Once you have determined that a contract has been formed you must determine whether or not the contract is unenforceable by virtue of a defense related to the formation of the contract. There are seven possible defenses related to the formation of a contract and they are:
- misrepresentation, nondisclosure, duress and undue influence,
- the statute of frauds,
- lack of capacity,
We will cover indefiniteness in this subchapter and the remaining defenses in the six subchapters to follow.
Contracts that are found to be too indefinite will be unenforceable. A contract is too indefinite if its terms are so incomplete or uncertain that it is clear that the parties did not regard themselves as having completed a contract.
Alternatively, a contract will be considered too indefinite, regardless of what the parties think, if the terms are so indefinite that a court cannot fill in the missing material terms or create an appropriate remedy for breach of the contract.
It is important to understand that just because a contract leaves out certain details does not automatically mean that it is indefinite. The contract will be considered valid so long as the court can fill in the blanks through the process of inference. For example:
- Michelangelo hires Picasso to paint his house. Price and color are negotiated and put into the contract but the time-frame for completion of the job is not. In this case, the contract is enforceable. Even though the contract is indefinite because it sets no time for completion, it is implied that the job must be completed within a reasonable amount of time.
- Michelangelo hires Picasso to paint his house. Both the time frame for the job’s completion and the amount of money that Picasso will be paid are negotiated and put into the contract. However, the color that Michelangelo wants Picasso to paint the house is not in the contract. In this case, the contract is too indefinite because reasonable color cannot be implied. See
Stanton v. Dennis, 116 P. 650 (Wash. 1911).
Obviously, if color could be implied (for example, if Michelangelo lives in an area where the zoning laws require that all houses be painted blue), then the contract will be enforceable.
The two most common terms that are left out of contracts are price and time of performance.
It used to be that if price was left out of a contract, the contract was considered too indefinite and, therefore, unenforceable. However, the modern rules, as well as the U.C.C., hold that if a contract is silent as to price, a reasonable price can be supplied by the court as long as the court believes that the parties intended to finalize a contract and there is some objective value (ex. market value) for establishing price. For example
The SqueezeMe Juice Co. contracts with Sunshine Orange Groves to buy five thousand bushels of oranges per month from Sunshine for a period of two years. The contract, which is signed by both parties, makes no mention of price. In this case, although price is left out, the court can uphold the contract. The fact that both parties signed the contract and the contract included such major terms as quantity and time frame indicates that the parties did intend to finalize a contract. Further, the court will be able to use the fair market value of oranges to fill in the price gap left by the parties. See Bendalin v. Delgado, 406 S.W.2d 897 (Tex. 1966).
As a general rule, omissions regarding time of performance rarely make the contract unenforceable because the courts will usually determine that performance within a reasonable time is implied. See
Similarly, the U.C.C. considers indefinite contracts for the sale of goods valid if the parties had intended to make a contract and there is a reasonably certain basis for filling in the gaps. See
How a court goes about filling in different gaps for contracts governed by the U.C.C. is determined in other sections of the code. For example, under
In situations where nothing has been said as to price or where price is left to be agreed on by the parties and they fail to agree, the court will determine that a reasonable price at the time of delivery is implied.
Please note that the U.C.C. does not contain a gap-filler for quantity, simply because “reasonable quantity” is impossible to determine.
However, if too many terms are missing, the court may conclude that the parties did not intend to finalize a contract and were only involved in preliminary negotiations. In this case the contract will be unenforceable.
An interesting twist in the law is that agreements that might be unenforceable because of indefiniteness may become enforceable if the parties have begun performance. See
- The Squeeze Me Juice Co. and Sunshine Orange Groves negotiate a contract where Squeeze Me will buy five thousand bushels of oranges per month at $5 per bushel from Sunshine for two years. Sunshine grows several different varieties of oranges, but no specifications are made in the contract as to which type of orange Squeeze Me will buy. In this case, the contract will fail because of indefiniteness. The court will not be able to infer what kind of oranges Sunshine and Squeeze Me were contracting for when they negotiated the contract.
- The Squeeze Me Juice Co. and Sunshine Orange Groves negotiate a contract where Squeeze Me will buy five thousand bushels of oranges per month at $5 per bushel from Sunshine for two years. Sunshine grows several different varieties of oranges, but no specifications are made in the contract as to which type of orange Squeeze Me will buy. For the first six months of the contract, Sunshine has been sending, and Squeeze Me has been accepting and paying for, five thousand bushels of blood oranges per month. This partial performance identifies the type of orange that Squeeze Me and Sunshine intended to deal with and therefore supplies the degree of certainty the contract needs in order to be enforceable.
