract'' stated that it was not binding and left a number of terms to be agreed upon including the purchase price, the letter of intent was not a contract. Citing Corbin, the court held that a contract to make a contract is not recognized under Mississippi law unless the final agreement is a mere memorial of an agreement already reached. There could be no interference with a contract that did not exist. The court affirmed the judgment below.

(12) Hanna v. Glover, 2004 Ark. App. LEXIS 317 (Ark. Ct. App. Apr. 21, 2004) . In 1997, Del-Tin Fiber, a fiber board manufacturing company, needed dunnage blocks, which are placed under fiber board stacks to facilitate their movement with a forklift. Hanna and the Glovers agreed that the Glovers would manufacture the blocks, and that Hanna would receive a percentage of the sales for himself (2 cents per dunnage block). Del-Tin, however, refused to give the Glovers an exclusive-supplier contract. Nevertheless, Del-Tin, Hanna and the Glovers agreed that Del-Tin would purchase the blocks with an open purchase order. The Glovers subsequently supplied Del-Tin with 95 to 99 percent of its dunnage-block needs, and Del-Tin paid them 40 cents per block. The Glovers paid Hanna two cents per block. Del-Tin subsequently asked the Glovers if they would be interested in manufacturing another item. Hanna played a role in negotiating the price that Del-Tin would pay for this item, and Hanna and the Glovers renegotiated their agreement to state that the Glovers would pay Hanna five percent of gross sales, rather than two cents per unit. After performing this agreement for a time, the Glovers threatened to cease paying Hanna if he failed to procure a written contract between the Glovers and Del-Tin. Hanna presented the Glovers with another agreement, which the Glovers signed, setting forth the present terms of the agreement between Hanna and the Glovers to pay Hanna five percent of the gross amounts received on all products. The Glovers signed this agreement. Thereafter, however, the Glovers stopped making payments to Hanna because he had not provided the Glovers with a written contract from Del-Tin.

Citing Corbin, the court explained that the key to determining whether a contract exists is whether the parties intend to be bound and whether there are reasonably certain terms to allow for an appropriate remedy. The court held that the Glovers and Hanna had entered into two separate agreements, not ''agreements to agree,'' and that the terms of these were reasonably certain and definite enough to comprise a contract. The Glovers regularly rendered performance consistent with the terms of both agreements. The court explained that whether the parties have entered into a contract is determined not only by their words but also by their acts, which may validate and make certain even an indefinite agreement. The court found that the Glovers had breached the contract when they ceased paying Hanna. The Glovers were aware even before they started to produce the dunnage blocks for Del-Tin that Del-Tin refused the notion of a written requirements contract with the Glovers. Despite this knowledge, the Glovers produced the blocks and they consistently paid Hanna the agreed-upon amount for his participation in the arrangement. All objective indicators, the court stated, indicated that Hanna fulfilled his obligations and that the Glovers considered themselves obligated to pay him as stated in the parties' agreements.

(13) Medallion Int'l Corp. v. Sylva, 2004 Tex. App. LEXIS 4974 (Tex. App.-Waco June 2, 2004) . The plaintiff marketed the consulting services of associate firms to foreign governments and international organizations. It entered into an association contract with the defendant that included a provision stating that the parties ''will agree, on an individual project basis, upon a formula for sharing revenue, taking into account'' the costs and normal charges of performing work as well as overhead and other expenses. The defendant argued that this clause evidenced the parties' lack of intent to enter into a binding agreement. The trial court agreed and entered summary judgment for the defendant. On appeal, the instant court reversed. Quoting a predecessor section of Corbin, the court recognized that where an agreement leaves material matters open for future adjustment and agreement on those matters does not occur, this is nothing more than an agreement to agree that does not create a contract. Where, however, the parties fully agree upon the terms of the contract but expect further negotiation on certain matters, such an expectation does not preclude a finding that they intended to be bound. The critical issue is whether the parties intended to be bound. In this vein, the court also quoted § 2-305(1)(b) of the Uniform Commercial Code, which states that parties who intend to be bound will be deemed to have formed a contract though ''the price is left to be agreed by the parties and they fail to agree.'' In such a case, a court will discover a reasonable price. While the instant case did not involve a contract for the sale of goods, the court cited the Restatement (Second) of Contracts, § 33, comment e, confirming that contracts for services are similar to contracts for the sale of goods.

