Formation of contracts - Indefiniteness and absence of terms

Learning Outcomes

This article explains indefiniteness and missing terms in contract formation, including:

• Identifying when preliminary negotiations, term sheets, or “agreements to agree” fail to create enforceable offers because essential terms or objective standards are absent
• Comparing strict common-law requirements for certainty with the UCC’s more flexible gap-filler approach to open price, time, delivery, and payment terms
• Distinguishing vague language from truly illusory promises, and evaluating satisfaction, discretion, requirements, and output clauses using good-faith and reasonableness standards tested on the MBE
• Using course of dealing, course of performance, and usage of trade to interpret contracts and supply missing terms without rewriting the parties’ bargain
• Applying UCC rules on quantity, including requirements and output contracts, to determine when an otherwise open-quantity agreement is sufficiently definite and satisfies the Statute of Frauds
• Spotting how partial performance, reliance, or industry practice can rescue seemingly indefinite agreements on exam fact patterns and support enforcement or reliance-based recovery
• Practicing a stepwise analysis for MBE questions: identify the governing law, isolate missing or vague terms, assess intent to contract, and determine whether courts or the UCC can fill the gaps

MBE Syllabus

For the MBE, you are required to understand how indefiniteness and absence of terms affect contract formation and enforceability, with a focus on the following syllabus points:

• When a communication is too indefinite to be an offer
• Which terms are “essential” under common law and under Article 2 of the UCC
• When courts will supply missing terms through gap-filler rules or custom
• The special treatment of open price and quantity terms (especially in goods contracts)
• The difference between vague terms and illusory promises
• The effect of partial performance and reliance on otherwise indefinite agreements

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 valid contract requires mutual assent to terms that are sufficiently definite for a court to determine what was promised and to fashion a remedy for breach. When an agreement is too vague, omits essential terms, or gives one party unfettered discretion, it may fail as an unenforceable “agreement to agree” or an illusory promise.

On the MBE, indefiniteness issues often arise in:

• Offers that omit key terms (especially quantity or price)
• “Agreements to agree” later on important terms
• Open price clauses
• Requirements and output contracts
• Satisfaction clauses and promises “at my option”

The treatment of missing or vague terms differs sharply between common law (services, real estate) and the UCC (sale of goods). You must be able to apply the correct regime.

Key Term: Indefiniteness
The failure of an agreement to specify essential terms with sufficient clarity so that a court cannot determine the parties’ obligations or provide a reasonably certain remedy.

Essential Terms and the Requirement of Certainty

At common law, an offer must include enough essential terms that, if accepted, a court can tell what each party is supposed to do. The classic essentials are:

• Identity of the parties
• Subject matter
• Price (or objectively determinable value)
• Quantity (or scope of performance)
• Time of performance (often fillable by “reasonable time”)

If a purported contract omits essential terms or uses language so vague that no standard exists for determining performance, courts generally will not enforce it.

Key Term: Essential Terms
The minimum material terms that must be stated or be objectively determinable (e.g., parties, subject matter, quantity, and usually price) for a contract to be enforceable.

Courts do not demand perfect drafting. A promise can be enforceable even if it does not spell out every detail, as long as:

• The parties intended to make a contract, and
• There is a reasonably certain basis for giving a remedy.

The more the agreement looks like a concluded deal, the more willing courts are to supply details by referring to market standards, prior dealings, or reasonable expectations.

Common Law: Strictness and Exceptions

Under common law, courts are reluctant to enforce agreements that leave essential terms open or that say the parties will “work it out later.”

Key Term: Agreement to Agree
A purported contract that leaves an essential term to be fixed by future agreement of the parties, without any objective standard for doing so.

Examples typically too indefinite under common law:

• “We will lease the office for five years at a rent to be agreed later.”
• “I’ll buy your house at a price we both find fair.”
• “We will negotiate a bonus arrangement in good faith later.”

Because price and duration are essential in these types of contracts, an open-ended promise to negotiate later is treated as an agreement to agree, not a binding contract.

However, there are important exceptions where courts will enforce the deal:

• The parties have already begun performance, indicating they believed they had a contract.
• The missing term can be supplied by an objective standard, such as:
  • Market price published in a reliable index
  • “Usual price” in that trade
  • “Reasonable” value of services
• There is a course of dealing between the parties that makes the missing term clear.

Key Term: Course of Dealing
A sequence of previous conduct between the same parties that establishes a common basis of understanding and may be used to interpret or fill gaps in their current agreement.

Key Term: Course of Performance
Repeated performance under the same contract by one party, and the other party’s knowledge and acceptance of that performance, used to interpret or supplement contract terms.

Key Term: Usage of Trade
A practice or method of dealing so regularly observed in a place, vocation, or trade that parties to such transactions justifiably expect it to be observed in their agreement.

