Contracts – Fall 2016 – Professor Hunt
Contract Formation: Offer, Acceptance, Consideration
Contract as an enforceable promise
Promise: Commitment to act or refrain from acting in a certain way so made as to justify a promise in understanding that a promise has been made (oral, written, or understood by circumstance)
**General test: Reasonable (justified) for recipient to understand as a promise
Hawkins v. McGee: Promise is promise if person who receives it is justified in believing it has been made
C: The doctor’s assurances that “I guarantee to make the hand 100% perfect hand” was an enforceable promise.
UCC on Contract Formation
2-206(1)(a): “Unless otherwise unambiguously indicated by the language or circumstances an offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.”
Shipment of goods in response to an order ordinarily constitutes an acceptance under UCC 2-206
Seller’s acceptance by performance is generally OK under the UCC.
If the seller wordlessly ships just some of the goods ordered, (eg. 50 of 1,000 ordered vials of a vaccine) and refuses to ship the rest (the other 950), the seller has accepted and breached.
2-206(2): “Where the beginning of performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.”
Manifestation of Mutual Assent: Asks whether the parties did what they needed to do for the law to recognize that a bargain (need offer and acceptance) was made (Objective test: how a reasonable person in the position of the recipient would have interpreted the other person’s words)
UCC: Sales of Goods
Uniform Commercial Code (UCC) Art 2 Govern ALL SALES OF GOODS whether or not the person is a merchant (except as preempted by CISG)
(Things which are movable at time of identification to the contract domestically)
Enacted in every state but Louisiana
Applies To:
Cover barter of goods what are movable §2-105 (1)
Includes Goods not yet in existence (future goods like contract to manufacture and sell goods)
Not goods: intangibles (services), money in which price is to be paid, real property (not movable), assignments of legal claims, investment securities (stock and bonds)
Only govern CERTAIN things in the contract
Art 2: firm offer, parol evidence, battle of forms, warranties
Non-UCC Law: Duress, Fraud, mistakes (even though UCC apply to other part of contract don’t apply to this)
Examples
Ex. Land development company sell to office building to real estate investor -> NO Sale of REAL ESTATE is NOT governed by UCC b/c not goods
Ex. High school kid sell car to other high school kid-> Yes covered by UCC
Ex. Bookstore owner lend other owner $10000-> Not covered by UCC (both merchants)
Goods-services transaction
Majority rule: predominant purpose test (UCC applies if the transaction is predominantly on for the sale of goods
Factors
Contract language
Nature of sellers business
Relative value of goods and service
Whether goods are physically transformed into realty
Contracts to build permanent structure from ordinary building material (building are NOT governed by UCC art 2 (service contract) (even get materials is NOT governed by UCC)
If build water tower (more like good b/c metal can be resold)
Mobile home more like good
Contract to paint portrait (provide service by paint and transfer painting (service), install water heater (goods))
(*contracts to build structures form ordinary building material NOT governed by UCC
Offer
Offer (Restatement 24): “an offer is a manifestation of willingness to enter into a bargain so made as to justify offeree to reasonably believe that a power to create a K is conferred on her
Offer must manifest intent to be bound upon acceptance and be definite (price, quantity, subject matter) enough for enforceability upon acceptance.
Common law require price and identification of subject matter (to have contract
UCC : require quantity,
No need to expressly show that you have intent to be bound à Can be through context (social/political/family promise)
Context can overwhelm this presumption (social promise to meet for lunch at 23) AND if you go outside the norm you have to SHOW that you want to have intent to be legally bound.
1. Seems like it could be a K but they contemplate later writing (K before the later agreement made)
2. Binding agreement negotiate towards a final deal (Where breach can be found)
Context can be taken into account in determining its reasonable for the recipient to understand a manifestation as indicating intent to be bound
*Offeror is master of offer and can revoke offer anytime before acceptance (unless there is an option K)
*Can have conditional offer (eg. I will buy house from you if I can get financing-condition approved)
BUT not No reservation of right of final discretionary approval (eg. I will sell you my car for $1,000 if I want to (no) / I will sell you my car for $1,000 if it rains on Tuesday (yes)
Language (“I would need at least” vs. “I will sell for”)
Owen v. Tunison: Contract bargain needs an offer to sell & acceptance
Look to language and circumstances of communication to identity offers.
C: The letter from Tunison to Owen saying, “It would not be possible for me to sell it unless I was to receive $16,000” à NOT an intent to sell and therefore no offer or K
Prior communication: Initial request vs. response to request
Subject matter of K à Less formality needed for sale of goods.
Relationship of parties
Offeror Revocation
An offer is revoked when the offeree acquires true information from a reliable source that the offeror has taken definite action inconsistent w/ an intent to enter the K (R2K 43) (Dickinson v. Dodd)
C: Though D wrote a memo agreeing that the option for P to buy his house was “left over until Friday”, this was not a binding K since there was no consideration and P learned that D had already sold the land, thus it cannot be enforced.
