The Tricky Question of Whether Minds Met
A recent case out of Ohio, Oryann, Ltd. v. SL & MB, LLC, highlights how complicated it can be to determine whether a contract ever existed in the first place.
This case involved the sale and purchase of a horse farm that was being operated as a horse-boarding business. The parties agreed on a price of $640,000, and in all of their communications back and forth, that price was always stated as being the price for the real estate of the farm. There was no written reference to purchase of the business and its assets until the parties were through with their negotiations and signing the final papers. Those final papers indicated that the buyer was buying real estate for $350,000 and the business for $290,000. The business sale contract referenced “Exhibit A” as listing the assets that were being transferred, but Exhibit A was never completed.
A disagreement arose between the parties, and the trial court found that there was never any meeting of the minds with respect to the sale of the business and it was illusory because it didn’t have enough specificity to show that anyone was bound to do anything due to the fact that there was never any enumeration of the assets to be transferred (given the blank Exhibit A). While the trial court enforced the real estate contract in the amount of $350,000, it threw the business sale contract out as unenforceable.
The appellate court, however, disagreed with the trial court’s conclusion. To the appellate court, it was obvious from the language of the contracts and the behavior of the parties that there was a meeting of the minds with respect to the sale of the business and that the parties were bound by the contract. The appellate court noted that the two contracts were intended to be read as one entire deal, not two separate deals the way the trial court was reading it. The appellate court thought that if the parties intended to be bound by the real estate contract (as the trial court had found), then it had to follow that they intended to be bound by the business sale contract as well, as the contracts’ language expressly referenced each other and the fact that they were one deal. And, as the appellate court noted, the trial court’s ruling on the contracts meant that the trial court was ignoring was ignoring the fact that, at all times, the amount of money the parties were discussing was $640,000. It didn’t make sense to then pretend that the parties had only intended to pay half of that.
The appellate court was untroubled by the blank Exhibit A. The business sale contract’s language explicitly stated that “all” of the business would be transferred; the purchasing party took possession and ran the business for over a year without complaining about a lack of specificity in the contract because of the missing Exhibit A; and the evidence showed that the parties did indeed transfer over their business assets. The appellate court thought it was therefore clear from the parties’ behavior that they understood what the business sale contract achieved, even without the Exhibit A.
So, where the trial court had seen questionable conduct, the appellate court found an enforceable contract.
The key to the trial court’s ruling might actually be in the parties’ testimony as to why they ended up executing two separate contracts: They wished to lessen the amount of real estate tax paid in the transaction. I think the trial court thought that the parties clearly thought the real estate was worth $640,000, didn’t want to pay the taxes owed on that, and so pretended the real estate was only worth $350,000 in order to avoid those taxes. In fact, it appears from the parties’ testimony that that’s exactly what they did. I think the trial court disapproved of that and that its ruling probably reflects its unwillingness to endorse the parties’ behavior.