Konic International Corporation v. Spokane Computer Services, Inc.
708 P.2d 932 (1985)
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Rule of Law:
When parties attach materially different meanings to an essential term of an agreement, and neither party knows or has reason to know of the meaning attached by the other, no contract is formed due to a lack of mutual assent.
Facts:
- David Young, an employee of Spokane Computer Services, Inc. (Spokane Computer), was authorized to research purchasing a surge protector.
- A salesman for Konic International Corporation (Konic) quoted Young a price of "fifty-six twenty" for a suitable unit.
- The Konic salesman intended the price to be $5,620, while Young understood the price to be $56.20.
- Based on his understanding of the price, Young prepared a purchase order for $56.20, which his superior approved, and he placed the order with Konic.
- Konic shipped the device, and Spokane Computer installed it while its president was on vacation.
- Upon returning, Spokane Computer's president recognized the device was worth far more than $56.20 and immediately ordered it to be powered down.
- Two weeks later, upon processing Konic's invoice, the hundred-fold price discrepancy was officially discovered.
- Spokane Computer's president then contacted Konic, stated Young lacked authority for such a large purchase, disclaimed the equipment, and requested Konic remove it, which Konic refused.
Procedural Posture:
- Konic International Corporation sued Spokane Computer Services, Inc. in an Idaho magistrate court to collect the sales price.
- The magistrate, as the trial court, entered judgment for Spokane Computer, finding that its employee lacked apparent authority to make the purchase.
- Konic appealed the magistrate's decision to the district court.
- The district court, acting as the intermediate appellate court, affirmed the magistrate's judgment.
- Konic then appealed the district court's decision to the Idaho Court of Appeals.
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Issue:
Does a legally binding contract form when two parties attach materially different, yet reasonable, meanings to a material term of the agreement, such as the price?
Opinions:
Majority - Walters, Chief Judge
No, a legally binding contract does not form under these circumstances. When there is a mutual misunderstanding concerning a material term of an agreement, there is no 'meeting of the minds' and thus no contract. The court reasoned that this case was analogous to the classic case of Raffles v. Wichelhaus (the 'Peerless' ship case), where both parties agreed on a term ('Peerless') that had two different, reasonable meanings. Here, the term 'fifty-six twenty' was ambiguous, with Konic intending $5,620 and Spokane Computer understanding $56.20. As price is a material term and the misunderstanding was mutual and reasonable, no mutual assent was ever reached. Therefore, any agreement the parties believed they had was merely an illusion, and no contract was ever formed.
Analysis:
This decision serves as a modern application of the classic contract formation doctrine of mutual misunderstanding, established in cases like Raffles v. Wichelhaus. It affirms that even in contemporary commercial transactions, the fundamental common law principle of 'meeting of the minds' or mutual assent is a prerequisite for contract formation. The case establishes that where an ambiguous, material term is reasonably interpreted differently by both parties, a court will find no contract exists rather than enforcing one party's interpretation over the other. This holding reinforces the idea that courts will not create or enforce agreements where the parties fundamentally failed to agree on the core terms of the exchange.