(14) Gurley v. King, 2005 Tenn. App. LEXIS 504 (Aug. 18, 2005) . Matt King, a recording artists and songwriter, was under contract with ''In House,'' an artist management company. When difficulties arose in its relationship between King, In House contracted with Cathy Gurley, the head of another artist management company, to assist in the management of King. The King contract with In House was scheduled to end in December, 1999. King was eager to be relieved of that contract prior to its end date and asked Gurley to pursue that possibility so that they could work together absent In House. In March, 1999, King and Gurley signed a memorandum of agreement stating that King ''will sign an exclusive management contract with Gurley for three years'' to begin when the In House contract ends in December or earlier if Gurley could arrange it. Gurley would receive a 15% commission on King's gross income. The memorandum concluded, ''The details of the agreement will be worked out later but basically will follow the same arrangement currently in place with In House.'' Gurley continued to act under the In House agreement until December 1, 1999, when King suggested to Gurley that they ''part ways.'' Gurley wrote a letter to King recognizing that he was no longer interested in utilizing her services as his representative but reminding King of the agreement signed in March and suggesting a ''buy-out'' of this contract. When King did not respond, Gurley brought this action. King claimed the March understanding was merely an ''agreement to agree'' and he sought summary judgment. After first ruling against King, the trial court reversed itself and granted summary judgment for King. On appeal, the issue was whether the King/Gurley agreement was too indefinite and uncertain to be enforceable. The court recognized the tension between the destruction of contract for uncertainty which courts do not favor, and the necessity of not requiring a party to perform material terms which he neither expressly nor impliedly agreed to perform. The court quoted Corbin's analysis that it is possible for parties to make an enforceable contract binding themselves to execute a subsequent final agreement, but only if the initial agreement expresses all essential terms to be incorporated in the final document which would be a mere memorial of the agreement already reached. The court concluded that on this appeal, the question was not whether a contract, in fact, existed between the parties, but whether reasonable minds could differ on that question. The court then pursued an extensive review of what occurred at the trial level where certain facts were undisputed: Gurley would act as King's exclusive manager for three years when the In House contract ended, either in December, 1999 or earlier; Gurley would receive a 15% commission on King's gross income; King understood that he had an obligation to sign an exclusive contract with Gurley and agreed to sign such a contract with a three year term; the March document stated that the details to be worked out would ''basically follow the same arrangement currently in place with In House.'' The court reversed the summary judgment below and remanded the case.

(15) Ford Motor Company v. Kahne, 2005 U.S. Dist. LEXIS 15187 (E.D. Mich. July 28, 2005) . Upon the completion of an agreement between Ford and Kahne under which Kahne was a driver on a Ford supported racing team, Ford and Kahne executed a second 2002 agreement entitled, ''Personal Service Agreement.'' This agreement provided that Ford would offer Kahne opportunities to drive in ''one or more mutually acceptable racing series with a reasonably competitive team'' and that ''the specific series and team will be determined jointly.'' In 2002, Kahne raced a partial schedule in the NASCAR Busch series for RYR, a Ford affiliate. When RYR decided that it was not going to race a Busch series team in 2003, Kahne agreed to race for a non-Ford racing team and Ford sued for breach of contract. Kahne argued that because there were no open full time positions with any Ford team and since Ford declined to offer him a full time opportunity to race in NASCAR stock car racing for 2004 that the parties simply failed to negotiate a mutually acceptable series and team. Kahne moved for summary judgment arguing that the 2002 Agreement was unenforceable under Michigan law because it left open material terms to the contract. In deciding the case, the court relied on Corbin's analysis that if the parties agree that the contract is to contain a material term that is not already agreed upon, no contract has yet been made. The court determined that the 2002 agreement was not enforceable under Michigan law since the parties intentionally left material terms open for future negotiation.

