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The Limitation of the Contract Price

April 7, 2022

California

,

United States of America

Issue

Is a contract for services valid if it does not set out the price for the services?

Conclusion

A contract need not specify a price if it can be objectively determined. Price can be fixed by the parties, determined from the prior course of dealings of the parties, and if these procedures are inapplicable, the contract price may be deemed the reasonable price under the circumstances of the particular case. However, if the price is intended to be left to the subsequent agreement of the parties, the purported contract is merely an agreement to agree and is unenforceable. (California Lettuce Growers v. Union Sugar Co.)

Cal. Civ. Code § 1611 sets out that when a contract does not determine the amount of the consideration, nor the method by which it is to be ascertained, or when it leaves the amount thereof to the discretion of an interested party, the consideration must be so much money as the object of the contract is reasonably worth.

If a contract for services is not certain as to the amount of compensation, a suit in quantum meruit is proper and the value of the services should be fixed by the trier of fact. (Meredith v. Marks)

Caselaw has developed specific rules for construction contracts. In this context, a contractor who is faced with a minor change in the originally contracted scope of work must perform and obtain a subsequent judicial determination as to the price of the changes. However, a contractor who is faced with a substantial change in the originally contracted scope of work must negotiate in good faith to settle the price. If the contractor is unable to successfully negotiate a price for that additional work, they are not required to continue performance. Alternatively, as long as the other contracting party continues to demand performance of the increased scope of work, and there is no conflicting provision of the contract, the contractor may elect to continue to work and reserve their right to subsequently obtain a judicial determination as to the value of their work. (Ted Jacob Eng'g Group, Inc. v. The Ratcliff Architects)

Moncada v. W. Coast Quartz Corp. involved a promise that the plaintiffs would be paid bonuses in an amount sufficient for them to retire if they stayed and continued to work for the defendant company until the company sold. Even though the amounts of the promised bonuses were unspecified the California Court of Appeal for the Sixth District found that retirement amounts are readily determined using standard formulae and actuarial tables. Thus, the promise was clear, definite, and enforceable.

In Cook v. Thomson, the parties agreed that the respondent would obtain a stockbroker who would agree to market the appellant's stock, and the respondent would be paid for his services; however, no meeting of the minds occurred concerning the amount to be paid. The California Court of Appeal for the First District found that an oral contract existed between the parties and that the respondent was entitled to the reasonable value of his services.

Law

In California Lettuce Growers v. Union Sugar Co., 45 Cal.2d 474, 289 P.2d 785, 49 A.L.R.2d 496 (Cal. 1955), the Supreme Court of California held that a contract for the sale of sugar beets was enforceable despite the parties' failure to include a specific purchase price in their agreement. The Court explained that a contract need not specify a price if it can be objectively determined. Price can be fixed by the parties, determined from the prior course of dealings of the parties, and if these procedures are inapplicable, the contract price may be deemed the reasonable price under the circumstances of the particular case. However, if the price of a commodity in a sales contract is intended to be left to the subsequent agreement of the parties, the purported contract is merely an agreement to agree and thus enforceable until the price is fixed or agreed upon. If a contract does not specify a price, courts should make the necessary findings and set the price under the applicable code provisions unless the parties intended to leave the determination of price to future negotiations (at 481-482):

The principal question is whether the contract is illusory and void for failing to stipulate the purchase price. California Lettuce argues that the contract leaves the price to the future discretion of one party and therefore lacks mutuality. Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable. See Civ.Code § 1598; Sutliff v. Seidenberg, Stiefel & Co., 132 Cal. 63, 64 P. 131, 469. If the price of a commodity in a sales contract is intended to be left to the subsequent agreement of the parties, the purported contract is merely an agreement to agree and therefore mudum pactum until the price is fixed or agreed upon. See Schimmel v. Martin, 190 Cal. 429, 213 P. 33; Avalon Products, Inc., v. Lentini, 98 Cal.App.2d 177, 219 P.2d 485; Jules Levy & Bro. v. A. Mautz & Co., 16 Cal.App. 666, 117 P. 936. Unless the court has ascertainable provisions of agreement before it, there is no contract on which the court may act. However, "'The law does not favor, but leans against, the destruction of contracts because of uncertainty; and it will, if feasible, so construe agreements as to carry into effect the reasonable intentions of the parties if that can be ascertained."' McIllmoil v. Frawley Motor Co., 190 Cal. 546, 549, 213 P. 971, 972; see Roy v. Salisbury, 21 Cal.2d 176, 130 P.2d 706; Long Beach Drug Co. v. United Drug Co., 13 Cal.2d 158, 88 P.2d 698, 89 P.2d 386; Sutliff v. Seidenberg, Stiefel & Co., [45 Cal.2d 482] supra, 132 Cal. 63, 64 P. 131, 469. Unexpressed provisions of a contract may be inferred from the writing or external facts. Thus it is well settled that a contract need not specify price if it can be objectively determined. Section 1729 of the Civil Code recognizes three ways of determining price. It can be fixed by the parties, determined from the prior course of dealings of the parties, and if these procedures are inapplicable, the contract price may be deemed the reasonable price under the circumstances of the particular case. The absence of price provisions does not render an otherwise valid contract void. Civ. Code §§ 1728, 1655, 1656; Great Western Distillery Products, Inc. v. John A. Wathen Distillery Co., 10 Cal.2d 442, 74 P.2d 745. Unless the parties intended to leave the determination of price to future negotiations, courts should make the necessary findings and set the price under the applicable code provisions.

