Business Transaction Newsletter – July 2016 Edition

WHEN IS A CONTRACT TOO VAGUE TO BE ENFORCEABLE?

In the case of Keltner v. Estate of Mary Lois Simpkins, the Court of Appeals found a contract was not enforceable because it was too vague.  In effect, the Court found that a future agreement to agree is not an enforceable contract.

The facts in the Keltner case were that the Mary Lois Simpkins Estate (the “Estate”) entered into a contract with an option to purchase a tract of property.  The terms of the option were that should the buyer (the “Keltners”) exercise the option to purchase, “a fair and equitable price for said property will be established at a later date.”  After Mrs. Simpkins died, the Keltners offered to purchase the property from the Estate for $140,000.00.  Thereafter, third parties offered to buy the same property for $165,000.00.  The Estate gave the Keltners 24 hours to match the third party offer, but the Keltners declined to do so.  The Estate contracted to sell to the third parties for the higher price.  Thereafter, the Keltners filed suit seeking a declaration that they had the right to purchase the property at a price deemed fair and equitable by the Trial Court.  Both the Trial Court and the Court of Appeals ruled that the contract was not enforceable as constituting an “agreement to agree.”

The Court of Appeals pointed out that on occasions where a price is unspecified, the courts have enforced contracts that call for the price to be set by vague but ascertainable standards such as “market price” or “prevailing rate.”  However, the Court of Appeals pointed out that courts should avoid a strained construction of contract language that creates contractual ambiguities where none exist.  The Court of Appeals found that a “fair and equitable price” at a later date did not specify what persons or methods would be used to establish a fair and equitable price, rather it provided only that the price would be established.  As such, the Court of Appeals concluded the purchase price was not reasonably ascertainable from the plain terms of the contract, and the option provisions were unenforceable.

MY RECOMMENDATION:   Contracts should be prepared with as much specificity and certainty as possible.  Although courts sometimes will stretch to find a contract enforceable, the price should either be specified or there be a very clear formula for how a price is to be determined.

Yours very truly,

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr., Attorney at Law