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Contracts
SUNY Buffalo Law School
Wooten, James A.

Important note on UCC:
·         Article 2 only applies to contracts for the sale of goods. Goods are generally property that is tangible but not real estate.
·         Services not included. If it is a service contract with incidental goods sold (car repairs) UCC does not apply.
Notes on Elements v Factors
·         Elements can be thought of as conditions that must be met and are rigorously and mechanically applied
·         Factors – judgment and intuition are necessary to determine. There will be mushiness when applying factors, lots of gray area
 
1.       Objective theory of K – standards, elements and factors
a.       Requirement for consideration is referred to as bargain requirement.
b.      For there to be a contract there must be offer and acceptance.
                                                   i.      An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
c.       Process to use when working with the UCC, for the test being stated
                                                   i.      Identify whether the standard is made up of a series of required elements that ALL MUST BE present for the standard to be met, OR a list of non-required factors to be considered in determining whether the standard has been met. 
·         Elements are never joined by OR, because all elements are required and have no alternatives.
                                                 ii.      After determining whether the standard consists of elements, factors, or both, mechanically apply the standard to the facts.
d.      To determine whether an offer was made, we look at whether a reasonable person to whom the statement was addressed would believe it to be an offer.
                                                   i.      If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial EXCEPT when an unreasonable meaning which he attaches to his manifestations is known to the other party (Lucy v Zehmer, written K enforced)
                                                 ii.      Expressed intention, regardless of secret intentions is what governs the formation of a contract. If the validity of contracts depended upon secret intentions then no oral contract of sale could be relied on safely (Embry v. Hargadine, McKittrick Dry Goods, oral K enforced)
                                                iii.      Whether an offer has been made depends on the objective reasonableness of the alleged offeree’s belief that the advertisement was intended as an offer. (Leonard v Pepsico, advertisement NOT considered an offer). 7M pepsi points does not convey to a reasonably objective person an offer of sale
e.      Bilateral contract – consideration is another promise. Lucy v Zehmer. I promise to give you my farm if you promise to give me $50k. Quid pro quo
f.        Reliance interest – party who transfers property, on my promise to pay, transfers it to it. Relying on Zehmer’s promise to sell property, Lucy spent money to invest in contract by hiring attorney to do a title search
g.       Restitution interest – other party has a vested interest in relationship, received something of value from the other side. Lucy’s contract was enforceable Saturday night based on the expectation to receive that property
h.      Unilateral contract – I make an offer, but I want on the other side, something
                                                   i.      I promise to pay $500 if you find my dog. If you find dog you get $500. You get nothing if you promise to bring dog to me. Promisor wants a performance in return
2.       Has an offer been made?
a.       The basic test of what constitutes an offer: “Would another person be justified in believing they could form a contract by assenting to the proposition?”
                                                   i.      If the person to whom the promise is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer. (Lonergan v Scolnik, NO offer in a sequence of vague informational letter exchanges)
·         Lonergan > 4/8 letter>was it reasonable to believe that the P would close deal? No, NO OFFER
                                                 ii.      Where the offer is clear, definite, and explicit and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract. This was in the form of a detailed advertisement in Lefkowitz v Great Minneapolis – YES, OFFER)
·         Difference between Lefkowitz and Lonergan was that there were specific terms met in a timely manner, that satisfied each end of the deal. In Lonergan there was never a specific move to perform by the P
                                                iii.      Information or invitation to negotiate does not constitute offer of sale. In Nebraska Seed v. Harsh, the language, “I want $2.25 per cwt for this seed FOB Lowell,” did not constitute an offer of sale, but was more in line with an advertisement. In Moulton v. Kershaw, SC of WIS held the letter did not constitute an offer, for the reason that neither the word ‘sell’ nor its equivalent was used therein. In industries where negotiation is commonplace before entering into a transx, specific wording must be heeded. (Courteen Seed-NO offer in negotiation for a commodity(seeds))
·         Courteen Seed>10/8 telegram>court focused on language (may have interpreted too literally), NO OFFER
·         In Ks, be aware when an action is phrased differently within a document, courts construe the terms as open to interpretation
                                               iv.      Any conduct of one party, from which the other may reasonably draw the inference of a promise, is effective in law as such. The definiteness or indefiniteness of the words used in opening the negotiation must be considered, as well as the usages of business, and indeed all accompanying circumstances. There are many factors that can indicate whether a contract was formed. Here are some: (1)a price quotation alone is not an offer, but when considered with facts and circumstances, it may constitute an offer; (2) would a reasonable person in the offeree’s position view it as an offer? (3) language used (omitting the specific words ‘offer’ in this case would not preclude this from becoming an offer); (4) if the addressee is specifically named; it is more likely to be an offer if the offeree is named in the informational letter; (5) the definiteness of the proposal itself; the more definite the proposal, the more reasonable it is to be treated as involving a commitment. (Southworth v Oliver, YES, offer)
·         Southworth>looking at the informational letter in context, Southworth was waiting for an offer, so it is reasonable to believe that an objective person would view it as an offer>YES< offer. ·         In the Courteen case there was emphasis placed on not using the word ‘offer,’ but Southworth there was not; presumably because in the commodities sales market there seems to be more of an open market for sale, whereas it is a limited and directed market when selling land to neighbors.                                                  v.      In complex merger negotiations btwn sophisticated parties, courts will generally not construe an oral offer or agreement as binding; if that trans would normally be governed by a written and detailed K, oral agmt will not be considered an offer (Continental v Scott)                                                vi.      Look at industry norms to determine if an oral offer is valid – MGM v Scheider ,an oral offer WAS valid b/c that is commonplace in the movie biz b.      The analysis comes down to whether the offeree was justified in believing that by manifesting her assent, she could form a binding contract. More factors:                                                    i.      Language used – some courts rely heavily on the fact that the language used showed a clear intent to be bound. Lucy, Lefkowitz, Courteen                                                  ii.      Specificity and detail – the more specific and detailed the communication is, the more likely it will be construed as an offer. Size of the deal and complexity needs to be considered.                                                 iii.      Customs and practices in the business – in some businesses it is customary to regard certain communications as offers, whereas in other industries a very similar communication would not be considered an offer. Scheider, Continental.                                                iv.      Multiple acceptance problem – if seller has a limited quantity of things to sell and the communication is sent to a number of people, this is an indication that the seller does not intend to be bound but is only soliciting offers from which she can choose. See Lonergan, Southworth, Lefkowitz.                                                  v.      Context in which communication is made – maybe one person is led to believe something that is not intended. Southworth, Courteen. ·         UCC was developed because complicated contracts often gave too much of an advantage to the party in the know. ·         Multiple acceptances – if the circumstances allow for multiple people to accept a contract, the courts will lean towards not counting it as an offer. ·         Offeror is master of the offer – they decide how the offer should be accepted. ·         Mirror image rule – if offeree changes terms, it is a rejection. ·         Restatements 50, 45, 54, and 62 deal w/ means of acceptance 3.       Has the offer been accepted? a.       There are 4 basic ways an offer can terminate:                                                    i.      Offeree may reject the offer or make a counteroffer, which operates as a rejection (by operation of law) Restatement 30(1)                                                  ii.      Offer may expire by its own terms, e.g., by lapse of time                                                 iii.      Offeror may revoke the offer (subject to some limitations)                                                iv.      Offeror or offeree may die or be adjudicated incompetent b.      Under the 2nd Restatement we can divide offers into 3 categories                                                    i.      Accepted only by p

