Exchange Relationships & Meeting of the Minds

The predominant ideologies involved in contract law are that parties are free to voluntarily come together to be bound in legally enforceable agreements in order to facilitate an exchange of real property, chattels, services, or intangible rights [1].

Blum defines a contract as an “exchange relationship created by one or more persons” and must include all of the following elements in order to exist:

(1) an oral or written agreement between two or more persons (§110 of the Statute of Frauds states that certain contracts must be in writing)[1][3];

(2) an exchange relationship must exist [3];

(3) at least one promise must be made and the element of enforceability must be present [1].

The exchange, or bargain is based upon the concept that each party must voluntarily agree to give up something in order to get something and the value associated with the property being exchanged is subjective [1].

Each party to the exchange will weigh and subjectively place value on what is to be given up in relation to what is to be received.

The language of the exchange, or covenant, must take the form of a promise for a promise (bilateral agreement), or a promise for performance (unilateral agreement) [1].

Another central tenet in contract law is that the parties must be in agreement [3]. However, this tenet poses a dilemma. For instance, a contract(K) calls for the house to be painted red.

The homeowner makes the offer, which is a promise to pay the painter $3000.00 to paint the house red.

The painter accepts the homeowners offer and begins painting. The offer and acceptance has been established and the consideration offered by the homeowner is $3000.00.

The consideration offered by the painter is his performance in painting the house.

These facts equate to K= O+A+C, and a unilateral contract (K) now exists.

However, the painter relies on industry standards relating to the definition of the color red and because of that, he determines that the color red means crimson red.

After-all, in the wonderful city of Contractville, every painter knows that all houses painted red are painted crimson red.

But, the home owner’s favorite color is cherry red and whenever the color red is brought up, the homeowner automatically envisions cherry red.

If the painter painted the house and then the home owner arrived to see that the color was crimson red instead of cherry red, would it be fair for the homeowner to tell the painter to leave and not pay for the paint job, claiming that no contract existed because they did not agree on the cherry red color?

In this case, the painter failed to perform the impossible task of reading the homeowner’s mind? Should the homeowner enjoy the benefit of the new paint job and should the painter suffer a loss of the cost of materials, labor and expected profit because he could not read the homeowner’s mind?

Then, what about the painter who understands that he and those in his profession understand red to mean crimson red? Should the homeowner be required to also do the impossible and read the painter’s mind, or be forced accept the painter’s subjective version of what the color red means?

Blum tells us that “the law does not require that the parties reach true agreement, in a subjective sense,” meaning that it is understood that one party cannot and is not expected to read the mind of the other party [5].

It also means that while the terms of the agreement should be reduced to writing (as in this case of a written agreement), it is both impractical and impossible to reduce every possible thought of the parties to writing [1].

That is to say that even when two parties are in agreement in principle, the existence of ambiguity may exist in some aspect of the agreement.

The facts of the crimson red paint example, show that while some ambiguity may exist, parties can have the required meeting of the minds to establish an enforceable agreement.

Blum tells us that contracting is “often likened to having a private legal statute between parties that governs their transaction” and that private legal statute provides the framework where issues in disputes like those presented in the painting contract can be resolved [1].

In National Music Museum v. Johnson, No. 4: 14-CV-04113-KES (D.S.D. Jan. 23, 2017), ideologies such as an oral or written agreement between two or more persons, an exchange relationship with at least one promise and the element of enforceability coupled with a meeting of the minds is evidenced by the drafting of a two-part contract for the sale of four guitars previously owned by Elvis Pressley for $120,000.

The contract stated that Moss would pay Johnson $70,000 and take immediate possession of two of the guitars, and that Johnson would deliver two remaining guitars in exchange for the remaining $50,000. However, the contract was never executed since the seller never delivered the guitars (as promised) to the buyer nor did the buyer pay the money (as promised) to the seller.

[1] Brian A. Blum, Examples & Explanations: Contracts 4 (6 ed. 2013).

[2] Steven J. Burton, Contract law: selected source materials annotated,2014 (2014 ed. 2014).

[3] Brian A. Blum, Examples & Explanations: Contracts 2 (6 ed. 2013).

[4] id at 4

[5] id at 5

[6] id at 3

[7] id at 6

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