The Demise of the "Meeting of the Minds" in Contract Law
By Ralph H. Schofield Jr. – June 4, 2014
It remains commonplace to hear parties argue over whether a “meeting of the minds” occurred during contract negotiations. This concept remains misunderstood by many. Surely, by its terms, it should mean that the two parties, in fact, thought the same thing and reached an agreement on the same thing. In what other way could two minds meet? But this illusory concept has never been the true requirement for contract formation, and attempts to import subjective understanding into contract law have largely been unsuccessful.
As one Florida appellate court stated in 2013, there is no consideration of the “mind” when it comes to determining whether there was a “meeting of the minds,” even when the party seeking to avoid the contract “could not possibly have understood” it. Spring Lake NC, LLC v. Holloway, 110 So. 3d 916, 917 (Fla. Dist. Ct. App. 2013). With a review of that and other case law, this article explores how the “objective” view of the “meeting of the minds” continues to develop and can affect other contract defenses, such as mental incapacity and unconscionability.
Development of the Objective/Subjective Dynamic
The “meeting of the minds” concept is older than our country, but, even today, we find disagreement as to what it means. One reason for this disagreement may be the use of the phrase “meeting of the minds” as an element of a conspiracy, where courts often describe the requirement that the defendants had a “unity of purpose” or “common design and understanding” or both. See, e.g., Pagtakhan v. Doe, No. C 08-2188 SI (pr), 2013 U.S. Dist. LEXIS 84852, at *12, 2013 WL 3052865 (N.D. Cal. June 17, 2013) (“A civil conspiracy is a combination of . . . persons who . . . intend to accomplish some unlawful objective for the purpose of harming another. . . . To prove a civil conspiracy, the plaintiff must show that the conspiring parties reached a unity of purpose or common design and understanding, or a meeting of the minds in an unlawful agreement.”). Historically, courts in contract cases have applied a much more objective standard to determine whether a “meeting of the minds” occurred.
Before 1800, the review of a contract was objective. The approach was tantamount to strict construction, requiring the enforcement of the contract based only on the meaning of the individual words used with no further investigation, interpretation, or inference permitted. In his article “The Origins of the Objective Theory of Contract Formation and Interpretation,” 69 Fordham L. Rev. 427 (2000), Professor Joseph Perillo explains the various forms of textualism that we have seen throughout history in the interpretation of contracts. Professor Perillo does not indicate how, if at all, the courts dealt with strict construction’s tendency to lead to absurd outcomes. He does, however, reference two late 1700s Maryland cases—one in which a deed was void because it used the words “this indenture” but the paper was not, in fact, indented, see id. at 442 n.95 (citing Paca’s Lessee v. Forwood, 2 H. & McH. 175, 179–81 (Md. 1787)), and another in which the appellant’s attorney succeeded by making the point that “[a]bsurdity is no argument against [a rule] if it is the law, nor its inconvenience” and that the courts lacked the authority to rectify absurdities, see id. at 442 (quoting Beane v. Middleton, 4 H. & McH. 74, 78 (Md. 1797) (emphasis in original)). The courts opted for form over substance and refused to look beyond dictionary-dictated intrinsic meanings, even when the result was obviously far afield from reasonableness or actual intent.
A statute of frauds and parol evidence rule supported this objective approach on even the most informal agreements. If such an approach were followed today, the evidence that one might introduce in a contract interpretation case would be quite limited. One could introduce the instrument itself and, perhaps, expert testimony (or a dictionary) to determine the intrinsic meaning of words. There would be no testimony as to intent and no argument as to interpretations or inferences based on context.
Strict construction might be the appropriate approach if we lived in a society where language was so formal, standardized, and known that every contracting party would use precisely the same words to describe an agreement. After all, it is difficult, if not impossible, to prove the intent in one’s mind or heart (and, of course, it is easy to lie about it). See Christopher Saint Germain, Doctor & Student (James Moore, 45, College-Green 1792), 179 (“[I]t is secret in his own confidence whether he intended for to be bound or nay. And of the intent inward in the heart, man’s law cannot judge, and that is one of the causes why the law of God is necessary, (that is to say) to judge inward things.”).While one may expect that language was more formal and standardized in times past and that contracting parties might have typically been sophisticated and knowledgeable about the language, there can be little doubt that today the sophistication of parties and the language used in any agreement vary wildly. Employing strict construction without analysis of, at least, context might lead to more problems than solutions.
