ANALYSIS

We begin by distinguishing between three different but similar types of agreements. The first type of agreement is an agreement to agree. An agreement to agree is "an agreement to do something which requires a further meeting of the minds of the parties and without which it would not be complete." Sandeman v. Sayres, 50 Wn.2d 539, 541-42, 314 P.2d 428 (1957). Agreements to agree are unenforceable in Washington. Id.(citing cases).

We note, however, that this line of cases has been distinguished from another line of cases in which the enforceability of contract terms to agree upon future rental rates contained within renewal options of completed lease agreements was established. See, e.g., Family Med. Bldg., Inc. v. Dep't of Soc. Health Servs., 104 Wn.2d 105, 110, 702 P.2d 459 (1985).

The second type of agreement is an agreement with open terms. Under an agreement with open terms, the parties intend to be bound by the key points agreed upon with the remaining terms supplied by a court or another authoritative source, such as the Uniform Commercial Code. E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 COLUM. L.REV. 217, 253 (1987) (hereinafter Preliminary Agreements).

Keystone's arguments about the substantive contract appear to hinge on the formation of an agreement with open terms. As noted above, the federal courts have already held there was no binding agreement with open terms for the purchase and sale of the facility. See supra note 5; see also Keystone II, 353 F.3d at 1075. This question is not before the court.

The third type of agreement is a contract to negotiate. In a contract to negotiate, the parties exchange promises to conform to a specific course of conduct during negotiations, such as negotiating in good faith, exclusively with each other, or for a specific period of time. Under a contract to negotiate, the parties do not intend to be bound if negotiations fail to reach ultimate agreement on the substantive deal. Preliminary Agreements, 87 COLUM. L.REV. at 263. In contrast to an agreement to agree, under a contract to negotiate, no breach occurs if the parties fail to reach agreement on the substantive deal. The contract to negotiate is breached only when one party fails to conform to the specific course of conduct agreed upon. No Washington court has directly addressed whether a contract to negotiate is independently enforceable.

Under the principle of freedom to contract, parties are free to enter into, and courts are generally willing to enforce, contracts that do not contravene public policy. Preliminary Agreements, 87 COLUM. L.REV. at 267. Xerox does not argue that contracts to negotiate are against public policy. Rather, it argues that, under existing Washington case law, when parties manifest, in any way, that legal obligations shall be deferred until a writing is made, preliminary negotiations and agreements do not constitute a binding contract.

Keystone argues that Washington courts, while not deciding the issue, have implied the enforceability of a contract to negotiate. For example, in Badgett v. Security State Bank, 116 Wn.2d 563, 807 P.2d 356 (1991), borrowers sought to modify an existing loan agreement, and when the bank refused to consider the borrowers' proposal, the borrowers brought suit claiming the bank breached a duty to negotiate modifications in good faith. Id. at 566-67. In holding the bank was under no obligation to negotiate modifications in good faith, we implied that if there had been an express provision in the loan agreement imposing such a duty, then it would have been enforceable. Id. at 573 ("[T]he Badgetts are not asking this court to interpret any provision in the loan agreement as imposing a duty on the Bank to consider their proposals. . . .").

Our holding in Badgett supports a conclusion that, under Washington contract law, a specific course of conduct agreed upon for future negotiations is enforceable when it is contained in an existing substantive contract. However, Badgett does not answer the question of whether an enforceable obligation to negotiate in accordance with an agreed upon course of conduct can exist independently from an existing substantive contract. Although there is a duty of good faith and fair dealing implied in all existing contracts, we have consistently held there is no "free-floating" duty of good faith and fair dealing that is unattached to an existing contract. E.g., id. at 569-70. The duty exists only "in relation to performance of a specific contract term." Id. at 570.

Washington follows the objective manifestation test for contracts. Wilson Court Ltd. P'ship v. Tony Maroni's, Inc., 134 Wn.2d 692, 699, 952 P.2d 590 (1998). Accordingly, for a contract to form, the parties must objectively manifest their mutual assent. Yakima County (W. Valley) Fire Prot. Dist. No. 12 v. City of Yakima, 122 Wn.2d 371, 388, 858 P.2d 245 (1993). Moreover, the terms assented to must be sufficiently definite. Sandeman, 50 Wn.2d at 541 (observing if a term is so "indefinite that a court cannot decide just what it means, and fix exactly the legal liability of the parties," there cannot be an enforceable agreement). Additionally, the contract must be supported by consideration to be enforceable. King v. Riveland, 125 Wn.2d 500, 505, 886 P.2d 160 (1994). Washington's requirements for valid contract formation adequately address the primary concern of other courts that have considered the enforceability of contracts to negotiate. As stated by one federal court, the primary concern is to "avoid trapping parties in surprise contractual obligations." Teachers Ins. Annuity Ass'n v. Tribune Co., 670 F. Supp. 491, 497 (S.D.N.Y. 1987).

In order to answer the certified questions, we must first determine whether a contract to negotiate was formed under the circumstances of this case. Xerox claims that there was no manifestation of mutual assent to be bound to specific standards of negotiating conduct. Generally, manifestations of mutual assent will be expressed by an offer and acceptance. City of Yakima, 122 Wn.2d at 388. Keystone identifies letters between the parties' brokers that it contends are an offer, counter-offers, and acceptance. However, Keystone fails to identify an offer and acceptance to be bound to specific standards of negotiating conduct for the formation of a separate substantive contract.

