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The common law principle that a contract cannot be enforced if its terms are indefinite retains a core of vitality. If people want the courts to enforce their contracts they have to take the time to fix the terms with reasonable definiteness so that the courts are not put to an undue burden of figuring out what the parties would have agreed to had they completed their negotiations. This is not to say that enforcement should be denied if the parties by inadvertence failed to specify some peripheral term.
In 1969 ICM Realty bought an apartment complex in Rolling Meadows, Illinois, from Walter Kassuba, to whom ICM leased back the land and sold the improvements. He went broke, however, and in 1975 ICM leased the land to Kusmiersky, a "work-out specialist," who also bought the improvements. In a separate agreement ICM promised to advance Kusmiersky $1.5 million to operate the property and pay past-due real estate taxes, hoping that this advance would enable him to resuscitate the property so that ICM could recover its investment in the land. Kusmiersky retained the plaintiffs under a contingent-fee arrangement to seek a reduction in the past-due taxes. ICM approved this arrangement and by 1977 the plaintiffs Goldstick & Smith had succeeded in getting them reduced by some $870,000. The plaintiffs billed Kusmiersky $290,000 for their legal services. The bill was never paid, though neither its reasonableness nor its conformity to the terms of the contingent-fee contract has ever been questioned. The property continued to decline, and Kusmiersky and ICM entered into negotiations to transfer Kusmiersky's interest to Ted Netzky, who agreed to invest fresh capital in the property. Netzky refused to close the deal, however, unless ICM agreed to pay the remaining past-due real estate taxes and the plaintiffs released their claim for legal fees. In an effort to obtain this release Kusmiersky offered the plaintiffs a reduced fee of $250,000, payable over 10 years with interest at 7 percent per annum. Goldstick (for the plaintiffs) refused the offer. ICM drafted a release for the plaintiffs to sign which stated that the $250,000 would be paid over time but only out of the profits of the property; if there were none, the fee would not be paid. Goldstick refused to sign the release until Kusmiersky assured him that ICM was honorable and that something would be worked out, which Goldstick took to mean that he and Smith would receive the $250,000, over time but with interest, regardless of whether the property showed a profit. The plaintiffs signed the release and the deal with Netzky closed. Goldstick and Smith continued to negotiate with Kusmiersky and ICM over the terms of payment of their fee, but no agreement was reached, for ICM held steadfastly to the position that the payment of the fee would have to be out of the profits, if any, of the property. There were no profits, and eventually Goldstick and Smith demanded payment of the full $290,000 and when that was refused brought this diversity suit for breach of contract against John Kusmiersky, U.S. Managers Realty, Inc., and ICM Realty, seeking payment of a legal fee for getting real estate taxes reduced on the subject property.
Is the subject contract unenforceable for having indefinite terms?
When Kusmiersky offered to pay $250,000 over 10 years (and with no payment of principal in the early years, just interest at 7 percent), Goldstick turned him down; so there was no contract, express or implied. Later Kusmiersky assured Goldstick that something would be worked out. But just what that "something" was is hopelessly vague. Even if Goldstick could reasonably have understood Kusmiersky to mean that the obligation would be unconditional -- and maybe he could -- there would still be the question of the period over which the money was to be paid. When Kusmiersky spoke to Goldstick about working something out, it was after Goldstick had refused to accept payment conditioned on the property's turning a profit. The court cannot know whether, faced with ICM's proposal to make payment conditional in this way, Goldstick would gladly have embraced Kusmiersky's previous offer, for payment over 10 years; or whether he would have accepted payment over this period only if the fee was restored to its original level of $290,000; or whether he would have insisted on much more if it was to be paid over 10 years -- bearing in mind that at a discount rate of 10 percent per annum (for example), $290,000 paid in equal annual installments over 10 years is worth only $178,000 today, and $250,000 is worth only $154,000. It would be impossible to fix within reasonable bounds the present value of the contract that Goldstick and Kusmiersky made, if Kusmiersky's reference to working something out is treated as an offer and Goldstick's thereafter signing the release as an acceptance. An offer must be more definite to create an enforceable contract. This is not to say that enforcement should be denied if the parties by inadvertence failed to specify some peripheral term. Such omissions both are the unavoidable consequence of the limitations of human foresight and can be repaired by the courts without undue difficulty. But in this case essential terms were missing: the contract price, the period over which that price would be paid, the interest rate, and the repayment profile (e.g., equal annual installments or a balloon payment at the end?). This was about a possible difference in present value of at least $136,000 (more, if the proper discount rate would have been even more than 10 percent, which is entirely possible) -- the difference between $290,000, Goldstick's demand, and $154,000, the present value at a 10 percent discount rate of Kusmiersky's offer (ignoring interest and the balloon feature of the offer, which would tend to offset each other). The difference was too high a fraction of the value of the "contract" to allow a court to conclude that a contract was made and to enforce the contract.