In Moncada v. W. Coast Quartz Corp., 221 Cal.App.4th 768, 164 Cal.Rptr.3d 601 (Cal. App. 2014), the California Court of Appeal for the Sixth District held that the plaintiffs stated a cause of action for breach of contract where their complaint alleged that the defendants told the plaintiffs that if they stayed and continued to work for the defendant company until the company sold, the defendants would give the plaintiffs bonuses that would be sufficient for them to retire; however, the defendants did not pay the promised bonuses at the time of the sale. The defendants argued that there was no enforceable contract because the promised bonus was of an unspecified amount and subject to different interpretations. The Court disagreed and found that retirement amounts are readily determined using standard formulae and actuarial tables. Thus, the promise was clear, definite, and enforceable (at 777-779):

Plaintiffs assert the allegations of breach of contract are sufficiently stated in the first amended complaint, and that the terms of the contract between them and defendants were certain and definite.

The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. “ ‘Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable.’ ” (Ladas v. California State Automobile Assn. (Ladas) (1993) 19 Cal.App.4th 761, 770, 23 Cal.Rptr.2d 810 (Ladas).)

“ ‘In considering expressions of agreement, the court must not hold the parties to some impossible, or ideal, or unusual standard. It must take language as it is and people as they are. All agreements have some degree of indefiniteness and some degree of uncertainty.’ ” (Rivers v. Beadle (1960) 183 Cal.App.2d 691, 695, 7 Cal.Rptr. 170.) Moreover, “ ‘[t]he law leans against the destruction of contracts because of uncertainty and favors an interpretation which will carry into effect the reasonable intention of the parties if it can be ascertained.’ ” (Id. at p. 697, 7 Cal.Rptr. 170.)

In the instant case, defendants told plaintiffs that if they stayed and continued to work for West Coast until the company sold, defendants would give plaintiffs bonuses that would be sufficient for plaintiffs to retire. The agreement between plaintiffs and defendants was clear and certain; the parties knew their obligations under the agreement. Moreover, the agreement was also sufficiently certain to determine the existence of a breach. Plaintiffs stayed and worked at West Coast from the time of the initial promise in 2004, until 2009 when West Coast was sold for approximately $30 million. Defendants did not pay plaintiffs the promised bonus at the time of the sale.

Defendants assert that the promise of an amount sufficient to retire is vague and unenforceable, because it is an unspecified amount and subject to different interpretations. However, in

[221 Cal.App.4th 778]

Sabatini v. Hensley (1958) 161 Cal.App.2d 172, 177, 326 P.2d 622, the court affirmed a jury verdict that awarded an unpaid bonus to an employee. Although the employer argued the offer of the bonus was unenforceable because the amount was not fixed, and there was no formula to set the amount agreed upon by the parties, the court held, “The failure to specify the amount or a formula for determining the amount of the bonus does not render the agreement too indefinite for enforcement. It is not essential that the contract specify the amount of the consideration or the means of ascertaining it. (Civ. Code, § 1610.).” (Sabatini, supra, 161 Cal.App.2d at p. 175, 326 P.2d 622.)

Defendants cite Rochlis v. Walt Disney Co. (1993) 19 Cal.App.4th 201, 23 Cal.Rptr.2d 793 (Rochlis), overruled on other grounds in Turner v. Anheuser–Busch, Inc. (1994) 7 Cal.4th 1238, 1251, 32 Cal.Rptr.2d 223, 876 P.2d 1022, and Ladas, supra, 19 Cal.App.4th 761, 23 Cal.Rptr.2d 810, for the proposition that the terms of the alleged agreement between themselves and plaintiffs were too vague and indefinite to be enforceable.