Whether there was mutual assent is normally a question of fact for the jury. Sea-Van Invs. Assocs. v. Hamilton, 125 Wn.2d 120, 126, 881 P.2d 1035 (1994). A question of fact may be determined as a matter of law where reasonable minds could reach but one conclusion. Ruff v. King County, 125 Wn.2d 697, 703-04, 887 P.2d 886 (1995) (quoting Hartley v. State, 103 Wn.2d 768, 775, 698 P.2d 77 (1985)).

Alternatively, Keystone alleges that statements made by Xerox's brokers regarding Xerox's intentions to proceed with the negotiations amount to an unconditional commitment the purchase and sale agreement that would have formalized its alleged commitment to sell the facility to Keystone. The relevant statements are contained in the April 10, 2001, letter from Kidder to Broderick. See App. First, Kidder states "Xerox is prepared to negotiate a Purchase and Sale Agreement with Keystone Development subject to two modifications to your Proposal." App. (emphasis added). At most, the statement is a manifestation of Xerox's intention to negotiate with Keystone. There is no objective manifestation by Xerox of an intent to be bound if Keystone accepts the modifications. See Pac. Cascade Corp. v. Nimmer, 25 Wn. App. 552, 556, 608 P.2d 266 (1980) (holding an intention to do something "is evidence of a future contractual intent, not the present contractual intent essential to an operative offer") (emphasis added). On the contrary, the statement evidences an intent not to be bound by expressly referencing the need for further negotiations. See Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989) (holding "reference to a binding sales agreement to be completed at some future date" is evidence of a present intent not to be bound).

Second, Kidder states that if Keystone acknowledges acceptance of the modifications to its proposal "[w]e can then proceed immediately to draft the Purchase and Sale Agreement for review and execution." App. Again, this statement does not manifest a present contractual intent to be bound upon Keystone's acceptance. See Nimmer, 25 Wn. App. at 556. Rather, the statement is an objective manifestation of Xerox's intent not to be bound because of its express reference to a future binding agreement being "review[ed] and execut[ed]." App.; see Arcadian, 884 F.2d at 72.

We conclude that it is unnecessary to decide whether Washington will ever enforce a contract to negotiate in order to answer the first certified question. The exchange of letters with which we are presented does not constitute a contract to negotiate. The parties did not exchange promises to conform to a specific course of conduct during negotiations, such as negotiating in good faith, exclusively with each other, or for a specific period of time. Instead, the parties began negotiations to enter into a purchase and sale agreement. In the absence of objective manifestations of mutual assent to definite terms supported by consideration, no contract was formed. See King, 125 Wn.2d at 505; City of Yakima, 122 Wn.2d at 388; Sandeman, 50 Wn.2d at 541. There was never an agreement as to how the parties were required to proceed.

Keystone asks us to imply a duty to continue negotiations until a final agreement is reached. In fact, Keystone argues that the question before us is not whether the parties agreed to an enforceable duty to negotiate. Instead, it argues the question is "whether the negotiations between Keystone and Xerox had advanced to the point where the law should impose on the parties a `duty to go forward. . . .'" We decline to have and impose a duty to go forward in the absence of an enforceable contract. No contract was formed between Keystone and Xerox. At best, the circumstances of this case present an implied agreement to agree. We adhere to our long-standing jurisprudence that agreements to agree are unenforceable. Sandeman, 50 Wn.2d at 541-42; Wharf Rest., Inc. v. Port of Seattle, 24 Wn. App. 601, 609, 605 P.2d 334 (1979); Johnson v. Star Iron Steel Co., 9 Wn. App. 202, 206, 511 P.2d 1370 (1973).

Br. of Keystone Land Dev. Co. at 32 (emphasis added).

Compare also Coleman v. St. Paul Tacoma Lumber Co., 110 Wash. 259, 270, 188 P. 532 (1920) (holding letters did not form a contract when the objective purpose was "to open negotiations which might possibly lead to a contract") and Weldon v. Degan, 86 Wash. 442, 450, 150 P. 1184 (1915) ("`"If any portion of the proposed terms [of the contract] are not settled or a mode agreed upon by which they may be settled, there is no agreement."'" (quoting 9 Cyc. 245) (alteration in original)).

CONCLUSION

The circumstances of this case present us, at best, with an implied agreement to agree. We adhere to our long-standing jurisprudence that agreements to agree are unenforceable. Consequently, our answer to the first certified question is no, Washington will not enforce a contract under the circumstances of this case. We do not reach the question of whether contracts to negotiate are enforceable under Washington contract law because this case does not present a contract to negotiate. We find it unnecessary to reach the second certified question concerning the measure of damages.

1.Using the concept of offer and acceptance, explain Keystone's argument that it entered into a binding contract with Xerox.

2.Using the concept of offer and acceptance, explain Xerox's argument that it has not entered into a binding contract with Keystone.

3.Explain the court's decision and reasoning.

4.What rules of contract law stated by the court might be useful in your analysis of Bella Swan v. Edward Cullen (the Legal Analysis Paper)? How might you use those rules?