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Contracts
University of California, Davis School of Law
Hunt, John Patrick

Hunt_Contracts_Fall_2009
 
 
Does the UCC apply?
The UCC article 2 applies to the sale of goods. If it is a widget and it moves then its a good.
IS THERE A CONTRACT? TO HAVE A CONTRACT, MUST HAVE:
Is there a contract?
a.       RS: “A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”
b.      There is a contract when there is an offer, an acceptance and consideration.
2.      Two theories of offer/acceptance
a.       Subjective: Did A actually intend to make a binding offer and did B actually believe A intended to make such an offer?
b.      Objective: Was it reasonable for B to believe that A intended to make an offer, based on what A said and did (A’s manifestations”)?
 
An Agreement – Offer and Acceptance
1.      Is there an offer?
a.       A manifestation of willingness to enter into a bargain so made as to justify a person in understanding that his assent to the bargain is invited and will conclude it. (RS 24)
b.      Offer creates power of acceptance – the power to create an enforceable contract relationship. Although offeror is master/mistress of offer and determines what the power of acceptance is, if an offer exists that means the offeree has a power of acceptance
c.       The offeree must reasonably know that he is getting such power
2.      What are some factors relevant to whether an offer exists?
a.       Specificity/completeness of deal terms
1.      (e.g., if only price is specified, less likely to have an offer; if a price range is specified, still less)
b.      Degree of certainty about whether the alleged offeror is willing is actually willing to deal with the alleged offeree
e.g. “lowest price I could accept is X” does not show that “offeror” will accept that price from the “offeree.” (Owen, Harvey)
c.       Do other circumstances point toward/away from willingness to be bound?
E.g. simultaneous communication to multiple people to sell one item on same terms – less likely to be an offer b/c not likely “offeror” intended to expose self to breach liability in event of multiple acceptances (Oregon ranch sale problem)
3.      Are price quotes and ads offers?
a.       Usually are not offers, but they can be. Look for:
Specificity/completeness of terms
Lack of need for further approval (e.g., home office must approve orders)
“Offeror’s” clear willingness to deal with “offeree”
Correspondence as a whole
Does the fact that the “offer” answers another piece of correspondence provide specificity?
b.      For ads, allocation method for goods (to avoid multiple acceptances)
Possible that an allocation method could be inferred from circumstance
4.      When can a party escape being bound by an offer?
a.       Parties can often escape being bound by offers that the other party knows are based on clerical mistakes.
Specific test for contractor bids in Kastorff.
5.      When does an offer terminate?
c.       Offer terminates on death or incapacity of offeror.
d.      Absent specification by the offeror, an offer lapses after a reasonable time.
e.       By death or destruction of the subject matter of the offer
f.       By the intervening illegality of the proposed contract
6.      When can an offeror revoke his/her offer?
a.       The common-law rule is that offers are freely revocable, meaning that the offeror can revoke (terminate the offeree’s power of acceptance) at any time.
b.      Offeree’s power of acceptance is terminated when offeree receives manifestation of intent not to enter the contact from the offeror.
c.       When the offeror engages in conduct inconsistent with the offer’s remaining open and the offeree acquires reliable information that the contract has been revoked.
d.      A unilateral offer is only revocable before the offeree begins performance. If an offeree is merely preparing to begin then no contract has been formed. It otherwise cannot be revoke in a reasonable amount of time. The offeree can revoke at any time by stopping performance. The offeree has a reasonable amount of time to complete performance. 
 
7.      Is a promise to hold an offer open enforceable?
a.       A promise to hold an offer open is not enforceable under the traditional rule, unless supported by consideration (i.e., unless an option contract exists)
8.      Is there a valid option contract?
a.       “An option contract is a promise which meets the requirements for the formation of a K and limits the promisor’s power to revoke an offer” RS 25
b.      An option contract is a promise to hold an offer open – it is itself a contract.
c.       An option contract is a subcontract that itself requires consideration.
9.      What is a firm offer?
a.       An offer for sale of goods in a signed writing by a merchant is irrevocable for the time stated or a reasonable time, but not longer than three months.
 