(16) Barnes & Robinson Co., Inc., d/b/a/ One Source of Tennessee, Inc. v. OneSource Facility Services, Inc., et al., 2006 Tenn. App. LEXIS 43 (2006) . Barnes & Robinson executed two letters of intent, one with OneSource Facility Services, Inc. and one with its sister company, One Source Franchise Systems, Inc. (collectively ''OneSource''). The intent was for Barnes & Robinson to purchase janitorial service business assets and service OneSource franchisees in the Nashville area. The letters provided that the terms were subject to further negotiation and were to be finalized in a definitive purchase agreement. Negotiations broke down, and a suit was filed. One of the reasons the negotiations broke down was that OneSource increased the price by over a million dollars. Barnes & Robinson argued that OneSource failed to negotiate in good faith. The court concluded that letters of intent do not require good faith negotiations, absent an expressed contractual agreement to the contrary. The court explained that parties owe each other a duty of good faith in the performance of a contract, but the letters of intent were not contracts. Citing Corbin, the court explained that when parties agree to prepare and execute a final written agreement, it is necessary that agreement shall have been expressed on all essential terms that are to be incorporated in the document. Thus, ''the so-called 'contract to make a contract' is not a contract at all.'' Since a contract was not formed, OneSource had no affirmative duty to negotiate in good faith.

(17) Converge, Inc. v. Topy Corporation, 2005 U.S. Dist. LEXIS 32763 (E.D. Mich. 2005) . On June 4, 1998, the plaintiff Converge, Inc. entered into a consulting agreement to advise and assist the defendant Topy Corporation in its marketing efforts in exchange for a monthly payment of $4000. The consulting agreement stated: ''While it is intended that the foregoing will constitute the sole and exclusive receipts by Consultant with respect to services rendered under this Consulting Agreement or otherwise by Consultant or Manufacturer, if Manufacturer enters into a contract with Chrysler during the term of this Consulting Agreement to supply Chrysler with Manufacturer's products (as a result of contacts made by Consultant with Manufacturer's prior consent), Manufacturer will enter into an agreement with Consultant to pay Consultant a fee in such amount as Manufacturer and Consultant agree.'' The agreement subsequently was amended to add Ford in addition to Chrysler under the compensation provision. Thereafter, the defendant entered into sales contracts with both Chrysler and Ford. The parties, however, did not agree to pay the plaintiff a fee with regard to its supply contracts between defendant, Ford and Chrysler. Plaintiff initiated this action to which the defendant answered that the $4,000 a monthly stipend for consulting was the total amount owed to the plaintiff. The plaintiff argued that the agreement recognized that the plaintiff would be owed additional compensation should its sales solicitation endeavors with Ford and Chrysler result in a contract between those automakers and the defendant. Both parties filed motions for summary judgment. The court explained that the consulting agreement specifically contemplated that defendant would owe plaintiff additional compensation in the event defendant contracted with Ford or Chrysler but a contract that requires the execution of a future agreement will fail for indefiniteness if the trier of fact finds that it does not include an essential term to be incorporated into the final contract. The court cited Corbin for the proposition that it is possible for parties to make an enforceable contract binding them to prepare and execute a subsequent agreement and where agreement is expressed on all essential terms, the instrument is considered a mere memorial of the agreement already reached. If, however, the document or contract that the parties agreed to make is to contain a material term that is not already agreed upon, no contract has yet been made, and the ''contract to make a contract'' is not a contract at all. Here, the contract specified that the fee is to be agreed upon by the parties. Because this clause constituted an ''agreement to agree,'' the court found that the parties never formed a contract to pay the plaintiff for the procurement of contracts with Ford and Chrysler. Notwithstanding its holding that there was no contract to pay the plaintiff the reasonable value of its services in procuring the Ford and Chrysler contracts, the court refused to dismiss the plaintiff's claim in quantum meruit claim since the consulting agreement gave rise to the plaintiff's expectation of additional compensation for such services. Moreover, the court also refused to dismiss the plaintiff's promissory estoppel claim since the language of the contract could have constituted a promise that induced the plaintiff's reliance in procuring the Ford and Chrysler contracts.

(18) Gurley, et al. v. King, et al., 2005 Tenn. App. LEXIS 504 (2005) . This case is more fully set forth at § 1174. This case is cited for the proposition that a ''contract to make a contract'' is no contract at all. This case also cites §§ 2.9, 4.1 and 4.7.

(19) Morrison v. Relational, LLC, 2007 U.S. Dist. LEXIS 10063 (E.D. Mich. 2007) . The court held that where a response letter to an offer to perform certain services at a certain compensation was necessarily a counter offer because it not only stated some different terms but also stated, ''There are many mundane, but necessary details that we need to work out.'' Nonetheless, quoting precedent that cites this section of the treatise, the court noted that whether the parties' correspondence evidenced an agreement to agree ''is another matter.'' A contract to make a subsequent contract is not per se unenforceable. It may be just as valid as any other contract. The court held that the conduct of the parties demonstrated that they reached some agreement concerning compensation. There was, therefore, a question of fact for a jury to determine what terms governed their relationship.