In Ladas, the unenforceable promise was “An amorphous promise to ‘consider’ what employees at other companies [were] earning” when setting commission rates. In finding the promise unenforceable, the court noted the numerous uncertainties which would defeat enforcement of the promise, asking “By what standard would a court or a jury determine that the company failed to meet its obligation to ‘consider’ commissions earned by competitors?” and concluding that “The nature of the obligation asserted provides no rational method for determining breach or computing damages.” (Ladas, supra, 19 Cal.App.4th at p. 771, 23 Cal.Rptr.2d 810.)

Here, unlike Ladas, defendants promised to pay plaintiffs a bonus upon the sale of West Coast. A court or jury could easily determine if defendants failed to meet this obligation by evaluating whether such bonus was paid. Moreover, unlike Ladas, where damages would be difficult to compute because the promise was to consider what other employees were earning, the promise here was to pay plaintiffs an amount that would be sufficient to retire. As stated in the first amended complaint, the bonus amount would be determined “using information about the Plaintiffs' debts and obligations, their lifestyles at that time and actuarial information sufficient to allow financial planners to set a specific amount for each of them given their specific circumstances at that time.” Contrary to defendants' argument, retirement amounts are not vague or indefinite; rather, they are readily determined using standard formulae and actuarial tables.

Rochlis, in which an employee alleged breach of an employment contract and constructive discharge, is also not on point. In Rochlis, the plaintiff claimed that the defendant had promised that he would receive salary

[221 Cal.App.4th 779]

increases and bonuses “appropriate” to his responsibilities and he would have “active[ ] and meaningful[ ]” participation in creative decisions. (Rochlis, supra, 19 Cal.App.4th at p. 213, 23 Cal.Rptr.2d 793.) The court held that these terms were too vague and indefinite, and thus could not support a breach of contract claim. (Id. at pp. 213–214, 23 Cal.Rptr.2d 793.) The court also reasoned the plaintiff's claim was beyond regulation by the court, because it would require the court to become involved in the daily operations of a business. (Id. at p. 214, 23 Cal.Rptr.2d 793.)

Our Supreme Court later commented on Rochlis in Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 46 Cal.Rptr.2d 427, 904 P.2d 834 (Scott ), disapproved on other grounds in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 352, footnote 17, 100 Cal.Rptr.2d 352, 8 P.3d 1089, “courts will not enforce vague promises about the terms and conditions of employment that provide no definable standards for constraining an employer's inherent authority to manage its enterprise.” (Scott, supra, 11 Cal.4th at p. 473, 46 Cal.Rptr.2d 427, 904 P.2d 834.) The claim of vagueness of contract terms was raised in Scott following a jury trial; not at the pleading stage as we are in the present case. The Supreme Court found the implied in fact employment contract was enforceable, and ordered the original jury verdict that the contract was valid reinstated. (Ibid.)

Defendants' promise in this case was not vague, nor did it constrain defendants from managing West Coast. (See, e.g., Scott, supra, 11 Cal.4th at p. 473, 46 Cal.Rptr.2d 427, 904 P.2d 834.) Enforcing defendants' promise would not potentially propel the court into daily operations of the company. (See, e.g., Rochlis, supra, 19 Cal.App.4th at p. 213, 23 Cal.Rptr.2d 793.) The promise was clear and definite: continue working at West Coast until the company is sold, and at that time, we will pay you a bonus that will enable you to retire. Plaintiffs understood defendants' promise, and acted on their end by continuing to work at West Coast until the company was sold. The first amended complaint alleges facts sufficient to state a cause of action for breach of contract.

Cal. Civ. Code § 1611 sets out that:

When a contract does not determine the amount of the consideration, nor the method by which it is to be ascertained, or when it leaves the amount thereof to the discretion of an interested party, the consideration must be so much money as the object of the contract is reasonably worth.

In Meredith v. Marks, 27 Cal.Rptr. 737, 212 Cal.App.2d 265 (Cal. App. 1963), the California Court of Appeal for the Fifth District explained that if a contract for services is not certain as to the amount of compensation, a suit in quantum meruit is proper and the value of the services should be fixed by the trier of fact (at 272-273):

The situation presented by the record was such that the trial judge could properly apply the well-known rule expressed in Pierce Engineering Co. v. Chohon, 196 Cal.App.2d 516, 518, 16 Cal.Rptr. 601, 602, as follows:

'It is elementary law that where services are rendered by one party from which another derives a benefit, a presumption of law arises from the proof thereof that the person enjoying the benefit is bound to pay what the services are reasonably worth.'