n the offeror takes action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable info to that effect.
e.      OPTION CONTRACTS – an offer is irrevocable if the promise to keep the offer open is “supported by consideration.” Supported by consideration means the offeree pays to keep the offer open. Think stock options.
·         Option contract – nominal consideration is OK. The K must ‘recite a purported’ consideration
·         There is a relaxation of the requirement that the consideration must be bargained for
·         Sometimes consideration doesn’t even need to be paid; it can be a promise to pay 
·         Option K exists to create an irrevocable K; an offer w/o promise not to revoke is OK
f.        Offeror of a unilateral K may see the approach of the offeree and know an acceptance is contemplated. If he revokes before offeree accepts, that offer has been revoked. Petterson v Pattberg, finding the offer was withdrawn before its acceptance had been tendered
                                                   i.      Revocation of Offers for Unilateral Contracts – the hard line rule from Patterson was eased in the 2nd Restatement, as well as in the Davis v. Jacoby case. The court made it more flexible, sort of turning it into an option contract.
g.       A proposal to accept, or an acceptance, upon terms VARYING FROM THOSE OFFERED, IS A REJECTION of the offer, and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the modification suggested. Minneapolis & St. Louis RR v. Columbus Rolling-Mill, finding that an acceptance varying the terms is a counteroffer, which functions as a rejection – offer TERMINATED
h.      Stating that you cannot reduce price means the original offer remains open and is not necessarily a rejection. Livingstone v. Evans, offer NOT terminated
i.         “Supplementary terms,“ contemplated by 2-207(3) are limited to those supplied by the standardized “gap filler” provisions of article 2. Arbitration is NOT one of them. Since arbitration is not a necessary missing term which would be supplied from the gap-filling provisions, unless agreed upon by the parties, there is no arbitration term in the 2-207(3) contract which was created by the conduct of the parties (performance), even though no contract had been established by writings. ARB NOT INCLUDED IN CONTRACT. Itoh v Jordan
j.        Hill v Gateway, terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product. By keeping computer beyond 30 days, the Hills accepted Gateway’s offer, INCLUDING the ARBITRATION clause.
k.       Court found that the act of keeping computer past 5 days wasn’t sufficient to demonstrate that P EXPRESSLY AGREED to the standard terms. Kolcek v Gateway, offer NOT accepted
l.         Cooks Pest Control v Rebar – Cook’s external and objective actions (cashing the check to commence another contract) evidenced assent to the R’s proposed modifications. Offer ACCEPTED
5.       Consideration (bargain requirement)
·         Promise will not be legally enforceable contract unless it is supported by consideration.
·         Restatement 71 – we need two things for consideration: (1) person making the promise must get in return for the promise either (a) another promise or (b) performance and (2) the return promise or performance she receives must be bargained for.
o   Promisor must want it
o   Getting this performance or return promise has to be a condition to her performing her promise
a.       Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action as an inducement for the promise of the first. Hamer v Sidway, YES, consideration
b.      There is a consideration if the promisee, in return for the promise, does anything legal which he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or detriment to him or actual benefit to the promissor or not. Stonestreet, NO consideration – Gratuitous promises are not enforceable
Mere inadequacy of consideration will