(20) Huber v. Calloway, 2007 Tenn. App. LEXIS 435 (July 12, 2007) . Richard Huber and Debra Mase (buyers) were interest in purchasing property owned by Reeve that was surrounded on three sides by property owned by the Calloways. The buyers signed a contract to purchase the Reeve property and two of the three Calloways tracts surrounding it as well as an option on the third Calloway tract that could be exercised by the purchasers at any time over the following five years with six months notice of an intention to buy. The option, however, did not establish a price. It provided, ''Purchase price to be mutually agreed upon based on independent appraisal at time of notice to sell.'' The buyers paid the Calloways $500 for the option to be credited to the purchase price or forfeited if the buyers failed to execute an agreement to purchase the property. A year later, the buyers sent a notice exercising the option which suggested a closing date and also suggested that each party have its own appraisal allowing the two appraisals to be averaged to determine the purchase price. When the parties could not agree upon a price, the court appointed an appraiser who valued the property at $97,000. On appeal, the instant court recognized that it would be possible for parties to agree to buy and sell property based on an independent appraisal. That language in the option agreement, however, did not stand alone. That vague language was juxtaposed by crystal clear language: ''price to be mutually agreed upon.'' The plain, unambiguous meaning of that language is that the parties will complete their transaction only after each agrees to a selling price. The parties did not agree to an identifiable price nor did they agree to a ''reasonable'' price. Citing this treatise, the court stated, ''This is, perhaps, a classic example of 'an agreement to agree.' '' The option agreement was not sufficiently definite to constitute a contract. The judgment of the trial court was reversed. The case is also discussed in § 4.3.

(B) The following cases are noteworthy:

(1) Bacou Dalloz USA, Inc. v. Continental Polymers, Inc., 344 F.3d 22 (1st Cir. 2003) . The plaintiff sought a declaratory judgment that it was not bound by the terms of a letter agreement with the defendant. The letter stated that the plaintiff would purchase its requirements for polyurethane prepolymer from the defendant for a period of five years, provided that the quality of such raw material was equivalent to the quality used by the defendant in manufacturing products and the price was equivalent to the price of such material from third-party suppliers. The district court granted summary judgment for the plaintiff on the ground the letter evidenced a mere ''agreement to agree'' that was fatally indefinite concerning the quality and price terms. The instant court reversed in holding that it is not every ''agreement to agree'' that is unenforceable. The court found that the price term was readily discernible by evidence of the price charged by other third-party suppliers. Similarly, the quality term was described in this letter as equivalent to the quality then used by the defendant and available from third-party suppliers. Thus, the plaintiff had a contractual duty to determine, in good faith, the quality of the defendant's product as compared to third-party vendors. The quality term was not illusory. The court cited the Restatement (Second) of Contracts, § 33, for the view that, where the parties intend to make a contract and there is a reasonably certain basis for affording a remedy, the court should grant that remedy. Curiously, the court did not mention the Uniform Commercial Code in this requirements contract for the sale of goods. In particular, with respect to the price term, Section 2-305 of the Code dealing with the open price term was relevant and would have supported the court's conclusion.

