Definite enough to enforce: the terms a court needs

New York, the first of February, nineteen eleven. An architect keeps two of his men after hours, a draftsman and a designer, and makes them a speech. I am going to give you five dollars more a week.
If you boys will go on and continue the way you have been and get me out of this trouble and get these jobs started that were in the office three years, on the first of next January I will close my books and give you a fair share of my profits.
The draftsman takes charge of the drafting room. The two of them work overtime, Sundays and holidays. They suggest firing many of the staff and hiring new men, and it is done. A job that had sat in the office for three years gets finished.
He is paid forty dollars a week. Then, in November, the night before the election, the architect tells everyone to work on election day. The draftsman says he wants to vote in his village. That afternoon he falls ill and stays ill into December.
On Saturday the architect sends him a letter. It calls his absence an act of extreme disloyalty and insubordination and dispenses with his services. When the draftsman recovers he goes back and says he is ready to continue under the agreement. The architect says there was no agreement. The draftsman sues, for his wages to the end of the year and for a fair and reasonable percentage of the net profits.
So here is the question. The promise was made. The work was done. The books were to be closed on the first of January. What is a fair share of the profits, and can a court give it to him? Think about it before I go on, and notice that the word fair is doing all the work. Everything else in the promise is definite. The share is not.
And now the question I keep asking. What exactly did these people promise each other? The men promised to stay, to keep working as they had been, and to get the old jobs started. The architect promised five dollars a week more, which he paid, and a fair share of his profits, which is the whole case. Was that second promise a promise at all, or an expression of goodwill with a number to be chosen later by the man who owed it?
Here is the first line for the board. A contract needs terms definite enough that a court can tell whether it has been broken and can fashion a remedy. That is the Restatement's way of putting it. If the court cannot say what performance was owed, it cannot say that performance was withheld, and it cannot put a figure on the loss.
Second line. Definiteness is measured after the court has done its ordinary work of reading. Usage of trade, the parties' course of dealing, an external standard the parties pointed to, and the terms the law supplies in the absence of agreement all count. A gap that one of those fills is not fatal. A gap that none of them can fill, on an essential term, is.
Third line, for goods. Article Two is more forgiving than the common law. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
That is section two two oh four. And the parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery. That is section two three oh five.
Now the case. Varney against Ditmars, New York Court of Appeals, nineteen sixteen. The trial judge dismissed the complaint at the close of the draftsman's case, and the Court of Appeals affirmed. Here is the heart of it.
The statement alleged to have been made by the defendant about giving the plaintiff and said designer a fair share of his profits is vague, indefinite and uncertain and the amount cannot be computed from anything that was said by the parties or by reference to any document, paper or other transaction.
The minds of the parties never met upon any particular share of the defendant's profits to be given the employees or upon any plan by which such share could be computed or determined. And the sentence that shows why the court would not guess.
A fair share of the defendant's profits may be any amount from a nominal sum to a material part according to the particular views of the person whose guess is considered. The courts cannot aid parties in such a case when they are unable or unwilling to agree upon the terms of their own proposed contract.
Notice what the court was careful to say it was not deciding. The draftsman had argued that if fair share is too vague, then every sale of goods without an agreed price must fail too. The court said no.
In the case of a contract for the sale of goods or for hire without a fixed price or consideration being named it will be presumed that a reasonable price or consideration is intended. A market exists for goods and for labour, and witnesses can prove it. No market exists for a fair share of one architect's profits.
And the court left him one door. Where work has been done on a promise too vague to enforce, the law presumes a promise to pay the reasonable value of the work. Quantum meruit, the lawyers call it. If his work was worth more than forty dollars a week, he could recover the difference on a proper complaint. What he could not recover was a share of profits nobody had ever defined.
Judge Cardozo dissented, and his dissent is why the case is still taught. I do not think it is true, he wrote, that a promise to pay an employee a fair share of the profits in addition to his salary is always and of necessity too vague to be enforced.
The promise must appear to have been made with contractual intent. But if that intent is present, it cannot be said from the mere form of the promise that the estimate of the reward is inherently impossible.
Then the sentence to keep. The difficulty in this case is not so much in the contract as in the evidence. An employee might, in some occupations, prove a percentage regulated by custom. This draftsman offered no such proof.
He has not failed because the nature of the contract is such that damages are of necessity incapable of proof. He has failed because he did not prove them. The majority said the promise was too vague to be a contract. Cardozo said it might be a contract whose damages went unproved. Both sent him home.