In the 1800s, American courts began to move away from opinions issued by the King’s Bench, where words were given intrinsic meaning and only intrinsic meaning, even when the contrary intention of the parties was, in fact, actual or deducible. See, e.g., Throckmerton v. Tracy, (1816) 75 Eng. Rep. 222, 251 (K.B.). In his1844 treatise, William W. Story indicated that courts should give effect to the intention of parties, even if not fully expressed and even if contradictory to the plain language of the agreement, provided that the intent is mutually understood and legal. See W.W. Story, A Treatise on the Law of Contracts Not under Seal s. 231, at 149 (1844). An anti-textualist (and a party who is looking for factual issues to defeat summary judgment or confuse the fact finder) would have a field day if Story’s treatise were applied as written. Surely, such an approach means that parties can introduce evidence of their communications (with each other and with third parties), testimony as to what was going through each of their minds, and perhaps even life experiences that might influence a party’s understanding or use of language.
In reality, however, the reach to find the intention of the parties still remained within the four corners of the document. The parol evidence rule was alive and well, prohibiting a court from finding evidence of intention from anywhere other than the instrument. As explained by the Massachusetts Supreme Judicial Court in 1898, the look to the “intent” of the parties meant looking to the general language, “scheme,” and “habit” of the instrument itself to explain the plain meaning of the individual words. See Smith v. Abington Sav. Bank, 50 N.E. 545, 546 (Mass. 1898). So, while this shift away from strict construction opened the door to further argument about meaning, interpretation, and inferences that could be drawn from the language, the evidence to be presented was still limited to the instrument itself.
Policy Considerations and the Current Rule
As contract law has developed to what it is today, we have seen courts struggle with competing policies. Courts strive to give effect to the intent of all of the parties to the contract, but courts do not want to prejudice an innocent party because of the unknown intent of the other party. Intent is, of course, quite difficult to prove and quite easy to lie about (or to keep silent about until the lawsuit arises). Courts want to give effect to the reasonable expectations of the innocent contracting parties but do not want what is within the four corners of the contract to be meaningless. If you have any textualism in your blood, you would despise the idea of converting from form-over-intention to an extreme version of intention-over-form, at which point a written contract becomes only evidence of agreement rather than an agreement itself.
It seems a noble task to attempt to give effect to the intent of all of the parties to a contract. No one wants to think he is renting a single movie when he is really signing on for monthly withdrawals from his bank account for a movie service. If he has the intent of a single rental and the other party knows it, should not the court give effect to that intent? Otherwise, the other party would be taking advantage of the confused party. Of course, that is why we have the defense of unilateral mistake, which allows a mistaken party to void a contract based on certain mistakes where the other party caused or knew of the mistake (or where the mistake makes the contract unconscionable). See Restatement (Second) of Contracts § 153.
If both parties have the same intent, but that intent is contrary to the plain language of the contract, should not the court give effect to the shared intent? Otherwise, despite an obvious subjective “meeting of the minds,” both parties will receive something different than that for which they bargained. Of course, that is why we have the defense of mutual mistake and the remedy of reformation. The defense of mutual mistake allows the adversely affected party to void a contract based on certain mistakes. The remedy of reformation allows the court to rewrite the contract to memorialize what the parties actually understood the agreement to be. See id. at § 152.
If a party was forced into signing something he or she did not intend or was prevented from reading the contract, should not the court prevent that victim from being bound to the contract? Of course, that is why we have coercion and duress defenses. See Liberty Mut. Ins. Co. v. Mueller, 432 F. Supp. 325, 327 (W.D. Va. 1977) (“[B]asic contract law requires that . . . knowledge [of the terms of a contract] be imputed to [a party] unless there is evidence that he was prevented from reading . . . by the use of fraud or coercion.”). If a party does not fully comprehend what he or she is signing, should not the court protect that individual as well? Of course, that is why we have an incapacity defense. See Macaulay v. Wachovia Bank of S.C., N.A., 569 S.E.2d 371, 375 (S.C. Ct. App. 2002) (requiring the party to have “the mental capacity to understand or comprehend the subject of the contract, its nature, and its probable consequences”).