(2) Frazier Industries, LLC v. General Fasteners Co., (6th Cir. 2005) . On September 8, 2001, the parties signed a ''letter of intent'' stating, ''The parties will negotiate in good faith towards a Definitive Agreement. There will be no obligation to negotiate beyond the end of the Due Diligence period.'' The duration of the ''due diligence'' period was 45 days. The agreement was divided into Parts One and Two. Part One contained the basic terms of the agreement including recapitalization contribution amounts (57% and 43%) in return for 65% of the outstanding capital stock to the plaintiff and a paragraph listing the due diligence rights of the plaintiff. Part Two provided that, in return for the time, effort and expense the plaintiff would undertake in evaluating the transaction, it would have free access to all of the defendant's business records, the defendant would refrain from extraordinary transactions and from entertaining any other offers during the due diligence period. A clause stated that the provisions of Part One were not legally binding while the provisions of Part Two were legally binding. A ''break-up'' clause would entitle the plaintiff to a fee of $475,000 if the defendant breached any of the provisions of Part One or terminated negotiations. In December of 2001, the defendant refused to continue any further negotiations with the plaintiff and entered into a new arrangement with another party. The plaintiff demanded the break-up fee which the defendant refused to pay. The trial court held that no enforceable contract existed but, if one did exist, the defendant had not breached it. On appeal, the instant court noted that a contract to make a future contract is not per se unenforceable if the material terms of the future agreement are included. Since Part One of the agreement containing the plaintiff's undertakings that were stated as not legally binding, the trial court found that plaintiff made what amounted to an illusory promise. As to the plaintiff's ''time, effort and expense'' in Part Two, the trial court found these references vague and uncertain. While recognizing the different express statements concerning legal obligations in Parts One and Two, the instant court found that the plaintiff's undertakings in the not legally binding Part One had been incorporated in the legally binding Part Two. The court found that both parties promised to negotiate in good faith toward a definitive agreement. The defendant promised to provide the plaintiff with access to all of its business records during the due diligence period and the plaintiff promised to expend time, effort and expense in evaluating the transaction. The defendant promised to refrain from dealing with other suitors during the due diligence period and the plaintiff promised to conduct due diligence during that period. The defendant promised to maintain confidentiality of any business and financial information received from the plaintiff, and the plaintiff promised to maintain confidentiality of any such information received from the defendant. The court held that these bargained-for promises constituted consideration for each other creating a bilateral contract. The court, however, agreed with the lower court that the defendant had not breached the contract because a ''termination of negotiations'' that would activate the break-up provision could occur only during the 45-day Due Diligence period.

(3) Heritage Homes of De La Warr, Inc. v. Alexander, 2005 Del. Ch. LEXIS 128 . The plaintiff sold two adjoining lots to the defendants in a subdivision the plaintiff was developing. With neither plans, specifications or pricing, the defendants agreed that the plaintiff would build a home for them. The contract gave the plaintiff an option to repurchase the lots if the defendants did not build within three years. Six months later, the defendants offered to reconvey the lots to the plaintiff which refused the offer since it was under no obligation to repurchase the lots even at the end of three years. The defendants then sold the lots for more than they had paid for them. The plaintiff sought to recover under the option agreement, but the court held the agreement unenforceable because it violated the rule against perpetuities. Options create future interests and the plaintiff was a corporation with an existence of unlimited duration. Since the option bound not only the defendants but their heirs, executors, administrators and assigns without any time limitation in which the option could be exercised, it was impossible to determine whether the option might not be exercised within the time permitted under the rule against perpetuities. The plaintiff argued that it was damaged by the failure of the defendants to have a house built for them by the plaintiff. The court found the lack of any specifications, plans or prices to constitute fatal indefiniteness which illustrated a mere agreement to agree. Moreover, the absence of material terms making it impossible for a court to construct an appropriate remedy was a sufficient reason for finding the agreement to be fatally indefinite. The court distinguished an earlier case where the United States Court of Appeals for the Third Circuit found a contract for exclusive promotion rights of a boxer to be enforceable absent a price term, Echols v. Pelullo, 377 F. 3d 272 (3d cir. 2004) (discussed in § 4.3(B) of this supplement). That contract, however, involved an ongoing relationship which the court found sufficient to overcome the absence of a price term while the instant contract was a ''one-shot'' agreement for construction services.

Supplement to Notes in Main Volume

4. Neb.- Hawkins Constr. Co. v. Reiman Corp., 245 Neb. 131, 511 N.W.2d 113 (1994) (act of sending document containing numerous provisions not contained in prior agreement was ''a tacit admission that the parties left for further negotiation details of their arrangement'').

[b] Agreements to Negotiate [Go To Main]

(A) The following cases cite this section or a predecessor section:

(1) Venture Assocs. Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996) (applying Illinois law). A proposed buyer of a business sent the proposed seller a letter expressing its intention to negotiate toward the purchase of the business in good faith and specifically stating that the letter did not otherwise constitute a binding obligation of either party. The parties thereafter negotiated for six months but the seller terminated negotiations after the buyer refused to furnish a third-party guarantee of its post-closing financial obligations and of post-closing price adjustments reflecting increased inventory valuations and changes in the amount of certain indebtedness the buyer was to assume as part of the purchase price. The buyer argued that the seller's insistence on these two points amounted to bad faith because neither point was mentioned in the letter of intent and therefore breached the letter of intent. The court disagreed, noting that the letter of intent did not contain the terms of the final agreement, whether as to third-party guarantees, purchase price adjustments or otherwise.

