Eckles v. Sharman
548 F.2d 905 (1977)
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Rule of Law:
When essential terms of an agreement are too vague to be enforceable, the entire contract may be deemed invalid despite a severability clause, and the question of whether such terms are essential is a question of fact for the jury based on the parties' intent.
Facts:
- Coach William Sharman signed a seven-year contract to coach the Los Angeles Stars professional basketball team.
- The contract contained a vague 'option to purchase 5% ownership of the Club' and a promise to participate in an undefined 'pension plan.'
- The agreement included a severability clause stating that the invalidity of one paragraph would not cause the entire agreement to fail.
- Mountain States Sports, Inc. purchased the Los Angeles Stars, moved the team to Utah where it became the Utah Stars, and assumed Sharman's contract.
- Sharman coached the Utah Stars for one season, leading them to a championship, while negotiations over the specifics of the pension and ownership option continued without resolution.
- After the season, Sharman resigned from the Utah Stars.
- Shortly thereafter, Sharman signed a new contract to coach the Los Angeles Lakers, a team owned by California Sports, Inc.
Procedural Posture:
- Mountain States Sports, Inc. sued its former coach, Sharman, in Utah state court for breach of contract.
- The complaint was amended to add a claim against California Sports, Inc., for tortious inducement of that breach.
- The case was removed to the U.S. District Court for the District of Utah.
- The first assigned judge ruled that the intent regarding the contract's severability clause was a question of fact for the jury.
- After the first judge declared a mistrial for unrelated reasons, the case was reassigned to a different judge.
- The second judge directed a verdict against Sharman on the issue of liability, finding the contract valid as a matter of law.
- The jury then returned verdicts awarding $250,000 in damages against Sharman and $175,000 against California Sports.
- Sharman (appellant) and California Sports, Inc. (appellant) appealed the judgment to the U.S. Court of Appeals for the Tenth Circuit.
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Issue:
Is the question of whether vague and unenforceable contract terms are essential to the agreement, thereby rendering the entire contract invalid despite a severability clause, a matter of law for the judge to decide or a question of fact for the jury?
Opinions:
Majority - Breitenstein, Circuit Judge
No, this is a question of fact for the jury. A court may not direct a verdict on a contract's validity when there is conflicting evidence regarding the parties' intent as to whether vague, unenforceable clauses were essential to the agreement. The option and pension clauses were unenforceable as 'agreements to agree.' Under California law, a contract is only enforceable if parties agree on all essential terms. While the contract had a severability clause, such clauses are merely aids to construction and cannot save an agreement if the clauses to be severed are essential. Essentiality is determined by the intent of the parties. Here, evidence of intent was conflicting: Sharman testified the clauses were crucial for his decision to join the new league, but his actions in not pressing the issue for years suggested otherwise. Because a reasonable jury could have drawn inferences supporting either party, the trial court erred by taking this factual determination away from the jury and directing a verdict on liability.
Analysis:
This decision reaffirms the principle that a severability clause does not automatically save a contract when its unenforceable provisions are central to the bargain. It establishes that the 'essentiality' of a contract term is a question of fact tied directly to party intent, making it an issue for the jury when evidence is in dispute. The ruling serves as a check on judicial power, preventing judges from deciding factual questions as matters of law in contract disputes with conflicting evidence. It also provides important guidance on the measure of damages for breach of an employment contract, tying consequential damages like lost profits to the employee's uniqueness and the foreseeability of such losses at the time of contracting.
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