Football pundits like to discuss Red Zone effectiveness. Driving to the goal line doesn’t much matter if you don‘t score. So, why would a negotiating party fail to score an enforceable contract while negotiating from the Red Zone:
- He’s in a hurry;
- He has a “handshake deal”;
- He won’t sign an agreement until he gets the deal he “deserves”;
- He’s stubborn;
- He doesn’t understand that “meeting of the minds” does not mean “reading of the minds”;
To summarize the facts in Conglomerate Gas II, L.P. v. Gibb (a Texas case that applies anywhere):
- Gibbs is a licensed real estate broker.
- MTV real estate owned 100% of the surface and 50% of the minerals under the 2,232-acre Rock Creek Ranch and agreed to sell the surface to Crestview and grant an oil and gas lease to Crestview Resources or Anterra Resources.
- Crestview needed help to cover the purchase price and hired Eichberg to find a buyer. He contacted Gibb, who started working to sell the tract even though he didn’t have a brokerage agreement. According to Gibb, time was of the essence.
- From May 23rd to late October there were offers, rejections, and counteroffers. Players came and players went; terms came and terms went. Eichberg would make an offer, Gibb would counter, rinse and repeat.
- The issue for Gibb was always a minimum commission, which Eichberg would never accept. At one point Eichberg offered a “3% back in working interest on a well by well basis”
- The parties finally agreed on a cash commission but not on the 3% back in, and Gibb received a cash commission that met his minimum.
In reversing a jury award to Gibb of $1.8MM in damages and $1.7MM in attorney fees, the court of appeal made the following points:
- The meaning of the “3% back in working interest on a well-by-well basis” was subject to dispute. There was no meeting of the minds regarding that interest. Without more, it was too vague to have meaning.
- Although Gibb finally accepted one material term in the original offer (the cash commission) he never agreed on the other (the 3% back in).
- A counteroffer, which Gibb repeatedly did, operates as a rejection of the original offer.
- Contract law requires that an acceptance be identical with the offer in order for there to be a meeting of the minds and therefore a binding contract.
- The original offer had two material terms, a cash commission and the back in. Gibb always countered with a demand for a minimum commission. Crestview/Eichberg always said that would not happen.
- Gibb’s testified about what was “in my mind”. In determining whether parties have formed a contract, objective manifestations of intent to be bound are relevant; unexpressed subjective intentions are not.
- Testimony about whether a party “countered” or “rejected” is conclusory and of no evidentiary value.
- A party can’t accept by performance an offer that he has previously rejected by a counteroffer.
How to score? Avoid Gibbs’ mistakes.
Mr. Gibbs’ musical interlude