Now the other direction, a court finding definiteness where a landlord swore there was none. Vermont. On the first of November nineteen seventy nine a toy store took a five year lease in a shopping mall, with one option to extend for five more years on the same terms except that the fixed minimum rental shall be renegotiated to the then prevailing rate within the mall.
In February nineteen eighty four the tenant wrote that it was exercising the option. The landlord wrote back within days confirming it and stating the prevailing rate in the mall, ten dollars a square foot. Then the parties fell out over whether that was really the rate, negotiated through the summer, let an offer lapse, and by November the landlord was advertising the store. The tenant bought a building elsewhere and sued.
The landlord's first argument was ours. Renegotiated, it said, means the parties had only agreed to agree, so the option was no option at all. The Supreme Court of Vermont, in Toys Incorporated against F. M. Burlington, nineteen ninety, disagreed. It is not necessary that the option agreement contain all the terms of the contract as long as it contains a practicable, objective method of determining the essential terms.
And the clause had one. The option agreement states that the fixed minimum rental shall be renegotiated to the then prevailing rate within the mall. We believe that this language sets forth a definite, ascertainable method of determining the price term for the lease extension.
The landlord had proved it itself, by quoting the rate within days. As for the word renegotiate, the court read it to mean that the prevailing rate would be determined by agreement, and does not mean that the parties would start from a clean slate.
So the option was valid. Whether the tenant had actually exercised it, and whether it later waived it by shopping for a building, were questions for trial, and the court sent the case back. But on our question, definiteness, the lesson is clean. Prevailing rate within the mall is a standard the world can measure. A fair share of my profits is not.
One more word on goods before the variations, because students forget the statute. If the toy store had been buying inventory rather than renting space, and the price had been left open, section two three oh five would have supplied a reasonable price at the time for delivery, so long as the parties intended a contract.
The common law asks whether the parties fixed the term or a way to fix it. Article Two asks whether they meant to deal and whether a court can fashion a remedy. Different questions, and on an exam you must say which body of law you are in.
Now let's change one fact. The architect had said, on the first of January I will close my books and give you ten per cent of the net profits of the office as shown by my books. Is the promise definite enough? Choose an answer before I go on.
Most people say yes, and they are right. Ten per cent is a number. Net profits as shown by my books is a standard, the architect's own accounts, which an accountant can read and a court can order produced. Every objection in Varney is answered. The share is fixed and the base is fixed. The promise may still be hard to prove, but it is no longer a guess.
Change one fact again. The Vermont lease said the rent for the renewal term would be at a rent to be agreed. Choose.
Most people see the trap, and the answer is that the option now fails, at least in most states. To be agreed points to nothing outside the parties. There is no rate to look up, no formula to apply, no course of dealing to read. That is the agreement to agree, and it is next lecture's subject. Keep it separate in your mind from the prevailing rate clause. One names a standard. The other names a hope.
Change one fact a third time. A wholesaler ships a retailer two hundred cases of a product, the retailer accepts them, and neither side ever mentioned a price. Choose.
This one is easy if you remember which room you are in. Goods. Section two three oh five, subsection one. The parties if they so intend can conclude a contract for sale even though the price is not settled, and where nothing is said as to price, the price is a reasonable price at the time for delivery. The retailer owes the market price. The contract does not fail, and nobody talks about fair shares.
Here is what people get wrong here, and why it is tempting. The first mistake is treating any vagueness as fatal. Courts read hard before they give up, and Toys shows how far they will go to save a clause the parties plainly meant. The second mistake is the opposite one, treating any words as enough. Fair, reasonable, liberal, satisfactory, applied to a share of somebody's profits, with no base and no percentage, is not a term. It is a sentiment.
The third mistake is the one I keep repeating. Applying Article Two's tolerance to a lease or an employment. The draftsman's lawyer tried exactly that in nineteen sixteen, and the court answered that goods have a market and a fair share of profits does not. Say which law applies before you say whether the gap can be filled.
Here is the rule, in one breath.
An agreement is enforceable only if its essential terms are definite enough, after the court has used every ordinary aid, for the court to know what was promised and to give a remedy, so a term left to one party's unbounded discretion fails while a term tied to an ascertainable standard stands, and for goods a contract survives an open term, even an open price, whenever the parties meant to deal and a remedy can be fashioned. Now, five questions.