Contracts II – Outline
Spring 2008: Prof. Jimenez
PART II: MUTUAL ASSENT
I. INTREPRETATION – DISCERNING THE AGREEMENT
A. IDENTIFYING THE TERMS OF THE AGREEMENT
1. Form Contracts or “Contracts of Adhesion”
a. Carnival Cruise Lines v. Shute (1991) pg. 424 [forum selection clause hidden in small print on back of ticket bound P to terms they didn’t assent to] b. How do you know what terms in a K should be reasonably expected and therefore enforceable? Majority Rule: Look at default rules and compare the term in the form K and where the terms are similar, they are enforceable. Where they differ = unenforceable.
c. Form contracts offered on a take-it-or-leave-it basis by a party with a stronger bargaining power to a party with weaker power
i. pros – standard practice, reduced transaction fees, easier to control employees (less flexibility), easier choice of venue(judicial economy)
ii. cons – minimizes bargaining power, eliminates alternatives, inconvenient to weaker party
d. Courts are hesitant to enforce adhesion contracts because of:
i. lack of assent
ii. disparity in bargaining power creating constructive coercion if not real coercion
e. Review from PPT lecture:
i. You should be familiar with how courts treat these Ks, other approaches re: how courts could treat these Ks (Rakoff), and whether, and under what circumstances, you think they should be binding.
2. Which Terms Were Agreed To? “Battle of the Forms” – Traditional K doctrine requires that the offeree’s commitment be one on the terms proposed by the offer w/ no variation. An attempt to add or change the terms of the offer turns the offeree’s response from an acceptance into a counteroffer and a rejection of the offer. This rule is called the mirror image rule. UCC § 2-207 is the common law counterpart to the mirror image rule.
a. Step-Saver Data Systems, Inc. v. Wyse Technology (1991) pg. 439 [Battle of the Forms – Warranty of Merchantability – Value added retailer purchased software for end-users, but it doesn’t work w/ hardware] i. What is the legal effect of a box-top license? It becomes a 2nd K b/t the parties; the 1st K is the warranty of merchantability.
ii. Public Policy Concerns – TSL concerned about the effect on the software industry of an adverse holding concerning the enforceability of the box-top license. The ct’s response was that they followed the well established distinction b/t conspicuous disclaimers made available before the K is formed and disclaimers made available after the K is formed. Rule: When a disclaimer is not expressed until after the K is formed, UCC 2-207 governs the interpretation of the K, and, b/t merchants, such disclaimers, to the extent they materially alter the parties’ agreement, are not incorporated into the parties’ agreement.
b. ProCD v. Zeidenberg (1996) pg. 451 [shrinkwrap license – were the terms agreed to when the buyer purchased the product] i. UCC § 2-207 held not applicable; only one form.
ii. Under UCC § 2-204(1), a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.
iii. A buyer accepts goods under UCC § 2-606(1)(b) when, after an opportunity to inspect, he fails to make an effective rejection under UCC § 2-602(1).
iv. Compare this case to Carnival.
c. See UCC § 2-207 chart for analysis below.
i. You must always do analysis for 2-207(1) and 2-207(2) OR 2-207(3) analysis. You can never use all three sections in your analysis. Only go down one road:
· 2-207(1) which may lead to 2-207(2) [terms determine the K] OR
· 2-207(3) [conduct that happens while still negotiating determines there is a K] ii. Purposes of changes:
· Written confirmation, where an agreement has been reached either orally or by informal correspondence b/t the parties and is followed by one or both of the parties sending formal memoranda of the terms so far as agreed upon and adding terms not discussed.
· Offer and Acceptance, in which a wire or letter expressed and intended as an acceptance or the closing of an agreement adds further minor suggestions or proposals such as “ship by Tuesday,” “rush,” “ship draft against bill of lading inspection allowed,” or the like.
d. Filanto v. Chilewich International Crop (1992) handout [dispute over whether parties agreed to arbitration to settle disputes] i. UCC is n/a b/c of the CISG governing this matter and CISG reverses UCC 2-207 and reverts to the common law rule that “A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.”
ii. CISG Article 1(1)(a):
· This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States
iii. CISG Article 19(1):
· A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.
iv. CISG Article 19(2):
· However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifica
timony and give a clear basis on which to base a judgment.
iii. EXCEPTIONS: The PER doesn’t stop a party from proving that the agreement wasn’t final, any defects in formation (e.g., fraud, duress, mistake, lack of consideration, the nonoccurrence of a condition precedent to the legal effect of the K), or anything that helps interpret ambiguous terms.
4. Rationale of the parol evidence rule:
i. To introduce evidence of earlier negotiations in an effort to show that the terms of the agreement are other than as shown on the face of the writing. The party may be barred from using such extrinsic evidence to contradict and perhaps even to supplement the writing.
ii. To foster certainty and stability of Ks.
5. PER = applicable to prior negotiations. It is NOT limited to oral negotiations as it has been applied to cases to exclude such writings as letters, telegrams, memoranda, and preliminary drafts exchanged by the parties before execution of a final written agreement.
6. True basis of the rule from Corbin:
i. Any K… can be discharged or modified by subsequent agreement of the parties… If the foregoing is true of antecedent Ks that were once legally operative and enforceable, it is equally true of preliminary negotiations that were not themselves mutually agreed upon or enforceable at law. The new agreement is not a discharging K, since there were no legal relations to be discharged; but the legal relations of the parties are now governed by the terms of the new agreement.
ii. Viewed in the way, the rule simply affirms the primacy of a subsequent agreement over prior negotiations and even over prior agreements.
7. Purpose of the parol evidence rule:
i. To give legal effect to whatever intention the parties may have had to make their writing at least a final and perhaps also a complete expression of their agreement.
ii. If the parties had such an intention, the agreement is said to be integrated and the parol evidence rule bars evidence of prior negotiations for at least some purposes. If the parties had no such intention, the agreement is said to be unintegrated and the parol evidence rule does not apply.
8. Legal Effect of the parol evidence rule:
The legal effect of a determination that the agreement is integrated, according to the R2DK is that “evidence of prior or contemporaneous agreements or negotiations is not