Commercial Division Blog
Posted: November 10, 2017 / Categories Commercial, Contracts
Agreement Binding Even Though Parties Envisioned Further Negotiations Over Non-Material Terms
On November 9, 2017, the Fourth Department issued a decision in RES Exhibit Services, LLC v. Genesis Vision, Inc., 2017 NY Slip Op. 07796, holding that an agreement was a binding contract even though the parties had agreed further to negotiate some of the agreement's terms, explaining:
In determining whether a contract exists, the inquiry centers upon the parties' intent to be bound, i.e., whether there was a meeting of the minds regarding the material terms of the transaction. It is well settled that, if an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract. A mere agreement to agree, in which a material term is left for future negotiations, is unenforceable. Nonetheless, the doctrine of definiteness should not be applied rigidly, and striking down a contract as indefinite and in essence meaningless is at best a last resort. Thus, where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain.
Here, the parties unequivocally expressed their intent to be bound by the agreement inasmuch as they agreed that plaintiff would be the exclusive provider of various services and deliverables for the trade shows as set forth in specifically designated PAFs, and that defendant's failure to perform pursuant to the terms of the agreement would constitute grounds for termination of the agreement and liquidated damages. The parties further agreed in the amendment and incorporated PAFs that a total of four shows in 2015 and 2016 would have a certain fixed cost representing the construction cost for the exhibit amortized over those shows. The amendment and the incorporated PAFs, when read in conjunction with the termination provision, further establish that defendant was obligated to attend the four shows and spend a minimum amount on services and deliverables; otherwise, plaintiff would be entitled to liquidated damages.
The agreement itself is therefore sufficient to establish a binding contract inasmuch as the parties agreed to a fixed cost for each show that defendant was required to attend and set a minimum amount that defendant was obligated to spend in aggregate over the four shows, and the parties simply left the precise scope of work and variable costs to be customized to fit each show in accordance with the service categories listed in the pre-designated PAFs. Contrary to defendant's contention, a contract is not necessarily lacking in all effect merely because it expresses the idea that something is left to future agreement and, here, the agreement contains no expression by the parties that they did not intend to be bound until each PAF was signed. We thus conclude that the agreement, as executed by the sophisticated parties here, clearly manifests their intention to be bound, and the creation of a binding agreement is not conditioned upon the signing of each individual PAF.
We also reject defendant's related contention that the agreement is unenforceable because it contemplated future negotiations and the execution of PAFs to provide missing essential terms of scope and price for each trade show, and the parties failed to identify any objective method for supplying those terms. Before rejecting an agreement as indefinite, a court must be satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear. Thus, where the parties have completed their negotiations of what they regard as essential elements, and performance has begun on the good faith understanding that agreement on the unsettled matters will follow, the court will find and enforce a contract even though the parties have expressly left these other elements for future negotiation and agreement, if some objective method of determination is available, independent of either party's mere wish or desire. Such objective criteria may be found in the agreement itself, commercial practice or other usage and custom. Here, we conclude that the agreement itself and the parties' prior practice as expressed in the incorporated PAFs for the two attended trade shows provide the objective criteria for determining the scope and price of the remaining work beyond the fixed costs associated with the future shows.
(Internal quotations and citations omitted).