 
 
 
 
 
 
 
 
10. Is there acceptance?
a.       Acceptance is assent to the terms of the offer. (RS 50)
a.       Acceptance can be by promise (bilateral contract)
Bilateral = Promise on both sides.
a.       A bilateral contract exists when there is a promise in exchange for a promise.
Accepting promise can be:
Expressed in words (Int’l Filter)
Or inferred from conduct (White, Ever-Tite , Allied)
Starting performance is the basis for inferring the promise.
Notice of acceptance is generally required.
Exception: Waiver (Int’l Filter , Ever-Tite)
“Notice” can be receipt of notice (Allied?) or act that naturally will lead to receipt of notice (White)
b.      Or by performance (unilateral contract) (Carlill v. Carbolic, UCC – Corinthian)
Unilateral = Promise on one side
a.       There is a unilateral contract when there is a promise given in exchange for a performance.
Acceptance by completing performance (for now)
No notice required for acceptance.
1.      What if the “acceptance” varies the terms of the offer?
a.       The common-law rule is that an “acceptance” that varies the terms of the offer is a rejection plus a counteroffer (mirror image rule).
2.      What is the “mailbox rule”?
a.       Acceptance is effective when sent, as long as sent in a manner invited by offer. Rejection and revocation are effective only when received.
3.      What does the UCC say about acceptance? UCC battle of forms (2-207)
a.       In deciding whether an expression of acceptance is “expressly conditional” on assent to its additional/different terms, look for the magic words “expressly conditional,” or for clear exclusion of any way of finalizing the contract without assent.
b.      Is the expression with the additional/different term an acceptance?
If NO, (i.e., if expres

pleted contract that just needs fuller documentation.
c.       A “binding preliminary commitment” (Tribune Type II): agreement to negotiate in good faith.
12. How “definite” does a contract need to be?
a.       Definiteness – Contracts don’t have to have agreement on every little term.
b.      But contracts have to have some specificity.
Often said you have to have agreement on essential terms.
Book and Restatement: A court has to be able to tell whether there was a breach and be able to give a remedy.
Rather rare to find contracts too vague when it seems clear that parties intended to be bound.
13. How does the UCC treat open terms?
a.       U.C.C. has many gap-fillers that can save contracts from indefiniteness:
1.      No price à “reasonable price” (2-307)
2.      No place of delivery àseller’s place of business (2-308)
3.      No time of delivery à “reasonable time of delivery” (2-309)
14. Is there a UCC gap-filler for quantity?
a.       There’s no gap-filler for quantity (other than requirements/output contracts)
b.      Often said that quantity is the only essential term under U.C.C. Article 2.
15. Are gap-fillers also used under RS?
a.       Gap-fillers also can be used under the Restatement (E.g., price, § 33, for service contracts)
16. How does the law add specificity to vague terms?
a.       Sell stuff if you want in exchange for exclusivity à “reasonable efforts to sell stuff in exchange for exclusivity” (Lucy)
b.      Negotiate lease to completion à Negotiate in good faith (Channel Home Centers)
d.      Pay if satisfiedà Pay if satisfied in good faith/ according to reasonable commercial standards (Mattei)
17. How else can you find definiteness?
a.       Can look at collateral sources to find definiteness, e.g., prior communications, trade usage, government regulation.
b.      Exact numerical amounts such as price, quantity don’t have to be set explicitly in the contract. The contract can set up a mechanism for determining these amounts.
18. So what is too indefinite?
a.       Employment contract calling for salary plus “a fair share of my profits.”
b.      “Tenant shall have the option to extend the lease for five years at annual rentals to be agreed upon.”
19. Is an option agreement enforceable?
a.       Yes, as long as it contains a practicable, objective method of determining the essential terms.
20. When a contractual pricing mechanism fails, does the contract survive?
a.       It survives if the parties intended to be bound in this event.
21. When a contractual pricing mechanism fails and the contract survives, what is the price?
a.       The price is a reasonable price at the time of delivery (Restatement, § 33).