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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

CHAPTER 4 INDEFINITENESS AND MISTAKE IN EXPRESSION

1-4 Corbin on Contracts § 4.4

§ 4.4 Agreed Methods of Determining the Price or Amount

[Go To Supp]

An agreement is not unenforceable for lack of definiteness of price or amount if the parties specify a practicable method by which the amount can be determined by the court without any new expression by the parties themselves.n1 An agreement to sell shares of stock that is commonly bought and sold on a stock exchange is enforceable if the price is agreed to be the ''market price'' at a certain time on that exchange. If there is a ''market price'' for the goods or services that are the subject of agreement, it is sufficient that the agreement is for payment at the market price.n2 Sometimes, however, there is no market or ''market price'' that can be established by proof, but ''market'' is a very flexible term and may cover a wide extent of territory and include many small shops or wide highways.

It is sufficient if the agreement provides that the price shall be the amount that arbitrators or that X, a specific third person, shall fix as a fair price.n3 The agreed price is sufficiently definite if it is ''the rate that A paid to B'' for similar goods or services.n4 If it is a specified proportion of the amount for which the buyer shall thereafter sell the goods to a third person, there is some indefiniteness, as to the period within which the subsequent sale may be made, but the method of determining the price is sufficiently definite for enforcement.n5 If the goods are delivered and are in fact resold at a price, the indefiniteness is removed, but if the seller refuses to deliver and the buyer makes no contract for resale to a third person it may be difficult to determine the price to be paid. Even in the latter case, however, it may be possible to determine with a sufficient degree of accuracy the amount that the buyer could have obtained on resale by the use of ordinary skill and diligence. Whenever a workable formula for pricing is present in the agreement, the price term is sufficiently definite.n6

An agreement that provides that the price to be paid, or other performance to be rendered, shall be left to the will and discretion of one of the parties has been held not enforceable. This is supportable if the party having such discretion makes no real promise to pay or to perform.n7 An illusory promise is no promise at all and is not a sufficient consideration for a return promise. But the fact that one of the parties reserves the power of fixing or varyingn8 the price or other performance is not fatal if the exercise of this power is subject to prescribed or implied limitations, as that the variation must be in proportion to some objectively determined base or must be reasonable or in good faith.n9 If the transaction is a contract for sale of goods, U.C.C. § 2-305(2) eliminates any doubt as to the validity of such a contract by providing: ''A price to be fixed by the seller or the buyer means a price for him to fix in good faith.''n10 This validates agreements for sale of goods containing such a price term and at the same time protects the one party against the bad faith of the other.n11 A promise to pay a ''satisfactory'' amount or to render satisfactory service is generally found to mean that the determination of price or performance must be that of a reasonable person; it is not a matter of uncontrolled will and discretion.n12 In like manner, a promise to afford credit facilities by purchasing ''acceptable retail time sales obligations'' has been held not too uncertain for enforcement.n13 A promise by promoters of a business to supply enough money to finance it is not too indefinite when it is a going concern with the needs of which the parties are familiar.n14

Where a price of goods per unit, to be manufactured, was agreed upon, with a provision that subsequent changes therein should be effected by mutual agreement in supplemental contracts based upon a time study of cost analysis, there was no sufficient basis for the court to act upon when the parties could not subsequently agree.n15 This line of cases has been eradicated by U.C.C. § 2-305. As discussed in § 4.1 of this treatise, agreements to agree on price are validated by this provision unless the parties have an intent to be bound only if agreement is reached. Similarly if one factor in a pricing formula is left open and the parties are unable to agree upon it, the court will fill the gap with a reasonable figure.n16

The California Lettuce Growers, being the lessee of land from the Union Sugar Co., by written contract promised to grow and deliver, during 1949, 239 acres of beets. In a supplemental writing the Sugar Co. promised to pay a price per ton computed ''on the basis of net return of Company,'' meaning by this ''the average net selling price actually realized by Company per 100 lbs. for 1948 crop sugar sold and delivered during the period August 1, 1948, to July 31, 1949, and shall be computed in accordance with the established system of accounting of Company by deducting from the gross selling price actually realized by Company for such sugar all such charges and expenditures as are regularly and customarily deducted by, and as determined by Company.'' The average net selling price was to be ''verified'' by independent accountants ''chosen by the Company, which verification shall be conclusive.'' California Lettuce delivered 117 acres of beets, and sued for the purchase price of $29,655.37, less a sum paid on account. Union Sugar admitted the debt sued for, but counterclaimed for damages for failure of California Lettuce to deliver the full 239 acres as agreed (and for other breaches). The court gave judgment to California Lettuce for the amount claimed by it for the beets delivered, with interest, but it held the Sugar company's counterclaim invalid because the contract was void for lack of ''mutuality''. It said: ''the contract provided Union Sugar was to determine unilaterally the price to be paid California Lettuce. It could sell at any price ... make deductions in accordance with its system of accounting, and conclusively verify its methods and conclusions by accountants of its own choice. By no rationalization may this be called mutuality.''n17 Neither the court's reasoning nor its decision can be supported. This is one more case in which the court has got lost in the fog of ''mutuality.'' The Sugar Company's promise to pay was far from being ''illusory.'' While the prescribed method of determining the price seems superficially favorable to the buyer, at every step in the process it would be bound to use good faith and diligence. No court, including the present one, would interpret this contract as permitting the buyer to pay for sugar beets only so much as it might wish. Indeed, acting under this very contract, the parties seem to have had no difficulty in determining the amount due for the 117 acres of beets actually delivered. It is true that other courts have been lost in a similar fog, although some of the cases cited by the present court can be readily distinguished. This is why Chapter 6 (§ 152-170) in this treatise had to be devoted to the subject of ''mutuality.'' In this case, the seller's promises were amply supported by binding return promises, express as well as implied. This decision was reversed, after the above criticism was writtenn18 with reasons in harmony with the criticisms herein. The method of determining price was in accord with ''the prior dealings of the parties and the practice of the industry.'' This ''usage of the trade'' was known to the plaintiff. Also the court said: ''The 'net return' formula is sufficiently definite to satisfy the requirements of certainty and mutuality... Union Sugar may not alter its accounting system for the purpose of varying the resulting 'net return' figures... In any event, where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.'' See other notes on this case under § 1.17, 145, 149, 556, 568, 1020, 1046. There is further quotation from the court's opinion under § 149.n19

