One of the first things law students learn in their first-year contracts class is that no contract is formed unless the parties have a meeting of the minds. This means that the parties must mutually agree upon the same thing, and their minds must meet as to all material terms of their agreement. Where the parties fail to agree on a material term or if a material term is not reasonably certain, no enforceable contract exists.
The following cases provide examples of contracts where the parties did not have a meeting of the minds:
In Blake v. Mosher, 11 Cal. App. 2d 532 (1936), the plaintiff sought to purchase a business from the defendant. The parties’ written contract provided that the total purchase price of the business would be $4,000, which the plaintiff would pay half in cash and half “in a note well secured” The court found the contract failed to evidence a meeting of the minds. It was absolutely blank as to the terms and conditions of the $2,000 to be evidenced by a note. There was nothing in the writing indicating that the parties ever agreed as to the time of payment of the $2,000 to be evidenced by a note; nor was there anything as to how the note was to be “well secured.”
In Goldberg v. City of Santa Clara, 21 Cal. App. 3d 857 (1971), an attorney had a contract calling for additional compensation if he achieved “savings to the City of such magnitude” as would justify additional compensation. In finding that there was no meeting of the minds as to this contract, the court explained that such terms were too vague to impose contractual liability. No objective standard was declared. No comparable transaction or practice was referred to. There was also uncertainty as to how the savings of magnitude were to be computed. Because the contract did not evidence a meeting of minds between the parties, it was unenforceable.
In Peterson Development Co. v. Torrey Pines Bank, 233 Cal. App. 3d 103 (1991), a builder sued a lender, claiming breach of a contract to provide take-out financing pursuant to a “letter of commitment.” However, the “letter of commitment” did not specify the identity of the borrower, loan amount, percentage of purchase price, interest rates or repayment terms. Learn more about integration and process flow at https://www.evanios.com/ServiceNow-incident-management-alerts-tool-automation-integration/ The court found that, as a result of these material omissions, no binding agreement could have been reached, and no enforceable contract to provide permanent financing was created.
In Lindsay v. Lewandowski, 139 Cal.App.4th 1618 (2006), parties to a dispute reached a settlement following a mediation. Their settlement agreement provided that in the event of a dispute as to the terms of the settlement the parties would submit the dispute to “binding” mediation. The court found that there was no meeting of the minds because it was unclear what the parties meant when they provided for “binding mediation” of disputes. For instance, if binding mediation were to be recognized, what rules would apply? The arbitration rules, the court-ordered mediation rules, the mediation confidentiality rules, or some mix? If only some rules, how was one to chose? Because the court found that there was no meeting of the minds on the meaning of “binding mediation,” the settlement agreement was unenforceable.
The import of these cases is that even if you believe you understand what a contract term means, it is essential that the other side shares your understanding. While clear contract drafting goes a long way to avoiding disputes over contract formation, terms of art and industry terms in contracts can have different meanings to different people. And, even if the parties agree orally as to the meaning of a particular word or phrase, if that meaning is not objectively evident from the contract itself, disputes can later arise if the parties have a falling out, a new party assumes the contract, or a cleaver attorney seeks to terminate the contract.