Walker v. Keith
382 S.W.2d 198 (1964)
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Rule of Law:
A provision for renewing a lease that leaves the new rental rate to be determined by the future agreement of the parties is unenforceable for indefiniteness. To be enforceable, such a provision must either specify the rent or provide a definite, objective method or formula for its determination.
Facts:
- In July 1951, the lessors (appellants) leased a small lot to the lessee (appellee) for a 10-year term at a rental rate of $100 per month.
- The lease agreement included an option for the lessee to extend the lease for an additional 10-year term.
- The renewal option stated that the new 'rental will be fixed in such amount as shall actually be agreed upon by the lessors and the lessee.'
- This provision further specified that the rental would be fixed on a 'comparative basis of rental values as of the date of the renewal with rental values at this time reflected by the comparative business conditions of the two periods.'
- The lessee gave proper notice of his intent to renew the lease.
- Following the notice, the lessors and the lessee were unable to reach an agreement on the new rental amount.
Procedural Posture:
- The lessee filed a declaratory judgment action in the Chancellor's court (a trial court of equity) seeking to have the court declare that he had effectively exercised the renewal option and to determine the amount of rent to be paid.
- An advisory jury was impanelled during the trial court proceedings.
- The Chancellor, based on the jury's verdict, fixed the new rent at $125 per month, ruling in favor of the lessee.
- The lessors, as appellants, appealed the Chancellor's judgment to the state's highest court.
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Issue:
Does a lease renewal option that provides for a future rental amount to be 'agreed upon' by the parties based on 'comparative business conditions' constitute a sufficiently definite and certain term to be legally enforceable?
Opinions:
Majority - Clay, Commissioner
No, a lease renewal option providing for a rental amount to be agreed upon in the future based on vague standards is not sufficiently definite to be enforceable. A mere 'agreement to agree' does not create a binding contract because an essential term—the price—is left open to future negotiation. The standard of 'comparative business conditions' is too ambiguous and indefinite to serve as a workable formula for a court to determine the rent. The court reasoned that it is not the judiciary's role to create a contract for the parties or supply an essential term they failed to define. To be enforceable, a renewal provision must either fix the rent with certainty or provide a definite method for its ascertainment, such as through appraisal, arbitration, or a precise formula.
Analysis:
This decision reinforces the traditional contract law principle requiring certainty of all material terms for a contract to be enforceable. It rejects a more lenient judicial approach of implying a 'reasonable' term to salvage an otherwise incomplete agreement, particularly in the context of lease renewals. The ruling establishes a clear precedent in this jurisdiction that an 'agreement to agree' is a legal nullity, placing the burden squarely on the parties to explicitly define essential terms like price or provide an objective, non-negotiable mechanism for their future determination. This case serves as a crucial lesson for drafters of long-term commercial leases, emphasizing the need for precision to avoid creating an illusory and unenforceable option.
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