In Kirkwood & Morgan, Inc. v. Roach,n20 the parties orally agreed upon the construction of a road from dry land to a point under water (approximately located by a stake) at which the defendant expected to drill for oil, and at that point to construct a turn-around. The exact size of the road and the turn-around was not fixed, but was to be large enough for the usual traffic to an oil drilling rig. The price to be paid was $1 per cu. yd. of the sand necessary for the construction. The plaintiff was directed to begin work at once and did so. After he had moved 1,696 yards of sand, the defendant changed the location of the well and asserted that no contract had been consummated. The court held that the agreement was not too indefinite for enforcement and that there was ''mutuality of obligation'' (a bilateral contract). The court said: ''Here both parties were well acquainted with this type of construction work and knew what was called for in the construction of a 'T head.' They knew the approximate dimensions, but the actual number of yards of sand necessary could not be known until the contract was completed.'' The court held that the agreement was sufficiently definite to sustain a judgment for ''damages'' and that one measure thereof ''would be the contract value of the work actually done, plus any profit the contractor would have made had he been permitted the performance of his contract.'' It sustained the trial court's judgment for ''the agreed contract price for the sand actually delivered and spread before the appellant stopped the work.'' This amount was $1,696. Observe that this included the cost and profit on the performance rendered, with no profit on the balance, a result that might be described as ''restitution'' (instead of ''damages'').

In Landow-Luzier Co. v. Grey,n21 an exclusive brokerage contract was not too indefinite for enforcement by reason of the fact that ''the terms whereby the plaintiff would earn commissions were not spelled out but depended on agreement between defendants [the employer] and the respective third parties. If the terms to be agreed upon never became definite because of the defendants' initially wrongful action in breaching the contract, the defendants cannot plead lack of definiteness as a defense.'' This indicates that the agreement was sufficiently definite in the beginning to create an obligation on the defendant not to interfere with the plaintiff's performance. The defendant was bound to negotiate in good faith with the third parties, and the amount of the plaintiff's compensation was merely conditional on their reaching an agreement.

Many of the themes mentioned above in this and the previous section of this treatise are brought out in the case of Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp. n22 Hollander was indicted by State and Federal Grand Juries for crimes involving unwarranted health and medical care reimbursements to a nursing home owned by his corporation. As part of a plea bargain, he agreed to divest himself of all connections with any occupation involving health care or custody. Pursuant to that bargain four parties, plaintiff (a not-for-profit community organization), Hollander, the corporation controlled by Hollander, and the Department of Health entered into an agreement whereby plaintiff was appointed receiver and also became lessee of the nursing home. The lease provided that plaintiff was to have the option to purchase the premises during the term of the lease ''at a price determined by the Department in accordance with the Public Health Law and all applicable rules and regulations of the Department....'' The day following the execution of the agreements, Hollander was sentenced to five years' probation plus a fine and an obligation to make restitution to the state, as well as to permanently divest himself from all nursing home interests. Three years later, the plaintiff exercised the option. Defendant refused to sell, arguing, inter alia, that the option was void for indefiniteness of price in that no provision of the Public Health Law or Department's rules and regulations provide a method for fixing the sales price of real property. The Court of Appeals found the agreement to be sufficiently definite. The contract had a stated means for the fixing of the price-a decision by a third party. Although the Department regulations do not contemplate the fixing of sales price of realty, many Department regulations concerning reimbursement of costs refer to ''real property costs'' and deal with amortization, interest and return of equity. The Department was willing and able to calculate a price using these rules for guidance. It was clear that a market price was not contemplated. It was contemplated that the plaintiff, a not-for-profit institution, would purchase the premises for its continued use as a nursing home funded largely by state reimbursement revenues. Finally, the entire context had to be viewed. The defendant had gotten the benefit of his plea bargain. The findings of indefiniteness by the courts below allowed defendant ''to walk away with its property after enjoying the benefits of the bargain-defeat[ing] the reasonable expectations of the parties in entering into the contract and is a misuse of the indefiniteness doctrine.''n23