(2) Lenthe Invs. v. Serv. Oil, Inc., 636 N.W.2d 189 (N.D. 2001) . During a hearing on the guardianship of their parents, the children of Mr. and Mrs. Lenthe negotiated an agreement, approved by the court, to lease a service station to Steven Lenthe, one of the children, on the same terms as an existing lease between Lenthe Investments and a restaurant on the property. Pursuant to this agreement, Lenthe Investments, now under the control of Steven's brother and sister, sent a proposed lease to Steven which he rejected because it sought rent for a portion of the property under fuel canopies. The plaintiff, Lenthe Investments, sought a declaratory judgment that the lease arrangement was merely an agreement to agree under a guardianship order. The court relied on Corbin at § 2.8 in setting forth the basis for determining whether the parties intended a stipulation to be a contract or merely an agreement to negotiate the terms of a lease. Corbin advises that a transaction is complete when the parties mean it to be complete. It is a matter of the interpretation of their expressions, a question of fact. The court found that the parties were quite familiar with the restaurant lease terms incorporated into the new service station lease and manifested their intention to be bound by their lease agreement. The area under the fuel canopies was not included in the area requiring rental payments.

(3) Lindsey Masonry Co. v. Danis Envtl. Indus., Inc., 2003 U.S. Dist. LEXIS 5071 (D. Kan. Mar. 26, 2003) . The defendant prime contractor invited the plaintiff subcontractor to submit an offer for masonry work on a water treatment plant. The plaintiff submitted a bid which the defendant used in its prime contract bid. The plaintiff's bid stated that, if its bid was accepted, the parties would execute a standard form contract document (AIA Document A-401) modified only to incorporate certain specified terms. For nearly a year, the plaintiff worked with the defendant concerning masonry samples and suppliers, but the parties never entered into a written agreement. The defendant submitted an A-401 document to the plaintiff, but insisted that it had to be modified to delete certain terms generally incorporated in such documents. The plaintiff refused to sign the document and the plaintiff notified the defendant that the plaintiff was terminated from the project. The court held that the mere use of the plaintiff's subcontract bid by the defendant did not manifest the defendant's acceptance of the offer. The plaintiff, however, alleged that the defendant's agent in charge of reviewing subcontractors' bids had informed the plaintiff that its bid was accepted. The plaintiff also alleged that it sent a letter to the defendant allegedly confirming the defendant's acceptance of the offer to which the defendant never objected. Both parties moved for summary judgment. Citing the predecessor to this section of Corbin, § 29, the instant court stated that evidence of an offer and acceptance may constitute an enforceable contract even though it refers to the future execution of a more formal contract. The court denied the cross motions for summary judgment since genuine issues of material fact remained with regard to both motions.

(4) Beydoun v. Clark Constr. Int'l, LLC, (4th Cir. 2003) . Where a severance agreement specified neither the actual amount of compensation nor a method to calculate it and also stated that the parties ''are in the process of negotiating and estimating the design and construction costs of the three projects'' which were never actualized, the instant court relied on precedent quoting Corbin to the effect that a contract to make a contract is not a contract at all. The court affirmed the motion to dismiss granted by the district court.

(B) The following cases are noteworthy:

(1) For an opinion by the same court in an earlier stage of the proceedings, referred to in (A)(1) above, see Venture Assocs. Corp. v. Zenith Data Systems Corp., 987 F.2d 429 (7th Cir. 1993) (preliminary memorandum stating agreement in principle to terms and conditions of a sales agreement was not final agreement but did require good faith negotiation; ''injecting new demands, such as an increase in price, late in the negotiating process can constitute bad faith in some circumstances''). This case is also noted in § 1.16 above.

(2) In re Atlantic Computer Systems, Inc., 154 B.R. 166 (S.D.N.Y. 1993) (language in agreement indicated there was ''no binding preliminary commitment, obligating the parties to negotiate open issues in good faith''). This case is also noted in § 1.16 above and § 2.9 below.

(3) Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401 (4th Cir. 2002) . This case is fully discussed under § 1.16 in this supplement.