Assuming these defenses are not proven, what is left of the “meeting of the minds” concept? That is, how could one prove that there was no “meeting of the minds” if there were no incapacity, coercion, duress, or remediable mistake?
It is perhaps due to the use of these defenses that the subjective concept of a “meeting of the minds” has not been successful and, in fact, not been necessary. By the 1870s, efforts for such a subjective test appeared to cease, as discussed by the Court of Appeals of New York in Dillon v. Anderson:
The defendant being a witness on his own behalf, was asked by his counsel: “Did you intend to make an individual contract?” which question was overruled by the court. It called for his purpose mentally formed, but undisclosed, to the plaintiff. It sought to annul, by an intention not expressed, words and acts relied upon by the plaintiff, by which he was influenced, and which of themselves were prima facie evidence of an agreement. An agreement is said to be the meeting of minds of the parties. But minds cannot meet when one keeps to itself what it means to do, nor can one party know that the other does not assent to a contract, the terms of which have been discussed and settled between them, unless dissent is made known. . . . Here was the written contract signed and delivered without qualification of the act of delivery, without the expression of the intention called for by the question that the act of delivery was not to be taken as meaning all it seemed to mean. The testimony called for was not proper. . . . [T]hat an act should be held to have or not to have effect, and one party to it, to be bound or not as the other party to it should, by his undisclosed purpose, have determined, is warranted by no sound principle.
43 N.Y. 231, 236–37 (1870).
No true subjective test existed (or, at least, was successful) to assess what was in the minds of the contracting parties. Dillon develops the truer test of the formation of a contract by seeking mutuality of assent or, in other words, by seeking to show that the parties manifested external signs that they agreed to a proposal rather than that the parties internally understood or agreed to a particular proposal. For purposes of proving mutuality of assent, one could look to the existence of signatures, handshakes, words spoken, or even the course of dealing of the parties or the common practices in a particular industry.
The Harsh Reality of Objectivity—Spring Lake NC, LLC v. Holloway
In February 2013, an appellate court in central Florida reviewed and reversed a trial court’s ruling and enforced an admittedly complex contract against an admittedly confused entrant into a rehabilitation center. In doing so, the court put into question the status of the “meeting of the minds” concept and the various defenses discussed above.
In Spring Lake NC, LLC v. Holloway, a 92-year-old woman with a fourth-grade education became a resident at a facility that provides physical, occupational, and speech therapy. 110 So. 3d at 917. The woman signed, among other things, an arbitration agreement before becoming a resident. The trial court found (and the appellate court agreed) that the woman “could not spell well and often had to sound out words while reading” and that “[s]he had memory problems and was increasingly confused.” Id. Further, the trial court found “that the contracts were so complex that she could not possibly have understood what she was signing.” Id.
When the woman’s estate brought suit against the rehabilitation center for her allegedly wrongful death, and despite the obvious inability of the woman to understand what she was signing, the trial court did not declare the woman incompetent or incapacitated. But, because of her shortcomings, the trial court held that no “meeting of the minds” had occurred. Stopping here, we can see that the trial court appeared to take a subjective approach. If the woman was not successful on her defense of incapacity, but she nonetheless signed the agreement, a decision that there was no “meeting of the minds” appears to hinge on the fact that she did not, subjectively, understand and accept what she was signing.
On appeal, the Florida Second District Court of Appeal enforced the arbitration agreement. The court explained that it was following established Florida precedent holding that there is a presumption of competence and that two signatures create a contract absent undue influence (including being prevented from reading the contract). Among precedent relied on by the court was an intermediate court ruling that the fact that the plaintiff was legally blind when she signed an agreement did not make the agreement invalid. See Estate of Etting ex rel. Etting v. Regents Park at Aventura, Inc., 891 So. 2d 558 (Fla. Dist. Ct. App. 2004). In other words, only if you are prevented by the other party from reading the contract can your claim that you did not read the contract (even if you are physically or mentally incapable of doing so) prevail.