Where a practicable means of fixing or adjusting the price exist, but subsequently fails, the court must endeavor to fill the ensuing gap,n24 provided that the parties intended a contract to subsist even if the price-fixing mechanism fails.n25 In Oglebay Norton Co. v. Armco, Inc., n26 a contract had been made in 1957 and with subsequent modifications was to continue through 2020. The contract provided: ''Armco agrees to pay ... for all iron ore transported hereunder the regular net contract rates for the season in which the ore is transported, as recognized by the leading iron ore shippers in such season for the transportation of iron ore... If, in any season of navigation hereunder, there is no regular net contract rate recognized by the leading iron ore shippers for such transportation, the parties shall mutually agree upon a rate for such transportation, taking into consideration the contract rate being charged for similar transportation by the leading independent operators engaged in transportation of iron ore from The Lake Superior District.'' (Emphasis added by the court). Up until 1985, a publication, ''Skillings Mining Review'' published the rate that was recognized by the parties as the ''regular net contract rate recognized by the leading iron ore shippers.'' After 1985 this rate was no longer published. The parties continued to ship iron ore during 1986 and 1987, but were unable to agree upon a rate. Armco sought a declaratory judgment that the contract was no longer binding because of the complete breakdown of the pricing mechanisms. Oglebay Norton counterclaimed. It was held that the trial court correctly determined that the parties intended to contract and, in view of the failure of the pricing mechanism, came to the correct conclusion that a reasonable rate could be set by the court for the 1986 shipping season. As to future years, the court ordered that if the parties could not come to an agreement, the chief executive officers of the companies should meet with a court appointed mediator to set the rate. This order was appropriate in the light of the parties intentions to maintain a contractual relation expressed over the years and Oglebay's $95 million dollar capital improvement program to service Armco's needs.n27

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawDefensesGeneral OverviewCommercial Law (UCC)Sales (Article 2)Contract TermsGap-Filler ProvisionsOpen PriceContracts LawFormationDefinite Terms

FOOTNOTES:

(n1)Footnote 1. Illustrative cases:

U.S. - United States v. Bethlehem Steel, 215 F.Supp. 62 (D.Md.1962) , aff'd, 323 F.2d 655 (4th Cir.) ; Palmer v. Chamberlin, 191 F.2d 532, 27 A.L.R.2d 416 (5th Cir.1951) , reh'g denied, 191 F.2d 859, 27 A.L.R.2d 434 .

Ariz. -In Graham County Elec. Cooperative, Inc. v. Town of Safford, 84 Ariz. 15, 322 P.2d 1078 (1958) , the Co-op made an agreement to sell to Safford certain utility property at a price to be determined ''upon a replacement new cost less depreciation basis.'' The court by a majority of 3 to 2 held this method of determining the price was not so vague or indefinite as to make the agreement unenforceable. This decision should be sustained for the same reasons that agreements to sell property at a ''reasonable price'' are enforced. It is not necessary for the parties to specify the price in dollars or to specify a method by which the amount to be paid can be reduced to certainty by mere mathematical calculation. The determination of ''replacement new cost'' requires the introduction of the testimony of witnesses expert in the valuation of property such as that involved. Such testimony is often conflicting and widely variant, especially in the case of large public utilities, yet such valuations are continually held sufficient in sale cases as well as in rate cases. The dissenting judges put special emphasis upon the fact that ''depreciation'' may be determined by several different methods leading to different results. This variation in method appears especially in applying the federal statute permitting ''accelerated depreciation'' for tax purposes in certain cases. This statute has no bearing on the present case, where the depreciation is determined with reference to the estimated useful life of the subject matter. The fact that the litigating parties have not agreed upon an exact method of valuation of depreciated property is not fatal to the contract. So also as to the fact that they can not now agree and are engaged in violent and expensive litigation as to the amount to be paid. So also as to the fact that even disinterested experts in valuation may reach different results. These are the facts in practically all of the litigated cases in which the agreed price is a ''reasonable price.'' In enforcing such contracts, the court does not ''make a contract for the parties''. They have made their own contract, intentionally leaving the exact amount to be paid to the triers of fact in a court. This is true even though those ''triers'' must be aided by the testimony of engineers and accountants who must make inventories, estimate the prices and quantities of labor and material, take account of obsolescence, and predict the length of useful life. All the judges agreed in reversing the judgment below because the plaintiff had not established its own readiness to perform on its part.

Muccilli v. Huff's Boys' Store, Inc., 12 Ariz.App. 584, 473 P.2d 786 (1970) .

Cal. - Mancuso v. Krackov, 110 Cal.App.2d 113, 241 P.2d 1052 (1952) . Sale of four carloads of wine ''at the maximum price allowed by the next O.P.A. schedule.''

Colo. - Tallman v. Smith, 112 Colo. 217, 148 P.2d 581 (1944) .

Ill. - Elliott v. Northern Trust Co., 178 Ill.App. 439 (1913) , ''In case I return from Alaska, whatever riches I possess, she shall have 50 percent of same.''

Ky. - Lewis v. Creech's Adm'r, 162 Ky. 763, 173 S.W. 133 (1915) , agreement to make a natural child equal with the legitimate children.

Md. - Foard v. Snider, 205 Md. 435, 109 A.2d 101 (1954) , this section is quoted and the rule as to a provision for a method of estimating price is illustrated. See also § 264, 273, 1174.

Mo. - Morris v. Perkins Chevrolet, Inc., 663 S.W.2d 785 (Mo.App.1984) . Contract for the sale of a Corvette Indy 500 Pace Car for $100 over manufacturer's list price.

In Allied Disposal, Inc. v. Bob's Home Service, Inc., 595 S.W.2d 417 (Mo.App.1980) , a waste disposal agreement was exclusive on both sides. The price was to be fixed as to each new contract of hauling the plaintiff had. Because of the exclusive dealing arrangement, the court stated the agreement was enforceable as an exception to a general rule of non-enforceability.