These interpretive tools—course of dealing, course of performance, and usage of trade—are relevant at common law and are explicitly recognized by the UCC.

UCC Approach: Greater Flexibility

Article 2 of the UCC governs contracts for the sale of goods and takes a more flexible view of indefiniteness.

Under UCC § 2‑204, a contract for the sale of goods can be found even if:

• The moment of formation is uncertain, and
• One or more terms are left open,

as long as:

• The parties intended to make a contract, and
• There is a reasonably certain basis for giving a remedy.

However, there is one non-negotiable requirement: quantity.

• Except in requirements and output contracts, the quantity term (or its measure) must be present or objectively determinable.
• Price, delivery, time of payment, and other terms can be supplied by statutory gap-filler provisions.

Key Term: Gap-Filler Provisions
UCC rules that supply reasonable terms—such as price, place of delivery, and time of shipment or payment—when the parties intended to contract but omitted those terms.

Open Price under the UCC

A very common MBE pattern is an open price term in a goods contract.

Key Term: Open Price Term
A contract provision (or omission) that leaves the price to be fixed later by the parties, by a third party, or by a standard such as market price, or is simply left open.

Under UCC § 2‑305, if the parties intend to contract:

• The fact that the price is left open does not prevent contract formation.
• The price defaults to a reasonable price at the time for delivery if:
  • Nothing is said as to price, or
  • They are to agree on price and fail to do so, or
  • The price is to be fixed by a market or third party who fails to act.

If the agreement shows that there is no contract unless price is fixed (e.g., “no binding contract until we agree on the price”), then failure to fix the price means no contract.

Quantity: Requirements and Output Contracts

The UCC also recognizes contracts in which quantity is expressed by reference to one party’s needs or production.

Key Term: Requirements Contract
A contract in which the buyer promises to purchase all the goods it requires from the seller, and the seller agrees to supply that quantity.

Key Term: Output Contract
A contract in which the seller promises to sell all the goods it produces to the buyer, and the buyer agrees to take that quantity.

Under UCC § 2‑306:

• The actual quantity is whatever the buyer in good faith requires or the seller in good faith produces.
• Quantity cannot be unreasonably disproportionate to stated estimates or normal prior output/requirements.

Because the quantity is tied to objective factors (needs or output), these contracts are sufficiently definite, and the quantity term satisfies both indefiniteness and Statute of Frauds concerns.

Vague and Illusory Agreements

Indefiniteness is one problem; illusory promises are another.

Key Term: Illusory Promise
A statement that appears to be a promise but in fact does not commit the promisor to any performance, usually because performance is entirely within the promisor’s unfettered discretion.

Examples of illusory promises:

• “I will buy your car if I feel like it.”
• “I will supply you with goods as I may wish to sell.”
• “Employment is at my sole discretion and can end at any time, for any reason.” (This is a promise, but it does not create a fixed term of employment.)

Illusory promises are unenforceable because they lack consideration—one party truly promises nothing.

By contrast, not every broad or subjective clause is illusory. Courts often impose a good faith limitation that makes the promise real. This is important for satisfaction clauses and discretion clauses.

Key Term: Satisfaction Clause
A term making one party’s performance conditional on that party’s satisfaction with the other’s performance or with a specified subject (e.g., “if I am satisfied with the work”).

For satisfaction clauses:

• If satisfaction concerns commercial quality or utility (e.g., “satisfactory financial statements”), an objective reasonable person standard applies.
• If satisfaction concerns personal taste or judgment (e.g., a portrait, a song, custom clothing), a subjective good faith standard applies.

Because the party must exercise judgment in good faith, satisfaction clauses are generally not illusory and not too indefinite.

Supplying Missing Terms

Courts may supply missing terms only when:

• The parties intended to contract, and
• There is a reasonable, objective basis for supplying the missing term.

Common bases for supplying terms:

• Market standards
  • “Market price in Chicago on date of delivery” is usually definite.
• Course of dealing, course of performance, and usage of trade
  • Repeated dealings at a set price can allow a court to infer that same price again.
• Statutory gap-fillers (UCC)
  • Reasonable price, reasonable time for delivery, seller’s place of business as place of delivery, etc.

Courts will not supply terms where doing so would require rewriting the bargain or guessing at major economic terms.

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 would normally be too indefinite: price is an essential term and the parties expressly said it would be agreed later, with no objective standard. Unless the parties have a prior course of dealing or the contract can fairly be read as implying “reasonable price,” a court would likely find no contract.
Under the UCC, however, this is a contract for the sale of goods, and the quantity (1,000 widgets) is definite. If the parties intended to contract, UCC § 2‑305 allows the court to supply a reasonable price at the time of delivery. Buyer must pay that 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:
This is a requirements contract. The quantity is definite because it is measured by Buyer’s good faith needs. “Seller’s usual price” can be ascertained from Seller’s past sales or market data and, if necessary, by UCC gap-fillers. The contract is enforceable, and Seller’s refusal to deliver is a breach.