(See also Williams v. Dougan, 175 Cal.App.2d 414, 418, 346 P.2d 241; Bush v. Lane, 161 Cal.App.2d 278, 326 P.2d 640; Mendoza v. Gomas, 143 Cal.App.2d 172, 299 P.2d 707; Keppelman v. Heikes, 111 Cal.App.2d 475, 482, 245 P.2d 54; Medina v. Van Camp Sea Food Co., 75 Cal.App.2d 551, 554, 171 P.2d 445; Bassett v. Fairchild, 132 Cal. 637, 64 P. 1082, 52 L.R.A. 611.)

If a contract for services is not certain as to the amount of compensation, a suit in quantum meruit is proper, and the value of the services should then be fixed by the trier [212 Cal.App.2d 273] of fact. (Hughes v. Pacific Wharf etc. Co., 188 Cal. 210, 205 P. 105; Carney v. Hayter, 62 Cal.App.2d 792, 797, 145 P.2d 712; Hunter v. Ryan, 109 Cal.App. 736, 738, 293 P. 825; Elconin v. Yalen, 208 Cal. 546, 549, 282 P. 791; Civ.Code, § 1611.)

The trial judge in a case of this kind may take into consideration his own knowledge of values in fixing the compensation for services of a nontechnical character such as are involved in this suit. (Pensa v. Noffsinger, 105 Cal.App.2d 99, 101, 232 P.2d 521; Collier v. Landram, 67 Cal.App.2d 752, 759, 155 P.2d 652; Nylund v. Madsen, 94 Cal.App. 441, 445, 271 P. 374; Punton v. Sapp Bros. Construction Co., 143 Cal.App.2d 696, 701-702, 300 P.2d 271.)

In Cook v. Thomson, 230 Cal.App.2d 866, 41 Cal.Rptr. 323 (Cal. App. 1964), the California Court of Appeal for the First District found that an oral contract existed between the parties. The parties agreed that the respondent would retain a stockbroker who would agree to market the appellant's stock and the respondent would be paid for his services; however, no meeting of the minds occurred concerning the amount to be paid. The Court applied Cal. Civ. Code § 1611 and ascertained from the evidence that the reasonable value of the respondent's services was $2,000 (at 867-869):

There was evidence that appellant wished to sell the stock of a certain corporation owned and controlled by him,

Page 324

and bargained with respondent for his assistance. Respondent testified that the parties entered into an oral agreement to the effect that, if respondent would obtain a stock broker who would agree to market the stock of appellant's corporation on a 'best efforts' basis, appellant would pay respondent a 'finder's fee' of $10,000. It was not disputed that respondent did find a broker and that appellant and the broker entered into an agreement for the sale of the corporation's stock. Appellant, however, asserted that he never agreed to pay respondent anything unless the stock of the corporation was [230 Cal.App.2d 868] in fact sold to the public. No such public sale was ever accomplished.

It is true there is some ambiguity in the trial court's findings, and we cannot say with absolute certainty whether the court intended to allow a recovery upon an express contract or only upon the common count cause of action. We must give the court's findings a liberal but reasonable construction, however, and if reasonably possible construe them so as to uphold the judgment rather than to defeat it. (Aguirre v. Fish & Game Commission, 151 Cal.App.2d 469, 474, 311 P.2d 903; Anderson v. Pastorini, 117 Cal.App.2d 428, 431, 255 P.2d 855; 48 Cal.Jur. 2d p. 317.) When this is done it is apparent that the trial court found the existence of an oral agreement between the parties and further that respondent was to be compensated for his services. There is conflict in the evidence concerning whether respondent was to be paid regardless of the sale of the stock or only in the event the stock was in fact sold. The trial court resolved this conflict, and under long established rules we may not set such a finding aside. (Bancroft-Whitney Co. v. McHugh, 166 Cal. 140, 142, 134 P. 1157.) This also disposes of appellant's contention that he received no value from respondent's services. When respondent obtained the services of the licensed broker, and when appellant entered into the 'best efforts' agreement with the broker, repondent's services were complete. When this was done, appellant had received all of the benefits to which he was entitled by the terms of the agreement, and respondent was entitled to his compensation.

