Contract Requires Agreement

Did you ever think you had a contract but later found you didn’t? Even the most sophisticated business people can find the deal they thought they made did not exist. Some contracts fail because they do not meet statutory requirements, but many fail because the parties never completed their agreement.

The parties to a contract must agree on all essential terms. What is essential is determined by the subject matter. What someone thinks is essential might not be so under Florida case law. For example, the time for performance is usually not an essential element; a reasonable period of time can usually be implied.

Failure to include a price is often fatal. Believe it or not, in a commercial setting, if the price is not set, the Uniform Commercial Code and Florida law imply a “reasonable price.” The parties can still argue what is “reasonable.”

Even though Florida courts can supply nonessential terms, courts cannot save a contract that is missing an essential term. What does that mean? Let’s take a look at a few cases to find out.

Truly Nolen and Atlas Moving & Storage asked the courts to settle an argument about contract terms in a 1961 case. Atlas leased a building wall to Truly Nolen for a Truly Nolen advertisement. The lease required Atlas to pay for the cost of painting an “appropriate advertising sign” and to “illuminate the said wall area from 7:00 PM to midnight.”

The day after signing the lease, Truly Nolen told Atlas it was impossible for Truly Nolen to perform because its accountant said it could not afford the lease. Atlas would have none of that and sued. Atlas lost because the court ruled the lease was too vague to enforce.

The parties often give little thought to the terms of an option to purchase and often do not want to pay an attorney to draft it. Why spend money on an attorney when there will not be a real contract until the option is exercised? That was the situation in Pomares v. J. Krantz Enterprises.

Krantz signed an option to purchase a seat cover business from Pomares. When Pomares refused to sell to Krantz, the dispute went to court. The trial court ruled in favor of Krantz.

Pomares appealed and was happy with the result. The option stated it could be exercised within 10 years at the fair market value of the property, and that if the parties could not agree on price, the price would be determined by a licensed commercial appraiser. The appellate court ruled the option was still too vague because it did not include a term or timeline for payment.

Many Florida decisions apply a reasonable time for performance when an agreement is silent. In one case, the court ruled that the absence of a time frame for executing an easement in a settlement agreement was not fatal and implied a reasonable time. In another, the court ruled that a brokerage contract was valid even though time for performance was not included, because the court would imply a reasonable time. In that case, the court ruled that the broker's failure to perform for a period of two and a half years went beyond that reasonable time.

Failure to specify a price can also prove fatal, especially in lease extensions. In Edgewater Enterprises v. Holler, the lease included a renewal option for a definite length of time. The rent was to be established by negotiation, arbitration, or otherwise determined by the parties at the time of renewal. The court ruled that was too indefinite. The court explained that if a renewal option is merely silent on rent, the rent defaults to the same rent as the original term. That would be the case even if the absence of a rent provision was simply an oversight! But when the parties included the vague provision for determining rent, they ended their contract.

People in a rush often sign contracts with provisions that "agree to agree" in the future. That was the case in McDowell v. Moore. In McDowell, a letter of intent acknowledged that the parties did not have time to agree on a commission schedule but intended to do so after the agreement was signed. In ruling the agreement too vague, the court noted that it omitted the rate, way to calculate, the duration, or any objective mechanism to calculate those items.

McDowell emphasizes the unenforceability of agreements to agree, but it does not apply to agreements that are silent on what might be essential terms. In many of those cases, the missing term can be supplied by a court determining what is reasonable.

Essential terms do not have to be itemized with such particularity that they can be determined simply by looking at the contract. In one case, the court upheld a contract that established price based on changes in the asphalt price index computed by the Department of Transportation. In another, the court enforced a lease with monthly rent adjustments based on changes in the Consumer Price Index over a five-year period.

When parties disagree on what they thought they agreed to, resorting to court is often the only road to resolution. But using the courts to fix what should never have required repair is poor business practice. The better course is to make sure a contract contains all essential terms and that everyone agrees on those terms. To that end, good legal advice can be essential.