In some cases, parties do not negotiate specific terms of a contract, but they do establish a method for filling in the omitted terms. If the method reserved for determining the omitted terms is an objective standard, the contract will be enforceable. For example:
- The Squeeze Me Juice Co. and Sunshine Orange Groves come to an agreement in which Sunshine agrees to sell Squeeze Me five thousand bushels of oranges per month for two years at a price to be determined by the current market value of oranges at the beginning of each month. This contract is enforceable. Although the parties do not establish a set price that Squeeze Me will have to pay, and although Squeeze Me might have to pay a different price each month because the market value may fluctuate from month to month, the mechanism that the parties have reserved for establishing price is an objective standard that provides the degree of certainty necessary to make the contract enforceable. See
Kladivo v. Melberg, 227 N.W. 833 (Iowa 1930).
- Sunshine and Squeeze Me enter into a contract in which Squeeze Me will buy all of the oranges that Sunshine grows for $5 per bushel and Sunshine will sell Squeeze Me all of the oranges it grows for $5 per bushel. Here, although quantity is not explicitly stated in the contract, a requirements contract or an output contract is sufficiently certain because the amount that Squeeze Me needs and the amount that Sunshine grows can be objectively determined.
Many times, parties will omit certain terms but reserve that term to be determined in the future. This kind of agreement is called an “agreement to agree”.
Whether or not an agreement to agree is enforceable will be determined by whether or not the omitted term is material or minor. If the omitted term is material to the contract, the agreement will be unenforceable. For example:
- Michelangelo and Picasso enter into a contract in which Picasso agrees to paint Michelangelo’s house. The contract does not specify how much Picasso will be paid for the work, but the contract does include an agreement to agree on a price in the future. This contract will be unenforceable because price is a material term of the contract.
- Michelangelo and Picasso enter into a contract in which Picasso agrees to paint Michelangelo’s house for $50,000. The contract also states that Picasso will paint the house light blue and that Picasso will use Dutchboy brand paint for the job. The contract includes an agreement to agree in the future as to whether Picasso will use Dutchboy brand Grade A paint or Grade B paint. In this case, the contract is enforceable because the grade of paint to be used is not a material term of the contract.
It is somewhat ironic that where a material term is completely omitted, the contract may very well be enforceable if it appears that the parties intended to enter into a contract. However, where that same material term is the subject of an agreement to agree, the contract will fail. The reason is simply because, where a material term is omitted, a court might be able to fill in the missing term by inferring what the parties intended. However, with an agreement to agree, the court will not be able to infer what the parties would have agreed on. For example:
- Michelangelo and Picasso enter into a contract under which Picasso promises to paint Michelangelo’s house. The contract is silent as to price. In this case, the contract will most likely be enforceable because the court could infer that the parties would have settled on the fair market value of Picasso’s work as the price Michelangelo would have agreed to pay.
- Michelangelo and Picasso enter into a contract under which Picasso promises to paint Michelangelo’s house. The parties do not establish a price but, rather, they agree to agree on a price in the future. In this case, the contract is unenforceable because, since the parties could have agreed to anything (and their agreement to agree indicates that the parties were not necessarily going to settle on the market value of the work), the court will not be able to infer what the parties would have agreed to.
According to U.C.C. 2-305, an agreement to agree on price does not invalidate a contract so long as the court determines that the parties intended to finalize the contract. If the court so determines, the court will infer reasonable price at the time of delivery as the price the parties would have settled on. See
Problems of indefiniteness also arise when parties enter into an oral agreement with the intent that the agreement will be written down but it never is.
Whether or not the contract will be enforceable will hinge on what purpose the writing was to have served. If it appears that the parties considered the oral agreement to be complete and only intended the written contract to be evidence of the terms of their oral agreement, then the oral contract is enforceable. See
In determining what the parties intended, the court will consider whether the contract is of the kind that is typically written down, how detail oriented the agreement is, whether the subject of the contract is large or small and whether or not writing it down would be necessary to fully express the parties' agreement.
For an example of a non-binding oral agreement, a conversation such as
Party 1: “We should do lunch sometime.”
Party 2: “Look forward to it… I’ll even buy.”
This sort of oral conversation is a common in social exchange in today’s society, and not meant to bind the parties. There is no detail on the date, location or price. Absent other details, Party 1 will not be able to enforce his/her free lunch.
An oral contract that may be enforceable is one in which social convention would imply the binding of the parties, and where the specifics of the exchange are concrete. An example of a binding oral agreement therefore might include a telephone order for pizza delivery at a given price.