N.Y. -In States Marine Lines, Inc. v. Crooks, 13 N.Y.2d 206, 245 N.Y.S.2d 581, 195 N.E.2d 296 (1963) , a dispute as to the wages of the Commodore and the Deck Officers of the nuclear powered ship Savannah was submitted to arbitration. The award provided that the Commodore's wage should be at the rate of ''1,500 or $200 more than the Chief Engineer's monthly wage (whichever is greater).'' The employer moved to set aside this award as not being ''final and definite'' as required by statute. The court held that the award complied with the statute, since it fixed a method for determining the amount that required no more than an arithmetical calculation. This was so held even though the wage of the Chief Engineer was and must be fixed by an agreement or arbitration between the plaintiff and a different labor union, and even though that wage might later be fixed in a manner such that it could not be used in the arithmetical calculation. In such an event, a similar contract (or this award) would become impossible of performance, but contracts are not uncertain or invalid for such a reason. An example is East Coast Aviation Corp. v. Massachusetts Port Authority, 346 Mass. 699, 195 N.E.2d 545 (1964) , noted at § 536.

In Elias v. Serota, 103 A.D.2d 410, 480 N.Y.S.2d 344 (1984) , a buy-sell agreement among partners provided a sufficient mechanism for determining the price. In re McManus, 55 N.Y.2d 855, 447 N.Y.S.2d 708, 432 N.E.2d 601 (1982) (per curiam). The court affirmed the Appellate Division's holding that there was a binding contract to sell stock ''at the price to be computed in accordance with the formula contained in the shareholders agreements.''

Ohio - Ellis v. Victor Elec. Products, Inc., 85 Ohio App. 170, 88 N.E.2d 275, 40 Ohio Op. 122, 55 Ohio L.Abs. 445 (1949) .

Tex. - Stanley v. Sumrell, 163 S.W. 697 (Civ.App., 1914) , contract by landlord to buy all of tenant's corn except what the tenant wished to feed his teams.

Utah - Plateau Mining Co. v. Utah Division of State Lands & Forestry, 802 P.2d 720 (Utah 1990) , coal royalties, contract calling for 15per ton or rate charged under federal leases, whichever is higher. Morgan v. Child, Cole & Co., 41 Utah 562, 128 P. 521 (1912) , agreement by defendant, for information to be supplied by plaintiff, to purchase stock in corporations owning mines affected by the information and to share resulting profits and losses equally.

Wash.-This section is cited in Combs v. Frigid Foods Products, Inc., 67 Wash.2d 862, 410 P.2d 780 (1966) , holding that a contract for the sale of raspberries, the price to be competitive with prices for a three-county area, was valid. This section is cited in Howard v. Fitzgerald, 58 Wash.2d 403, 363 P.2d 386 (1961) , where the plaintiff offered to sell merchandise ''at the wholesale price,'' and the defendant accepted by using the merchandise. ''The wholesale price was ascertainable with reasonable certainty by a practicable method, without any new expression by the parties.''

(n2)Footnote 2. Toys, Inc. v. F.M. Burlington Co., 155 Vt. 44, 582 A.2d 123 (1990) , option to renew tenancy, ''the fixed minimum rental shall be renegotiated to the then prevailing rate within the mall.''

Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428 (6th Cir.1924) , ''prices in effect on shipping date''.

McConnell v. Hughes, 29 Wis. 537 (1872) , ten cents per bushel less than the Milwaukee price on any day thereafter named by the seller.

The price may properly be made dependent on quotations posted at a specified date on a particular ''Exchange'' or ''Board of Trade.'' Louisville Soap Co. v. Taylor, 279 F. 470 (6th Cir. 1922) , cert. denied, 259 U.S. 583, 42 S. Ct. 586, 66 L. Ed. 1075 , not enforceable if no legitimate quotations posted. This conclusion of nonenforceability is overruled by U.C.C. § 2-305(1)(c).

A promise to pay for services as an appraiser ''at the rate established by the Boston Real Estate Exchange'' was held sufficiently definite for enforcement, even though the rates established by the Exchange were for work done by its own members. W.H. Ballard Co. v. Lipp, 288 Mass. 163, 192 N.E. 492 (1934) .

The price of goods to be manufactured may properly be made variable on an agreed scale according to market prices of materials. D.R. Vivion Mfg. Co. v. Robertson, 176 Mo. 219, 75 S.W. 644 (1903) . Likewise, the price may be made to vary in accordance with the market ratio of gold to greenbacks. Ames v. Quimby, 96 U.S. (6 Otto) 324, 24 L.Ed. 635 (1878) .

(n3)Footnote 3.

U.S. - Shell Oil Co. v. Federal Power Commission, 292 F.2d 149 (3d Cir.1961) , cert. denied, 368 U.S. 915 ; United Fuel Gas Co. v. Columbian Fuel Corp., 165 F.2d 746 (4th Cir.1948) . Here the provision directed the arbitrators to ''base their decision upon the then reasonable market value of gas in that territory.''

Ala. - Francis-Chenoweth Hardware Co. v. Bailey, 104 Ala. 566, 18 So. 10 (1894) , stock of goods sold at a price to be fixed by appraisers.

Colo. - Baum v. Rock, 106 Colo. 567, 108 P.2d 230 (1940) .

Conn. - New Haven Trap Rock Co. v. Tata, 149 Conn. 181, 177 A.2d 798 (1962) , contract to buy and to sell land at a price to be determined by appraisers; noted under § 261.

