Formation of contracts - Indefiniteness and absence of terms

Learning Outcomes

After reading this article, you will be able to identify when a contract fails for indefiniteness or absence of essential terms, distinguish between enforceable and unenforceable agreements with missing or vague terms, and apply the correct rules under both common law and the UCC. You will also be able to answer MBE-style questions on this topic with confidence.

MBE Syllabus

For the MBE, you are required to understand how indefiniteness and missing terms affect contract formation and enforceability. This includes:

  • Recognizing when a contract is unenforceable due to indefiniteness or absence of essential terms.
  • Applying the different standards for indefiniteness under common law and the UCC.
  • Identifying which terms are considered essential for contract formation.
  • Understanding how courts may supply missing terms or interpret vague agreements.
  • Distinguishing between unenforceable agreements and contracts where terms can be supplied by law or custom.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following is most likely to render a contract unenforceable for indefiniteness under common law?
    1. The contract omits a price term, but the parties have a history of similar transactions.
    2. The contract states, "Seller will deliver goods at a fair price."
    3. The contract specifies quantity, price, and delivery date.
    4. The contract refers to "market price" as determined by a published index.
  2. Under the UCC, which of the following is true if a contract for the sale of goods omits the price term?
    1. The contract is void for indefiniteness.
    2. The contract is enforceable if the parties intended to make a contract.
    3. The contract is enforceable only if the buyer is a merchant.
    4. The contract is enforceable only if the seller is a merchant.
  3. A written agreement states, "Buyer will purchase Seller's car if satisfied with the price." Is this agreement enforceable?
    1. Yes, because satisfaction is presumed.
    2. Yes, because the parties can later agree on price.
    3. No, because the agreement is illusory and too indefinite.
    4. No, because the agreement lacks a delivery date.

Introduction

A contract must be sufficiently definite to be enforceable. If an agreement is too vague or omits essential terms, it may not be binding. The rules for indefiniteness and absence of terms differ between common law and the UCC. Understanding when a contract fails for indefiniteness is critical for the MBE.

Essential Terms and the Requirement of Certainty

At common law, a contract must include all material terms—typically the parties, subject matter, price, and quantity. If any of these are missing or too vague, the agreement may be unenforceable. Courts will not enforce a contract if they cannot determine what the parties agreed to.

Key Term: Indefiniteness The failure of an agreement to specify essential terms with sufficient clarity, making it impossible to determine the parties' obligations or to enforce the contract.

Common Law: Strictness and Exceptions

Under common law, courts are reluctant to enforce contracts that are missing essential terms or that use vague language. For example, an agreement to sell "at a fair price" or "on terms to be agreed later" is usually too indefinite. However, courts may sometimes supply missing terms if there is clear evidence of intent to contract and a reasonable basis for enforcement, such as a history of dealings or industry custom.

Key Term: Essential Terms The minimum terms required for a contract to be enforceable—typically the parties, subject matter, price, and quantity under common law.

UCC Approach: Greater Flexibility

The UCC relaxes the requirement of definiteness for contracts involving the sale of goods. A contract for the sale of goods will not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for giving a remedy. The only term that must be included is quantity; other missing terms, such as price, delivery, or payment, can be supplied by the UCC's gap-filling provisions.

Key Term: Gap-Filler Provisions Statutory rules under the UCC that supply missing terms (such as price, delivery, or payment) when the parties have not agreed on them.

Vague and Illusory Agreements

Agreements that leave essential terms to be agreed upon in the future, or that give one party unfettered discretion, are generally unenforceable. For example, "I will buy your car if I feel like it" is illusory and too indefinite. However, if the parties have acted as if a contract exists, courts may find an enforceable agreement based on performance or reliance.

Supplying Missing Terms

Courts may supply missing terms if:

  • The parties intended to contract.
  • There is a reasonable basis for enforcement.
  • The missing term can be determined by reference to objective standards (such as market price or prior dealings).

But if the agreement is so vague that the court cannot determine the parties' obligations, it will not be enforced.

Worked Example 1.1

A written agreement states: "Seller will deliver 1,000 widgets to Buyer. Price to be agreed upon later." Seller delivers the widgets, and Buyer refuses to pay.

Answer: Under common law, this agreement is likely unenforceable because price is an essential term and was left open. However, if the parties have a history of similar transactions or there is an established market price, a court may supply the price term. Under the UCC, if the parties intended to contract and quantity is specified, the court can supply a reasonable price.

Worked Example 1.2

A contract for the sale of goods states: "Buyer will purchase all the widgets she needs from Seller this year at Seller's usual price." Buyer orders 500 widgets, but Seller refuses to deliver.

Answer: Under the UCC, this is a requirements contract. The quantity is sufficiently definite because it is based on Buyer's needs, and "usual price" can be supplied by reference to Seller's past sales or market price. The contract is enforceable.

Exam Warning

Agreements that state "to be agreed" or "subject to contract" are generally unenforceable unless there is clear evidence of intent to be bound and a reasonable basis for supplying the missing term. Do not assume courts will fill in every gap.

Revision Tip

If a contract is missing a term, ask: Is it essential? Is there evidence of intent to contract? Can the court supply the term using objective standards or prior dealings?

Key Point Checklist

This article has covered the following key knowledge points:

  • A contract must be sufficiently definite to be enforceable.
  • Common law requires all essential terms (parties, subject, price, quantity) to be specified or reasonably certain.
  • The UCC allows contracts for the sale of goods to be enforced if quantity is specified and the parties intended to contract.
  • Courts may supply missing terms if there is a reasonable basis for enforcement.
  • Agreements that leave essential terms open or are illusory are generally unenforceable.
  • Vague language like "to be agreed" or "fair price" is usually too indefinite unless clarified by context or custom.

Key Terms and Concepts

  • Indefiniteness
  • Essential Terms
  • Gap-Filler Provisions
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