Thomas and Teresa Capone purchased commercial property in 1999 and opened Capone’s Pub & Grill. Shortly after opening the business, the Capones wanted to expand, but the City required more parking.
The Idaho Youth Ranch owned property north of the restaurant. An easement agreement was negotiated between the parties, allowing the Capones’ customers the limited use of a portion of the IYR property for evening parking.
The easement was properly executed and recorded.
Almost 10 years later several nonprofit entities approached the Capones with a plan to redevelop the IYR land to create affordable housing. A contract was prepared to reflect the plan and relocate the easement to one of the lots encompassing the new development.
Most necessary parties signed the contract.
Ultimately the redevelopment faced overwhelming opposition in the community and was abandoned. So, in the years following the execution of the redevelopment contract, the Capones continued to use the IYR parking lot based on the 1999 easement.
In 2018 the lot containing the easement property was conveyed to Midtown Ventures. In 2019 Midtown tried to convince the Capones to terminate the 1999 easement and move the overflow parking elsewhere.
The Capones refused. Midtown sued.
Midtown asserted that the 2008 agreement obligated the Capones to relocate their parking lot easement. The Capones defended by claiming that the 2008 agreement was invalid and as a consequence, the 1999 easement remained extant.
The parties were aligned that the Capones and the nonprofit entities agreed in principle to relocate the easement. However – the parties dispute whether the 2008 agreement was a complete and enforceable final expression, or just an agreement to agree, more like a suggestion of what they would prefer to accomplish.
The trial court concluded that the 2008 agreement was unenforceable. Midtown appealed.
Basic contract law requires a “meeting of the minds” on all material terms to frame an enforceable contract. The inquiry is objective and does not focus on the subjective beliefs or intentions of the parties.
The appellate court, in reviewing the 2008 contract, found many details lacking from the agreement. Some of the omissions are material, such as the precise new location of the relocated easement.
An agreement to agree in the future on material terms is not a contract requiring mandatory obligations to perform. Rather, it expresses merely the wishes and desires of the parties to negotiate later and then decide important provisions, and as such, is a precatory document at best.
Contracts containing material terms, even if requiring future performance, are generally enforceable. But agreements missing material provisions are typically invalid.
Judgment is affirmed for Thomas and Teresa Capone. See Midtown Ventures v. Capone; Idaho Supreme Court; Docket No. 49679; December 8, 2023: https://caselaw.findlaw.com/court/id-supreme-court/115597853.html.
Questions / Issues:
1. Except for a retail transaction where money is exchanged contemporaneously for goods or services, the dividing line between “enforceable contracts” and “agreements to agree” is razor-thin.
2. Surely not all agreements to agree are unenforceable. As just one random example, consider lease renewal options based on fair market valuation, as determined by MAI appraisers, commercial brokers, or others who are not signatories to the contract.
3. My conclusion is that contracts with terms to be decided in the future can still be valid, provided that the precise mechanism to make that determination is included. Conversely, failure to provide sufficient detail in the contract can turn an enforceable agreement into an invalid, precatory, hot mess.Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.