Md. - Hanna v. Bauguess, 49 Md.App. 87, 430 A.2d 104 (1981) . The Bauguesses owned 21/2 acres with a furniture store on it. In 1973 they leased it to the Hannas for 5 years with an option to renew or else to buy ''at price arrived at by three independent realty appraisers.'' The lease, prepared by a non-lawyer, did not specify how the appraisers were to be chosen or how they were to arrive at the price. The Hannas immediately made major improvements. When the end of the lease term approached, the option was exercised by a letter from Hannas' attorney suggesting that Bauguess select an appraiser, Hannas select one and these two select a third, which the court characterized as a ''time-honored practice.'' Bauguess made no reply. Reversing the trial court, the appellate court ruled that the parties had provided a practicable method for setting the price. On remand the trial court could specify the method for selection of appraisers or it could appoint them itself. The price they should determine ''would perforce be the fair market value of the property.''

N.J. - Keppler v. Terhune, 88 N.J.Super. 455, 212 A.2d 683 (1965) , lease with option to purchase at price to be fixed by arbitrators if the parties cannot agree. Specific performance of the arbitration clause decreed.

N.Y. - 166 Mamaroneck Ave. Corp. v. 151 East Post Rd. Corp., 78 N.Y.2d 88, 571 N.Y.S.2d 686, 575 N.E.2d 104 (1991).

Tex. - Penwell v. Barrett, 724 S.W.2d 902 (Tex.App.1987) , appraiser.

Eng. - Foley v. Classique Coaches, Ltd., [1934] 2 K.B. 1 , by arbitration if parties could not agree.

A promise to give the ''first refusal,'' or first opportunity to buy property, has been interpreted as a promise to give an option at a price offered by any other willing buyer, and so held not to be too indefinite.

See:

Ill. - Hayes v. O'Brien, 149 Ill. 403, 37 N.E. 73 (1894) .

N.H. - R.F. Robinson Co. v. Drew, 83 N.H. 459, 144 A. 67 (1928) .

N.Y. - DiMaria v. Michaels, 90 A.D.2d 676, 455 N.Y.S.2d 875 (1982) , noted under § 4.3.

Vt. - Krupinsky v. Birsky, 129 Vt. 400, 278 A.2d 757 (1971) .

Va. - Parker v. Murphy, 152 Va. 173, 146 S.E. 254 (1929) .

Eng. -Manchester Ship Canal Co. v. Manchester Racecourse Co., [1901] 2 Ch.D. 37.

But cf. Fogg v. Price, 145 Mass. 513, 14 N.E. 741 (1888) .

Additional cases are cited in § 4.3 above.

A bargain to pay for goods on the basis of prices charged at a specified time by some ''price leader'' such as Standard Oil or International Harvester, the ratio to those prices being specified, is sufficiently definite. Luetkemeyer Co. v. Murdock, 267 F. 158 (6th Cir.1920) .

See Turman Oil Co. v. Sapulpa Refining Co., 124 Okl. 150, 254 P. 84 (1926) , as to effect of the ''price leader's'' adopting a new pricing system.

Cf.:

N.Y. - Sun Printing & Pub. Ass'n v. Remington Paper & Power Co., 235 N.Y. 338, 139 N.E. 470 (1923) , criticized in § 4.3.

Specific enforcement of contract to purchase corporate stock at an amount fixed by specified accountants. Their appraisal conclusive if made in good faith without gross error. Sanitary Farm Dairies v. Gammel, Inc., 195 F.2d 106 (8th Cir.1952) (subsequent history too lengthy for citation here).

In Shell Oil Co. v. Federal Power Commission, 292 F.2d 149 (3d Cir.1961) , cert. denied, 368 U.S. 915 , the court held that a 25-year agreement for the sale of gas was a valid and enforceable contract for the whole period, even though it specified a definite price for only the first 5 years and provided that for each of the four subsequent 5-year periods the price was to be determined by mutual agreement or in default of such agreement by arbitration. It was held to be sufficiently definite because it ''does contain a valid, workable price-fixing standard.'' At the beginning of the third 5-year period, the parties agreed in writing upon an increased price for gas sold and delivered during that period under the 25-year ''gas purchase contract.'' In Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263, 80 S.Ct. 1122, 4 L.Ed.2d 1208 (1960) , the court held that the agreement of the parties fixing an increased price for the third 5-year period was not a ''contract for the purchase of gas.'' It was merely a price redetermination, limited to that one issue, in performance of an obligation imposed upon the parties by the earlier 25-year contract. Therefore, it did not activate an escalation provision in a contract between Shell and Texas Gas, whereby Shell was entitled to be paid an increased price if Texas Gas made a ''contract for the purchase of gas'', at a price higher than that being paid to Shell, with any third party.

(n4)Footnote 4. Lungerhausen v. Crittenden, 103 Mich. 173, 61 N.W. 270 (1894) , as much as defendant paid other attorneys in the case.

Salem King's Products Co. v. Ramp, 100 Or. 329, 196 P. 401 (1921) , agreement by farmer to sell total production for 10 years at a specified price, to be increased automatically if buyer should raise the price paid to others, seller held not bound to deliver at reduced ''market'' prices.

New York Oversea Co. v. China, Japan & South America Trading Co., 206 A.D. 242, 200 N.Y.S. 449 (1923) , bargain by a middleman to sell goods at manufacturer's price plus dealer's profit.

But in Gaines & Sea v. R. J. Reynolds Tobacco Co., 163 Ky. 716, 174 S.W. 482 (1915), a price at ''original cost, plus cost of handling and a 'nice' or reasonable profit'' was held too uncertain. The U.C.C. has driven such holdings into obsolescence.

(n5)Footnote 5.

U.S. - Hazeltine Corp. v. Zenith Radio Corp., 100 F.2d 10 (7th Cir.1938) , cert. denied, 306 U.S. 656 , licensee under a patent promised a royalty which was to be not more than that paid by any other licensee.

