IS THERE AN ENFORCEABLE CONTRACT BETWEEN THE PARTIES?
LOOK FOR: APPLICABLE LAW; MUTUAL ASSENT; ENFORCEABLE
LAW – All men are mortals
FACTS – Socrates is a man
LEGAL CONCLUSION – Socrates is mortal
FOLLOW THIS PATTERN!!!
UCC § 1-103 Provision of the UCC that reaches out and grabs in the common law – for things that the UCC doesn’t cover. Comment: “they supplement but they don’t supplant”
I. WHICH LAW APPLIES? (3 options)
1. UCC Article 2 – Applies to sales of goods only.
Goods are defined by UCC as items that are tangible (can be touched) and moveable (can be moved) at the time of the contract for sale. UCC 2-105.
Sale is defined by the UCC as the passing of title from the seller to the buyer for a price. UCC 2-106.
2. Common Law/Restatement – Applies to anything NOT covered under UCC Article 2.
3. UN CISG – Applies to non-consumer transactions between participating countries.
What if K has components of BOTH goods (covered the UCC) AND services (covered by the Restatement or common law)??????????? How do you determine which law to apply????????
Predominant Purpose Test – Look at 4 factors and determine whether to classify ENTIRE transaction under UCC or under common law/restatement. This is the test most often used, including in MD, to determine which law applies.
DON’T NEED TO GIVE PREDOMINANT PURPOSE TEST IF OBVIOUS (“This transaction is under the UCC because it is for a sale of goods.”)
Pass v. Shelby Aviation, Inc (2000) illustrates the Predominant Purpose test:
(P took plane to D for inspection and service. D used parts (goods) to perform the service.)
Factor (No one is determinative)
Evaluation
Contract language
“[E]mphasizes the repair and inspection aspect”
Business of supplier
“Overall the nature of Shelby Aviation’s business appears to be service rather than the sale of parts.”
Reason for contract
“It is also clear that Mr. Pass took the plane to Shelby Aviation primarily to have a service performed, i.e., the annual inspection.”
Amounts charged
“If the cost of labor [for installing parts] is not considered as part of the cost of goods, the percentage of the invoice attributable to goods is 37%.”
Gravamen Test – Ask what PORTION of transaction is complaint based? If complaint is based on goods aspect of transaction then apply UCC, but if complaint is based on services aspect of transaction then apply the common law/restatement. This is a minority approach.
SO…which law applies???
If K (or predominant purpose of K) is…
a. goods (national) – UCC applies
b. goods (international) – UN CISG applies (Article 3 covers test similar to Predom. Purp.)
c. services – common law/restatement applies
II. IS THE TRANSACTION BETWEEN MERCHANTS?
Merchant – One who regularly deals with the goods which are the subject matter of the transaction or otherwise holds himself out as having knowledge or skill peculiar to the goods which are the subject matter of the transaction. UCC 2-104.
Merchants are sometimes held to higher standards of good faith and fair dealing.
III. DID THE PARTIES INTEND TO BE BOUND? WAS THERE MUTUAL ASSENT?
FORMATION OF A CONTRACT CONSISTS OF MUTUAL ASSENT (OFFER AND ACCEPTANCE) AND CONSIDERATION.
When determining the existence of mutual assent:
Objective Test – (Modern law follows objective test) Legal assent to a contract is determined by parties’ OVERT ACTS and words OBSERVABLE to the other party. Looks at whether a party’s actions manifest (clearly demonstrate) intent to be bound. Also looks at whether parties were REASONABLE to believe each other (reasonable person standard).
Limits to objective standard: mental illness, incapacity, fraud, duress & unfair bargaining.
Subjective Test – (Modern law looks at subjective only exceptionally) Asks “what was the party’s state of mind?”, which is not verifiable and may unfairly affect the other party’s reasonable reliance.
Used when both parties have same subjective understanding (parties both call the product the wrong thing but understand there is a contract) or to determine objective intent.
Lucy v. Zehmer illustrates the use of an objective test when determining mutual assent.
(Two friends drinking at bar agreed on a farm sale. The farm seller later said that he was joking but the farm buyer was not aware of the joke. Court held there was mutual assent.)
RULE: A contract is enforceable despite one party’s subjective belief that the parties are joking.
Reasonable Person – When determining whether someone is a reasonable person, courts will take into account the observer’s (1) attributes (experience, training, commercial sophistication), (2) background info he possessed, (3) relationship between parties, and (4) context of transaction.
DUTY TO READ – You are stuck with whatever you sign. If you could and should have read, you are held to it (even if in a language you don’t know!)
IV. THE OFFER (ONE HALF OF MUTUAL ASSENT)
Note: Mutual assent is what is needed for
e acceptance of a prospective buyer (or if the advertisement states a quantity – b/c that is specific)
V. ACCEPTANCE (THE OTHER HALF OF MUTUAL ASSENT)
Restatement § 50 – Acceptance of Offer Defined (see also Restatement § 30)
Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree (substantive) in a manner invited or required by the offeree (procedural)
Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise
3. Acceptance by promise requires offeree to complete every act essential to the making of the promise.
Two Aspects of Acceptance – Acceptance must meet BOTH Substantive Terms and Procedural Requirements of Offer
Substantive Terms – Assent to K on terms proposed
Normally by communication but may be by performance
Mirror Image Rule – not as common in modern law; so long as there is no “material change”, variation with the offer may still qualify as acceptance.
Conditional Acceptance – Restatement § 59 acceptance conditional on the offeror’s assent to terms additional or different is not an acceptance, but a counter-offer.
Request for Change of Terms – Restatement § 61 acceptance that requests change or addition to terms is not invalidated unless acceptance is conditional on assent to change or added terms; back to Rest. § 59.
Procedural Terms – Communication of that assent in the proper time and manner.
Unless there is “exclusive method of acceptance” a response not precisely conforming to instructions could be effective so long as it is reasonable, consistent with the manner prescribed and does not prejudice the offeror’s rights. Reason for this: Offeror presumably cares more about making a K than the method of forming it.
Courts are more likely to treat the procedural aspect of an offer flexibly and allow minor deviations, unless the instruction on how to accept is very clear.