In so holding, the Spring Lake court took a laissez-faire approach to consent and intent, and rejected the concept that a subjective “meeting of the minds” test could survive in today’s economy:
As a practical matter, a significant percentage of the people who enter nursing homes and rehabilitation centers have mental or physical limitations that make it difficult for them to understand the agreements signed at admittance. The agreements are sufficiently complex that many able-bodied adults would not fully understand the agreements. The same is probably true for most of the contracts that we sign for many consumer services and even for the agreements clients sign when they hire attorneys.
There was a time when most contracts were individually negotiated and handwritten. In that period, perhaps the law could adequately describe a mutual agreement as a “meeting of the minds” between the parties. But a literal “meeting of the minds,” requiring both parties to have a comparable, subjective understanding of their agreement is clearly not what the courts intend by the use of this phrase. Our modern economy simply could not function if a “meeting of the minds” required individualized understanding of all aspects of the typical standardized contract that is now signed without any expectation that the terms will actually be negotiated. . . .
110 So. 3d at 918.
In the words of Justice Scalia, “the times in which consumer contracts were anything other than adhesive are long past.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740,1750 (2011). Regardless of whether you have read or understood the contract, if you signed it, you accepted it.
More on Defenses of Incapacity and Unconscionability
To the surprise of some, the Spring Lake court harshly enforced an adhesion contract against an individual who could not understand it and, likely, who the other party knew could not understand it. Based on the discussion above, however, this holding does not violate the “meeting of the minds” concept, which simply requires the parties to make external signs of agreement—here, signatures—rather than looking at the subjective intent and understanding of each party. The case instead brings into question the viability of the incapacity and unconscionability defenses.
Florida presumes capacity, like many states, and further places a “duty” on all parties “to learn and know the contents of an agreement before signing it [and to make a]ny inquiries . . . concerning the ramifications … before signing.” Onderko v. Advanced Auto Ins., Inc., 477 So. 2d 1026, 1028 (Fla. Dist. Ct. App. 1985). The blind or illiterate man must find someone trustworthy to read the contract to him. The person who lacks the ability to understand the complex terms of a contract must find someone to explain those terms in a way that they make sense to him or her. This requires, of course, for the person to know that he or she does not know what the terms mean, including anticipating any potential contingency and event that might affect his or her responsibilities and benefits under the contract. In other words, perhaps every person who is not an expert on the subject matter of the contract should consult an attorney for each of his or her consumer contracts. While that burden to ask questions and consult an expert may be a harsh and expensive reality for the unsophisticated consumer (and his or her ego), it makes sense given the policy against leaving the other, innocent party guessing as to whether the consumer really understood and agreed to the contract.
One issue not addressed in the Spring Lake decision is whether the contract was procedurally unconscionable. If the arbitration agreement was not substantively unconscionable, the Spring Lake court would likely have rejected the unconscionability defense anyway. See SA-PG Sun City Ctr., LLC v. Kennedy, 79 So. 3d 916, 919 (Fla. Dist. Ct. App. 2012) (“This court requires a party asserting the defense of unconscionability to demonstrate both procedural and substantive unconscionability.”). But, had the Court addressed the issue, it stands to reason that Spring Lake allowing the elderly, illiterate woman to enter into the arbitration agreement with Spring Lake’s actual or constructive knowledge of her inability to read or understand the agreement may have amounted to procedural unconscionability, given the parties’ unequal bargaining power, knowledge, and understanding and, arguably, the absence of meaningful choice. See FL-Carrollwood Care Ctr., LLC v. Gordon, 77 So. 3d 162, 165 (Fla. Dist. Ct. App. 2011) (setting forth factors of procedural and substantive unconscionability).
At the time of this writing, pending before the Florida Supreme Court is review of Hialeah Automotive, LLC v. Basulto, 22 So. 3d 586 (Fla. Dist. Ct. App. 2009), and the issues on appeal include questions of whether alleged unconscionability or a lack of “meeting of the minds” may preclude the enforcement of an English-language arbitration agreement included in a stack of papers signed by a Spanish-speaking car buyer.