Iowa - Miller v. Kendig, 55 Iowa 174, 7 N.W. 500 (1880) , $1650 and half of what buyer should get above that sum on resale.

Mich. - Lungerhausen v. Crittenden, 103 Mich. 173, 61 N.W. 270 (1894) , to pay plaintiff as much as defendant paid other attorneys connected with the case.

W.Va. - Paull v. Pittsburgh, W. & K.R. Co., 72 W.Va. 263, 78 S.E. 100 (1913) , to pay for a lot, in addition to a named amount then paid, as much as he should thereafter pay for certain other lots in excess of that amount.

In Brooks v. Federal Surety Co., 24 F.2d 884, 58 App.D.C. 56 (1928) , the defendant promised to deliver 25,000 tons of coal to the plaintiff for a price which was to be the amount for which the plaintiff should resell the coal in the market less ten percent as the plaintiff's compensation. The court held the agreement not enforceable, thinking that its terms left the price to be paid absolutely at the discretion of the buyer. It would not have been unreasonable to hold that the plaintiff had impliedly promised to resell the coal with as much skill and diligence as would be required of an ordinary factor. Under the criteria of U.C.C. § 2-204(3) of intent to contract and reasonably certain basis for a remedy, the case should be decided differently today.

In Canadian Nat. Ry. Co. v. George M. Jones Co., 27 F.2d 240 (6th Cir.1928) , there was a mutual agreement for the purchase of 150,000 tons of coal, deliveries to begin April 1, 1922, the price to be ''the same as paid seller by other railroads on contract for mine run coal from the Hocking district at the time this contract becomes effective.'' On April 1, the seller had no contracts in force with other railroads, because of a coal strike. Work was resumed in August. On Sept. 29 the buyer and seller agreed that the price should be $3.50 per ton. The original agreement was a valid contract, but the fixing of the price in the mode specified never was fulfilled. (Cf. U.C.C. § 2-305(4)). The new agreement fixed the price specifically without reference to other contracts, and it was definite and enforceable. Other contracts thereupon became immaterial, and non-disclosure of existing negotiations with other companies was not fraudulent.

(n6)Footnote 6. Moorestown Management, Inc. v. Moorestown Bookshop, Inc., 104 N.J.Super. 250, 249 A.2d 623 (1969) , formula for assessing dues.

(n7)Footnote 7.

Me. - Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933) .

In Henry v. Scott, 136 So.2d 101 (La.App.1961) , a dealer received a jeep and a trailer, giving in return two ''credit memoranda'' in which he promised to credit the customer with specified amounts in trade only and not in cash. The dealer could fix his own price on a new truck and the customer was not bound to buy any new car or truck. The court held that the memoranda were subject to a ''potestative condition'' and were nudum pactum under Louisiana law. At common law, the dealer's promise should be regarded as a valid unilateral contract, binding him to give the customer an opportunity to buy a new car or truck at the dealer's currently established price, with the specified allowance. No breach being definitely established, it is not clear that the action of the customer would be sustained, but the Louisiana court, regarding the agreement as void, gave judgment for reasonable value (not the stated trade-in allowance) in order to avoid ''unjust enrichment.'' The dealer's promise should not be regarded as ''illusory''. The provisions of the Louisiana code as to ''potestative conditions'' are confusing, but the State Supreme Court has clarified them. See § 149 and notes thereunder.

(n8)Footnote 8. Powell v. Central California Federal Sav. & Loan Ass'n, 59 Cal. App. 3d 540, 130 Cal. Rptr. 635 (1976) , variable interest rate does not make the contract illusory. Accord, Constitution Bank & Trust Co. v. Robinson, 179 Conn. 232, 425 A.2d 1268 (1979) .

In Perdue v. Crocker Nat. Bank, 38 Cal.3d 913, 216 Cal.Rptr. 345, 702 P.2d 503 (1985) , appeal dismissed, 475 U.S. 1001 , it was held that a signature card permitting the bank to set a fee for checks returned for insufficient funds is binding and not unconscionable.

In Sprik v. Regents of University of Michigan, 43 Mich.App. 178, 204 N.W.2d 62 (1972) , aff'd, 390 Mich. 84, 210 N.W.2d 332 (1973) , the University's lease with married students permitted unilateral changes in the rent. None of the judges contested the validity of such a reservation of power by the University. The dissent, however, thought that the power had been abused.

(n9)Footnote 9.

U.S. - Hogan v. Wright, 356 F.2d 595 (6th Cir.1966) , an attorney drafted a letter signed by his client, stating: ''you are to pay me a percentage figure acceptable to you.'' The client tendered $2,000 which the trial court found to be so insufficient as to amount to bad faith. On appeal, it was held that the trial court's finding was clearly erroneous.

Me. - Corthell v. Summit Thread Co., 132 Me. 94, 167 A. 79, 92 A.L.R. 1391 (1933) , ''reasonable recognition'' for inventions by employee, ''the basis and amount of recognition to rest entirely with the Summit Thread Co. at all times.''

Mass. - Silver v. Graves, 210 Mass. 26, 95 N.E. 948 (1911) .

Or. - Moore v. Shell Oil Co., 139 Or. 72, 6 P.2d 216 (1931) . A contract for the sale of gasoline was held valid though the agreed price was to be at a rate of 4 cents less than the sellers ''full market price at N.P. Oregon.''

Pa. - Jessup & Moore Paper Co. v. Bryant Paper Co., 283 Pa. 434, 129 A. 559 (1925) , appeal after remand, 297 Pa. 483, 147 A. 519 , seller to fix price of goods but promised to meet the price made by other dealers.