(4) Keystone Land & Dev. Co. v. Xerox Corp., 152 Wash. 2d 171, 94 P.3d 945 (2004) . Xerox decided to sell and ''leaseback'' a facility it owned in Tukwila, Washington, and sent information packets to prospective buyers. Negotiations with Keystone proceeded until Xerox replied to a Keystone proposal. The reply stated, ''Xerox is prepared to negotiate a Purchase and Sale Agreement with Keystone Development subject to two modifications to your proposal'' and, if Keystone acknowledges acceptance of the modifications to its proposal, ''[w]e can then proceed immediately to draft the Purchase and Sale Agreement for review and execution.'' Three days later, Keystone's president acknowledged and accepted the modifications to its proposal. Keystone then claimed that all of the terms of the agreement were settled by this acceptance, thereby obligating Xerox to prepare a purchase and sale agreement. Upon receiving a higher bid from another party, Xerox withdrew from further negotiations with Keystone. The Ninth Circuit Court of Appeals certified two questions to the Supreme Court of Washington: (1) Will Washington contract law recognize an explicit or implicit agreement to negotiate a future contract under circumstances such as those in this case? (2) If such a contract would be recognized, what is the proper measure of damages for its breach?

The court distinguished three similar but different types of agreement. An ''agreement to agree'' requires a future ''meeting of the minds'' and is not an enforceable agreement under Washington law. An agreement with open terms that can be supplied by a court or another substantive source is binding if the parties intend to be bound, notwithstanding the open terms. An agreement to negotiate may bind the parties to a specific course of conduct such as negotiating in good faith, exclusively with each other, or for a specific duration. Failure to achieve a contract on the substantive deal is not a breach of such an agreement, which is breached only by a failure to perform according to the specific conduct to which the parties agreed. The court held that the statement, ''Xerox is prepared to negotiate,'' manifested only an intent to negotiate rather than an intent to be bound if Keystone accepted the modifications. Xerox's statement evidenced an intent not to be bound by expressly referencing future negotiations. As to the statement concerning the immediate drafting of the Purchase and Sale Agreement, the court found that it did not manifest an intent to be bound. Rather, it manifested an intent not to be bound because of its express reference to a future binding agreement being reviewed and executed. The court held that, at best, the facts illustrated an implied agreement to agree, which, in keeping with the long-standing view in Washington, was unenforceable. Having decided that the circumstances did not allow enforcement of this agreement, the court did not reach the question of whether agreements to negotiate in general are enforceable under Washington law. Similarly, the court found it unnecessary to reach the second certified question concerning the measure of damages.

Supplement to Notes in Main Volume

7. U.S.- Bat Masonry v. Pike-Paschen Joint Venture III, 842 F. Supp. 174 (D. Md. 1993) (letter of intent is, at most, an agreement to agree).

Tex.- Copeland v. Merrill Lynch & Co., 47 F.3d 1415 (5th Cir. 1995) (applying Texas law). An agreement to agree regarding debtor's plan to be submitted to bankruptcy court was not enforceable as it left material matters open to future negotiation, including aspects of debt restructuring, amount of additional funding needed to bring debtors out of chapter 11, as well as an overall business management plan. The parties reached only an agreement to agree and that is not enforceable unless it resolves all essential terms and leaves no material matters open for future negotiation.

8. Tex.- S & A Marinas, Inc. v. Leonard Marine Corp., 875 S.W.2d 766 (Tex. App. 1994) (in a suit for tortious interference with a lease, trial judge correctly granted summary judgment in favor of defendant, where the resolution of defendant's board contemplated further negotiation with prospective tenant, conclusively establishing that the resolution did not form a contract as a matter of law).

10. In Associated Milk Producers v. Meadow Gold Dairies, 27 F.3d 268 (7th Cir. 1994) , parties exchanged letters showing that they disagreed on price and intended not to be bound unless they could agree. However, the parties' conduct considered in conjunction with the writings evidenced their intention to contract. The seller shipped conforming goods without protest after receiving a letter from the buyer stating it would pay only a ''Super Pool price,'' and after repeated warnings by buyer during two months of shipments that it would pay only that price. The seller was bound by buyer's price.

19. Neb.- Schlake v. Jacobsen, 246 Neb. 921, 524 N.W.2d 316 (1994) (mere agreement to negotiate cannot constitute a contract).