Revocation is not valid if there was an acceptance before the revocation
Megadeth K: Though wrote “able to terminate this deal as of 5pm”
Agreement document is finalized and sent to P at 4:45pm
P’s own signature not faxed until 5:16pm
P tries to revoke 10 days later
C: Revocation isn’t valid because there was an acceptance before the revocation.
Advertisements as Offers
Rule: “Price quotes” and “Advertisements are NOT offers à they are an invitation to deal
Idea: Offeree cannot be understood as holding itself out to be liable for breach if there are too many acceptances or run out of stock
Fairmount Glass Works v. Crunden-Martin Woodenware Co.: Although a price quote usually not an offer, a communication called a “price quotation” can be an offer depending on the context.
C: The letter from D said “Pints 4.50, quarts 5, half gallons 6.50 for immediate acceptance” was an offer and P’s writing back “enter order 10 car loads as per your quotation” was an acceptance that created a K
Midas Touch: Send notices to list of coin collectors “If the mint receives your reservation by 12/31/85, you will receive a discount” – No quantity stated
C: This wasn’t an offer
Exception: Language “first come first serve” takes this ad out of the general rule that ads are not offers to make it an offer
“While supplies last” à No method of allocation (Doesn’t say who offerees are or who can accept à Not an offer)
Lefkowitz v. Great Minneapolis Surplus Store: Where offer in ad is clear, definite, and explicit and leaves nothing open for negotiation, it constituted an offer and acceptance will complete K
C: the advertisement of a Lapkin Stole for $1 constituted an offer and P’s action of showing up at the store constituted an acceptance
Donovan: Donovan saw an ad in the paper listing (1995 Jaguar) for sale price (26k) à Ad was an offer and penalty should be reliance
Mistakes in Offers
*If the mistake is not clerical or mechanical (it’s just a mistake) à Then the offeror should be held
Mistakes commonly occur in construction contract bids, and settlement agreements
Court distinguishes clerical/mechanical (bad computation) mistakes from judgment mistakes (failing to investigate/evaluation ie. not investigating construction site)
Failing to add up numbers correctly
Error in transmission of offer
Types of Mistakes
1. Knowledge of mistake rule (Not clerical + “Reaso
eparation R2K 32
Performance v. Preparation factors (R2K 45) weighing test (Evertite)
1. Extent to which offeree’s conduct is clearly referable to the offer
Buying your “regular order” of lumber vs. buying “special lumber”.
2. The definite and substantial character of the conduct
Starting to build vs. browsing lumber catalogue
3. The extent to which the conduct is of actual or prospective benefit to the offeror rather than the offeree
Making customized bookshelf for offeror’s space rather than a standard bookshelf you could sell to anyone?
4. Communications between parties
“This offer is accepted by substantial beginning of a bookshelf and not by purchasing the lumber”
5. Prior dealings
Seller let buyer off when seller just bought lumber; buyer agreed to pay when seller started sawing boards.
6. Trade usage
If agreed to pay by the hour for bookshelf-building, when people usually “start the clock”
7. Acceptance by performance-implied promise to finish
Depending on whether offer is reasonably understood as seeking a commitment, starting performance may or may not obligate the offeree to complete performance. EverTite v Green. R2K 45 (Performance v. Preparation factors) weighing test
C: Proposition by Evertite that “agreement shall become binding only upon written acceptance or commencing performance by principal or authorized officer of contractor” and acceptance by Greens (D) was a binding K that D breached by hiring new contractors
Types of Contracts
Bilateral: Promises on both sides (“I promise to sell you car and you promise to give me $1,000”) à Offeree is obligated to finish
Notice: Necessary unless waived so offeree must insure that promise is communicated to offeror in some reasonable time
Unilateral: Promise given for performance (If you paint my house I give you $1000)(Offer conditional on you painting the house) à Understood that person doesn’t have to finish so there is only one promise
Give you $1000 for car if you show up on Tuesday
Don’t know if you show up, (if you don’t, can’t sue you) if you do à binding K
Your agreement occurs when you FINISH the performance (Offeree isn’t obligated until finished)
Notice: Not required unless it won’t come to attention of the offeror
If offeror expressly or implicitly states in offer that it’s sufficient to perform w/out communication acceptance à then performance of condition is sufficient acceptance w/out notification (look to offer itself)
Silence
Rule: Silence is generally not an acceptance
EXCEPTION: Prior dealings (Filling orders or paying for goods w/out saying anything) can make it reasonable to treat silence as acceptance
When silence is an acceptance
Where the offeree takes advantage of offered services w/ reasonable opportunity to reject and reason to know that they were offered w/ the expectation of compensation
(Ie. Letting the violin teacher who has a specified price keep giving lessons w/out telling him to stop.)
Where the offeror has indicated that the offer may be accepted by silence, and the offeree intends silence as acceptance
Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if acceptance is not intended.
Seller/offeree has always agreed by shipping within a week à Seller receives an offer and doesn’t respond in a week à If buyer relied on order than it’s an acceptance.