Va. - American Trading and Production Corp. v. Fairfax County Bd. of Supervisors, 214 Va. 382, 200 S.E.2d 529 (1973) . American's land was partially inside Fairfax County. It contracted for Fairfax to allow it to hook up to the Fairfax sewer system in exchange for its promise to pay ''all applicable charges set by the board'' for sewer services. Then American decided to hook up to the sewer system of the other county. Fairfax, in turn, charged it an ''availability fee'' on all American's structures within the county. It was held that the agreement was binding, relying on this section to show than an ''open price'' agreement is enforceable. The party setting the price must not act arbitrarily.

On this ground the bargain made in Weston Paper Mfg. Co. v. Downing Box Co., 293 Fed. 725 (7th Cir.1923) , should have been held a valid contract, even though the price payable was to be fixed by the seller every three months at ''the seller's market price then existing under this the seller's standard form of quarterly price fixing contract.'' The seller did not have complete discretion. He was bound to treat the buyer like his other customers under a ''standard form'' agreement.

In Lipman v. Arlington Seating Co., 192 F.2d 93 (7th Cir.1951) , the court refers with approval to its former decision in the Weston Paper case. The defendant's alleged acceptance of plaintiff's order contained the words ''Acknowledgment of order only,'' but the court justified its decision against plaintiff on the ground of ''want of mutuality.'' It said that ''the price is conditioned entirely on the will of one of the parties.'' If this was supported by the facts, the defendant either made no promise or made an illusory promise.

The decision in Washington Chocolate Co. v. Canterbury Candy Makers, Inc., 18 Wash.2d 79, 138 P.2d 195 (1943) , can be sustained because the agreement to buy and to sell at the seller's ''current price list'' was left indefinite by reason of proof that the seller maintained no such price list but made separate prices for his customers.

In Ken-Rad Corp. v. R.C. Bohannan, 80 F.2d 251 (6th Cir.1935) , the court said: ''The validity of the contract is challenged on the ground that it lacks definiteness and mutuality. We do not so regard it. While price is not fixed, it is capable of definite ascertainment by reference to the manufacturer's list prices, even though the latter reserved the right from time to time to change price and rate of discount. While no quantity is specified in the agreement, that too was determinable. The contract required the distributor to maintain an adequate supply of tubes to meet the needs of dealers. The dealer contracts involved definite commitments to be supplied by the distributor.''

The court said in Moon Motor Car Co. v. Moon Motor Car Co., Inc., 29 F.2d 3, 4 (2d Cir.1928) , ''There is no objection to a promise that it is indefinite so long as the parties can tell when it has been performed, and it is enough if, when the time arrives, there shall be in existence some standard by which that can be tested.''

A contract fixing the price of goods, to be imported, at $3.10 per box, price to be ''subject to change pending tariff revision,'' is not too indefinite for enforcement. If no tariff change occurred before the time fixed for performance the price was $3.10 per box. If the tariff should be increased, the agreement might mean, either that a new price must be agreed on, or that the price should be augmented by the amount of the increase. The court did not need to choose between these two interpretations, for the reason that no change in tariff occurred. Outlet Embroidery Co. v. Derwent Mills, Ltd., 254 N.Y. 179, 172 N.E. 462, 70 A.L.R. 1440 (1930) .

A contract for the sale of sugar ''basis 22.50'' is not made too uncertain for enforcement by the fact that this contemplated the ordering of an assortment of grades on which prices would vary, when there was a published list of the ''differentials'' that would be applicable. See:

U.S. - American Sugar Ref. Co. v. Colvin Atwell & Co., 286 Fed. 685 (W.D.Pa.1923) .

Or. - Nelson Equipment Co. v. Harner, 191 Or. 359, 230 P.2d 188, 24 A.L.R.2d 999 (1951) , an agreement provided that the price of a machine should be the manufacturer's price at place and time of delivery to carrier, a price that was not yet fixed.

Pa. - Franklin Sugar Ref. Co. v. Howell, 274 Pa. 190, 118 A. 109 (1922) .

In Warren v. Skelly Oil Co., 235 F.2d 722 (10th Cir.1956) a producer and a distributor agreed upon the sale and purchase of a minimum quantity of gasoline at ''seller's current tank car price to jobbers on date of shipment.'' As to this the court said: ''The uncontroverted testimony reveals that the phrase ''seller's current tank car price to jobbers on date of shipment'' is a common phrase in the industry sometimes shortened to ''spot price'', and indicates a price at which a refiner or distributor will sell to those purchasers qualified by contract or custom to buy quantity amounts at wholesale rates. The spot price may vary from day to day and is within the discretion of the seller as to amount, the essence of seller's agreement being that he will not sell to different jobbers at different prices. Competition in the industry is relied upon to level the spot price among producers.'' See also § 149; § 159.

(n10)Footnote 10. It has been held that the obligation to fix a price in good faith does not necessarily require that the price be a market or ''competitive'' price. Good faith was equated with ''reasonableness,'' a concept which is not always the same as the concept of good faith. Au Rustproofing Center, Inc. v. Gulf Oil Corp., 755 F.2d 1231 (6th Cir.1985) .

(n11)Footnote 11. This entire section of the Code, § 2-305, is printed herein at § 4.3.

(n12)Footnote 12. A contract for services as an agent provided: ''My compensation for such services shall be such sum as you, in your sole judgment, may decide is reasonable.'' This was held to require an exercise of judgment ''in good faith'' by the employer. On a finding that he had failed in this, a judgment for the reasonable value of services actually rendered was sustained. Pillois v. Billingsley, 179 F.2d 205 (2d Cir.1950) .