Worked Example 1.3

A landlord and tenant sign a document stating: “Landlord agrees to lease Tenant the premises for five years. Rent to be negotiated in good faith prior to Tenant’s move-in date.” No rent is ever agreed, and the landlord leases the premises to someone else. Tenant sues to enforce the lease.

Answer:
Under common law, rent in a multi-year commercial lease is an essential term. “Rent to be negotiated in good faith” is an agreement to agree with no objective standard for fixing rent. Most courts will find the alleged lease too indefinite to enforce, though the tenant might recover reliance damages (e.g., expenses incurred preparing to move in) in some jurisdictions.

Worked Example 1.4

Buyer signs a short memo: “Seller to supply Buyer’s requirements of cement for one year.” No quantity is stated. Seller later claims the agreement is unenforceable for lack of quantity.

Answer:
Under the UCC, this is a requirements contract. The quantity term is expressed by reference to Buyer’s requirements, which satisfies both indefiniteness concerns and the UCC Statute of Frauds. Seller must supply Buyer’s good faith requirements (within normal range), and cannot escape by arguing that the quantity term is missing.

Worked Example 1.5

A contract for custom artwork states: “Buyer will pay $10,000 for a portrait if Buyer is satisfied with the completed work.” Artist spends months painting a portrait. Buyer dislikes it and refuses to pay, claiming that the agreement was illusory and too indefinite.

Answer:
The satisfaction clause does not make the promise illusory. Buyer must exercise dissatisfaction in good faith. Because the subject is a matter of personal taste (art), the court will apply a subjective good faith test. If Buyer honestly, in good faith, is dissatisfied, Buyer may withhold payment; if Buyer is pretending to be dissatisfied to avoid paying, that would be a breach.

Exam-Focused Distinctions

Several patterns repeat on MBE questions:

• “Fair price” or “reasonable price”
  • At common law, “fair price” standing alone is often too vague unless context supplies a standard.
  • Under the UCC, “reasonable price at time of delivery” is a built-in gap-filler; “fair price” is usually enforceable.
• “Subject to a formal contract” or “subject to contract”
  • Often means no present intent to be bound until a formal document is signed.
• Quantity under the UCC
  • Quantity must be stated or objectively measurable (normal requirements or output). Purely open quantity (“Seller will sell some quantity to Buyer”) is fatal.
• Partial performance
  • If one side has performed, a court is more willing to find a contract and fill missing terms to avoid unjust results.

Exam Warning

Agreements that state “to be agreed” or “subject to contract” regarding essential terms are generally unenforceable unless there is clear evidence of intent to be bound now and a reasonable basis for supplying the missing term. Do not assume courts will fill in every gap; focus on whether there is an objective standard or statutory gap-filler available.

Revision Tip

When a contract appears incomplete or vague, move through this checklist:

• Is the transaction governed by common law or the UCC?
• Which terms are arguably missing or vague?
• Are those terms essential in this type of contract?
• Is there intent to contract (communications, conduct, partial performance)?
• Can the missing terms be supplied by:
  • Market price or other objective standards?
  • Course of dealing, course of performance, or usage of trade?
  • UCC gap-filler provisions?
• Is any promise illusory, leaving performance entirely to one party’s whim?

Key Point Checklist

This article has covered the following key knowledge points:

• A contract must be sufficiently definite for a court to identify the parties’ obligations and give a remedy.
• At common law, all essential terms (parties, subject matter, quantity, and usually price and duration) must be stated or objectively determinable; “agreements to agree” on essential terms are usually unenforceable.
• The UCC is more flexible: a goods contract will not fail for indefiniteness if the parties intended to contract and there is a reasonably certain basis for remedy, even if terms like price, place of delivery, or time are missing.
• Under the UCC, quantity is the critical term; requirements and output contracts satisfy the quantity requirement by reference to good faith needs or output.
• Courts use course of dealing, course of performance, usage of trade, and statutory gap-filler provisions to supply missing terms where appropriate.
• Illusory promises (promises entirely in a party’s discretion) are unenforceable; in contrast, satisfaction clauses and requirements/output contracts are enforceable due to implied good faith limits.
• Vague language like “to be agreed” or “subject to contract” regarding essential terms is usually too indefinite unless context clearly shows intent to be bound and provides an objective standard for filling the gaps.

Key Terms and Concepts

• Indefiniteness
• Essential Terms
• Gap-Filler Provisions
• Agreement to Agree
• Requirements Contract
• Output Contract
• Course of Dealing
• Course of Performance
• Usage of Trade
• Open Price Term
• Illusory Promise
• Satisfaction Clause