Since the court found the existence of an oral contract between the parties, section 1611 of the Civil Code becomes relevant. That section states: 'When a contract does not determine the amount of the consideration, nor the method by which it is to be ascertained, or when it leaves the amount thereof to the discretion of an interested party, the consideration must be so much money as the object of the contract is reasonably worth.' Having found the existence of a contract but with no meeting of the minds concerning the amount of consideration to be paid to respondent, it became the duty of the court to ascertain from the evidence the reasonable value of respondent's services. The court fixed the amount at $2,000. Appellant argues there is no evidence whatever to support such a finding. This is not correct. Although respondent throughout his testimony insisted he was to be paid $10,000, there is evidence from which the trial [230 Cal.App.2d 869] court could properly infer that $2,000 was a reasonable amount to be allowed for respondent's services. The evidence was this: In a conversation with the stock broker the subject of respondent's compensation was discussed and appellant stated, 'I'm taking care of Cookie' (respondent); additionally, and a comment of some significance, appellant asked the stock broker if he, the broker, would pay respondent $2,000 for having 'brought the deal in'. Also, appellant's accountant testified that appellant at one time said he would pay respondent '$2,000 if and when the securities were sold.' While this evidence is far from overwhelming it is sufficiently substantial so that the court could conclude that $2,000 was a reasonable sum to be allowed to respondent for the services rendered under the oral contract.

Ted Jacob Eng'g Group, Inc. v. The Ratcliff Architects, 187 Cal.App.4th 945, 114 Cal.Rptr.3d 644 (Cal. App. 2010) dealt with a construction contract. The California Court of Appeal for the First District explained that in the context of a construction contract, a contractor who is faced with a minor change in the originally contracted scope of work must perform and obtain a subsequent judicial determination as to the price of the changes. However, a contractor who is faced with a substantial change in the originally contracted scope of work must negotiate in good faith to settle the price. If the contractor is unable to successfully negotiate a price for that additional work, they are not required to continue performance. Alternatively, as long as the other contracting party continues to demand performance of the increased scope of work, and there is no conflicting provision of the contract, the contractor may elect to continue to work and reserve their right to subsequently obtain a judicial determination as to the value of their work (at 965-966):

We believe that the trial court's interpretation and application of Coleman was correct. Coleman addressed the enforceability of a construction contract which included a provision for renegotiation of the contract fee in the event of substantial changes in the project scope of work (an agree-to-agree provision). (Coleman, supra, 65 Cal.2d at p. 405, 55 Cal.Rptr. 1, 420 P.2d 713.) As a general principle, the Court held that the enforceability of a contract leaving some of its terms to future determination depends on the relative importance of the unsettled term. (Ibid.) Where "the indefinite promise is so essential to the bargain" that an inability to enforce it renders enforcement of the remainder of the contract unfair, the contract may be abandoned. If "the matters left for future agreement are unessential, each party will be forced to accept a reasonable determination of the unsettled point or if possible the unsettled

[187 Cal.App.4th 966]

point may be left unperformed and the remainder of the contract be enforced." (Ibid.) In the construction context, "if the subsequent changes are minor or of not great magnitude the contractor must perform and obtain a subsequent judicial determination as to the price of the changes. However, where the changes are of great magnitude in relation to the entire contract, the contractor must negotiate in good faith to settle the price [citation], and where he has done so, he is not required to continue performance in the absence of an agreement as to the price." (Id. at p. 406, 55 Cal.Rptr. 1, 420 P.2d 713, italics added.)

[114 Cal.Rptr.3d 660]

What Coleman does not expressly address is whether a contractor faced with a substantial change in its originally contracted scope of work, who is unable to successfully negotiate a price for that additional work, may elect to continue to work and reserve its right to subsequently obtain a judicial determination as to the value of the changes. The trial court concluded that it may and we agree. So long as the other contracting party continues to demand performance of the increased scope of work, and in the absence of any conflicting provision of the contract, the contractor may continue to work after unsuccessful negotiations and subsequently recover the value of that work. To hold otherwise would compel a contractor to walk off the job in the face of what it believes to be major changes in the scope of work required of it, with significant consequences if its judgment is later proven wrong, or alternatively forfeit any right to seek compensation for that work, regardless of the extent of the additional burdens imposed. It would also be particularly anomalous to read Coleman as permitting a contractor to obtain a subsequent judicial determination of the value of changes to the scope of work that "are minor or of not great magnitude," while denying the contractor the right to such a determination and any recovery where "changes are of great magnitude in relation to the entire contract." The interpretation urged by Ratcliff is also impractical and economically inefficient. Construction projects pose complex time management challenges, requiring multiple contractors and subcontractors to coordinate their efforts as numerous design revisions and change orders inevitably arise. To complete these projects efficiently, the parties must be able to continue working despite contract disputes with reasonable assurances of the ability to ultimately obtain a fair resolution of those disputes.13

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