(n13)Footnote 13.

U.S. - Commerical Credit Co. v. Insular Motor Corp., 17 F.2d 896 (1st Cir.1927) .

In Ouston v. Scammell, [1940] 1 All E.R. 59 (C.A.), the court held that a contract for the delivery of a truck was consummated even though it provided that payment should be in installments under a ''hire-purchase'' agreement to be made with a finance company. The court said: ''I think it is right to say that everything must turn upon the actual arrangement made between these particular parties, having regard to the fact that they were business men, dealing with a commercial matter in a usual or very familiar way. For myself, I do not think that the authorities help at all in this matter.'' It is true that the terms of the ''hire-purchase'' agreement might vary in important matters, but the parties agreed to be satisfied with any reasonable and customary form. It was significant here that the defendant's refusal to perform was in no way related to the terms of ''hire-purchase'' contract to be made with a finance company.

The decision in this case was reversed in the House of Lords. Scammell v. Ouston, [1941] 1 All E.R. 14 (H.L.), the Lords being convinced that ''the parties never in intention, nor even in appearance, reached an agreement ... never got beyond negotiations.'' The terms of the hire-purchase agreement were never settled. See the note on this case under § 4.1.

(n14)Footnote 14.

N.Y. - Stern v. Premier Shirt Corp., 260 N.Y. 201, 183 N.E. 363 (1932) .

(n15)Footnote 15.

U.S. - Beech Aircraft Corporation v. Ross, 155 F.2d 615 (10th Cir.1946) .

(n16)Footnote 16. D.R. Curtis, Co. v. Mathews, 103 Idaho 776, 653 P.2d 1188 (App.1982) .

(n17)Footnote 17. California Lettuce Growers, Inc. v. Union Sugar Co., 278 P.2d 106 (Cal.App.1954) , vacated, 45 Cal.2d 474, 289 P.2d 785, 49 A.L.R.2d 496 .

(n18)Footnote 18. California Lettuce Growers v. Union Sugar Co., 45 Cal.2d 474, 289 P.2d 785 (1955) .

(n19)Footnote 19. The California Lettuce decision, supra, is followed, with respect to the requirement of ''Mutuality'', in Hunt Foods, Inc. v. Phillips, 248 F.2d 23 (9th Cir.1957). See notes on this case under § 155, 422A, 1023, 1051.

This section is quoted in Automatic Vending Co. v. Wisdom, 182 Cal.App.2d 354, 6 Cal.Rptr. 31 (1960) , the court following the decision of the Supreme Court in the California Lettuce case discussed herein. The plaintiff sued for breach of a written contract whereby the defendant gave an exclusive concession for the sale of cigarettes by vending machines. A commission at a stated percentage of the price received was promised by the plaintiff; but the contract also provided that the plaintiff ''may change the above commission rates upon written notice.'' The court held that the contract was not lacking in mutuality of obligation. Any change of rates would have to be made in good faith and not unreasonably.

(n20)Footnote 20. 360 S.W.2d 173 (Tex.Civ.App.1962) , writ refused n.r.e. and rehearing of writ of error over.

(n21)Footnote 21. 34 Misc.2d 1061, 232 N.Y.S.2d 247 (1962) .

(n22)Footnote 22. 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203 (1989) , reargument denied, 75 N.Y.2d 863, 552 N.Y.S.2d 925, 552 N.E.2d 173 , cert. denied, 111 S.Ct. 58 .

(n23)Footnote 23. 74 N.Y.2d at 485 .

(n24)Footnote 24. Marder's Nurseries, Inc. v. Hopping, 171 A.D.2d 63, 573 N.Y.S.2d 990 (1991) , appeal denied, 79 N.Y.2d 757, 583 N.Y.S.2d 193, 592 N.E.2d 801 . Here, the appraisal method agreed upon by the parties resulted in a stalemate.

Garmo v. Clanton, 97 Idaho 696, 551 P.2d 1332 (1976) . A right of first refusal was sought to be thwarted by the subterfuge of a contract to devise to a third party. The court held that this transmuted the right of first refusal into a right to purchase at fair market value.

(n25)Footnote 25. In Interstate Plywood Sales Co. v. Interstate Container Corp., 331 F.2d 449 (9th Cir.1964) , the price of plywood under an option to purchase was to be ''market price'' defined as the average price of five other named manufacturers. When this method failed for lack of published price lists and because some of the named manufacturers went out of business, the parties fixed the price by negotiation and by ascertaining as best they could the prevailing prices. If no agreement was reached, the buyer simply failed to exercise the option as to that lot. Seller eventually repudiated. Held, there was no contract. This finding was upheld on appeal. It is correct only if it can be said that seller proved that there was no contractual intent to be bound if the pricing mechanism failed. The facts are at best ambiguous on this question.

(n26)Footnote 26. 52 Ohio St.3d 232, 556 N.E.2d 515 (1990) . The intermediate court opinion in this significant case is unpublished but available at 1989 Ohio App. LEXIS 1365 (Ohio App. 1989).

(n27)Footnote 27. In Kenai v. Ferguson, 732 P.2d 184 (Alaska 1987) , the court ordered the landlord and tenant to negotiate pursuant to an escalation clause that provided that ''the rents or fees specified herein shall be subject to renegotiation for increase or decrease at intervals of every five years.'' The court retained jurisdiction to set the rent in the event the parties were unable to agree.