Fraud and the Parol Evidence Rule—Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association
Also in 2013, the California Supreme Court decided Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, 291 P.3d 316 (Cal. 2013). In that lender liability case, the plaintiff attempted to introduce evidence that the lender had misrepresented the contents and effect of a modification agreement. Specifically, the lender allegedly misrepresented that the forbearance period was extended by two years instead of three months and that the modification included just two additional parcels of real property instead of eight. Id. at 318. The trial court granted the lender’s motion for summary judgment because the fraud exception to the parol evidence rule does not allow parol evidence at odds with the terms of a written agreement. In overruling nearly 80-year-old California case law, however, the California Supreme Court held that misrepresentations about the contents of the agreement are admissible evidence. Id. In so holding, the court rejected an argument that may shield fraudulent conduct and held, succinctly, “When fraud is proven, it cannot be maintained that the parties freely entered into an agreement reflecting a meeting of the minds.” Id. at 324.
An attempt to reconcile Riverisland and Spring Lake may lead one to the odd conclusion that you can take advantage of an incompetent person as long as you do not do so fraudulently. At least in California, however, courts appear to continue to require that parties, in fact, have “the capacity of reading and understanding” to bind themselves to contracts. Series AGI W. Linn of Appian Grp. Investors DE, LLC v. Eves, 217 Cal. App. 4th 156, 162 n.6 (2013). But, more importantly, these cases can be reconciled by noting that, provided the proponent of the contract is innocent (i.e., has not engaged in improper conduct to mislead or to prevent understanding), that party should not be penalized based on the other party’s failure to seek out assistance in understanding the terms of the contract.
The use of the phrase “meeting of the minds” is, at best, confusing and, at worst, improper. Some use it to mean that the parties meant the same thing. This is not the law. Some use it to mean the same as mutuality of assent, such that the parties objectively expressed agreement. If that is the case, the “mind” does not truly come into the equation. Perhaps, if we are to use this concept at all, we should use it to mean that there was an opportunity to understand—that is, there was capacity and there was not unconscionability (or improper actions that might constitute unconscionability, such as fraud, duress, or coercion). Once there is an opportunity to understand—even if that requires consulting an attorney or interpreter—the contracting party, as a matter of policy and fairness to the other innocent contracting party, must be bound to the agreement, even if he or she chose not to take advantage of his or her opportunity to understand.
As an evidentiary matter, when we speak of “meeting of the minds,” we do not create any new burdens of proof beyond what we would need to show formation (mutuality of assent) or the defenses to enforcement (e.g., incapacity or unconscionability). As a proponent of a contract, you must simply show that the parties did, in fact, show objective signs of acceptance. This can be done by signatures, handshakes, or words actually spoken. You might object to the introduction of evidence relating to subjective understanding and literacy because, under the Spring Lake decision, that evidence is not relevant to contract formation or the “meeting of the minds.”
As an opponent of a contract, you have a number of factual issues to explore: that mental incapacity rose to such a level as to prevent understanding of the nature of the agreement (presented through, perhaps, expert medical witnesses); that the proponent of the contract knew of that incapacity; that the proponent of the contract failed to allow the opponent to obtain understanding by having a trustworthy individual read and explain the contract; and that the proponent of the contract took other steps that are unconscionable (e.g., misrepresentations, concealments, coercion, duress). But in no event does it seem to matter that the opponent of the contract actually lacked understanding when there were no objective signs of such a lack of understanding.
The Spring Lake court would like to eliminate the use of “meeting of the minds” as an element of formation. It may be best that the phrase be eliminated altogether, but, if it is to remain, we should use it as a way of understanding the defenses of incapacity and unconscionability rather than as an element of formation.
Keywords: litigation, trial evidence, contract, meeting of the minds, procedural unconscionability, incapacity, mistake, evidence, parol evidence, testimony
Ralph H. Schofield Jr. is a litigation associate at Clark, Campbell, Lancaster & Munson, P.A., in Lakeland, Florida.