CONTRACTS
LEFSTIN
SPRING 2012
I. JURISDICTION
Since the subject matter of the dispute is [services/goods], [common law/UCC] principles will govern the legal analysis. {If UCC} It’s also worth noting that [Plaintiff] is a [merchant/non-merchant] while [Defendant] is a [merchant/non-merchant]. {If quasi service/goods} Finally, this transaction also involves [goods/services]. A court may adopt [UCC/common law] principles if it concludes that the purpose of the K was for [goods/services] regardless of the current dispute. I will attempt to evaluate the dispute under both doctrines.
II. CAUSE OF ACTION
The [Plaintiff] may be able to bring a cause of action against [Defendant] under any one of the following three theories: 1) Promissory Estoppel – if the parties formed an agreement (but no K) 2) K Breach – both parties formed a legally binding K and [Defendant] breached 3) Unjust enrichment – [Plaintiff] conferred a justifiable economic benefit onto [Defendant] for which [she/he/it] is entitled to compensation. However, before [Plaintiff] can even ponder bringing a cause of action, [His/Her/Its] must first establish that [Defendant] was obligated to [do services/supply goods], but didn’t do it.
III. DID BOTH PARTIES FORM AN AGREEMENT?
A. Was there a valid offer?
In [their/his/her] effort to establish K formation, [PFKF] will contend that [POKF] manifested an intent to be bound based on [His/Her/Its] offer.
Offer – Completeness
+ Includes essential terms
– Essential terms missing – time/price/services rendered
+ To the offeree
– To a group, then ∆ can argue did not intend to create power of acceptance in everyone]
+ Reasonable – terms were not out of the ordinary
– Unreasonable like joke, to good to be true]
· “It’s common knowledge that if something looks too good to be true, then it probably is”
+ Writing/Conduct indicated intent to be bound
– Writing/conduct indicated desire to negotiate/generate interest
+Invited acceptance by specifying time/place/manner
– Did not invite acceptance b/c no time/place/manner of specified
+ Reasonable that acceptance will create k w/o further approval
+ Used offer/acceptance language
– Did not specify that this is an offer
+ Parties relationship/Prior Dealings/Trade Practices
– No prior relationship or business dealings
+ Letter of intent – duty to be bound in good faith, if ∆ started performing, then even better
– LOI nothing more than an intent to negotiate [disclaimer/language]
Offer – Revocation (Is the offer still outstanding?)
+ Lapse in time/Occurrence of an event – if no time specs à use nature/mode of offer to determine what’s reasonable
– Offeree accepts after lapse in time à constitutes counteroffer
+ Offeror Dies/Mentally Disabled BEFORE acceptance à Revoked
– Offeree accepts before the offeror dies,
+ Rejection – did the offeree actions/conduct constitute a rejection [use the facts]
– Offer died, in which case, offeree’s acceptance constitutes counter-offer
+ Counteroffer – revokes original, but creates counteroffer and new power of acceptance f/ offeror
+ Offeror revocation – except option K and UCC firm offers, offeror can revoke before offer is accepted
– Communication must be clear and unambiguous – if not directly from offeror then reliable source
– Did the offeree reasonably know that the offer was revoked?
Exceptions to Revocability
Option K – a promise not to revoke an offer (Common Law)
+ Is irrevocable (if reg offer revoked b/c of lack of time à mention should of, could of, would of w/ option)
+ Option K must have K elements – offer, acceptance and consideration
– Any elements missing à not an option K (nominal consideration okay for an option K)
Exception – Estoppel (a stretch) – CL Only!
+ An offer may be irrevocable because it induced foreseeable detrimental reliance
Exception – Firm Offer – UCC ONLY!
+ To constitute firm offer, must be in signed writing, offeror be a merchant, and include goods.
+ Firm offers are irrevocable up to 90 days
B. Was the acceptance effective?
Acceptance – Medium (UCC & CL)
+ Offeror specifies a medium of acceptance à offer must be accepted according to that medium
+ Offeror did not specify medium à medium must be reasonable (UCC) or the same medium that the offeror used/customary medium in similar transactions (CL)
Acceptance – Mailbox Rule (CL)
+ Offer accepted when the offeree puts properly stamped and addressed acceptance into the mailbox
– Only applies to acceptances (offeree’s rejections & counteroffers must be rec’d; offeror’s revocation must be rec’d)
– Email and fax treated like talking in person, but can argue mailbox rule b/c email/fax not always instantaneous
Acceptance – Performance (CL and UCC Unilateral Ks)
+ Offeree can accept by performing or refraining from performing a particular act
+ If offeror does not require acceptance by perf., beginning of performance is an implied promise to complete perf.
– Offeror can argue that offeree was merely preparing to perform because preparation not enough
+If offeror requires acceptance by perf., then beginning of perf. creates an option k, which offeror cannot revoke
Acceptance – Silence
+ Silence or inaction may apply 1) where offeror confers property to the offeree and offeree takes ownership or doesn’t’ reject 2) where, based on prior dealings, the offeror reasonably expects the offeree to give reasonable notice.
E – Commerce & Internet
+ Generally – Courts are likely to enforce the terms if they are fair and reasonably expected.
+ If a party has reasonable notice of terms à duty to read them and her manifestation of assent binds her
+ If the agreement is independent of the license/software à not binding b/c no manifestation of assent to the agreement
+ Conditions provided after the information/software has been delivered are enforceable 1) after multiple inquiries 2) receiver knows about the conditions b/c of prior dealings. (can also argue acceptance by silence)
C. Terms & Conditions – Issue Statement – Did both parties manifest assent to the terms?
Ambiguous Terms – ambiguity can preclude the formation of an agreement
+ If neither party knows or has reason to know of the ambiguity of an essential term and both parties assign a different meaning to the term, then the only conclusion is that no K was formed (Raffles, Oswald).
+ If a term is ambiguous and both parties have a different understanding of the term, then no agreement
– UNLESS one party should’ve been aware of the other’s misunder à enforced in favor of innocent party
+ If a term is ambiguous and both parties agree on the subjective meaning of the term à agreement based on their meaning
Vague Terms – terms w/ a range of meanings
To ascertain the meaning of a term, the court will look to:
1) Express terms in the agreement (oral/written)
2) Course of performance – actual performance to indicate what each party intended the tem to mean. CoP must be:
– Pertinent to the term in question
– Parties must have performed w/o protest
– Parties must be aware of each other’s conduct
– More repetitious the perf., the stronger the inference about what the parties intended
3) Course of dealing – parties’ relationship before the current k
4) Trade Usage – if the market has a well established custom, then valuable in ascertaining intent
+ Restrictive covenant construed against the person seeking enforcement
+ Party seeking a narrower interpretation of the term shoulders burden of defining the term
Gaps in the Terms – the courts legally implying the terms
+ UCC – tendency to enforce K even with open terms so long as parties intended to form a K
– Open price term okay; if no term for place of delivery à Seller’s place of business is default
+ CL – if both parties sufficiently manifested assent to be in a K, but do not agree on essential term à ct. may imply
– NO gap filling if will result in an allocation of risk (Remington)
+ Policy –
– Con of Gap Filling – Parties lack incentive to create comprehensive agreements; burden on the courts, potential on the courts to make bad decisions
– Pros of Gap Filling – fulfill parties intent to be bound; avoid economic waste
Illusory Promise
+ Illusory promise is a promise that is so qualified or has such wide discretion, the alleged promisor made no promise at all
Requirements/Output Ks – Illusory because parties have not agreed to specified quantity (UCC)
+ Output K – buyer promises to buy seller’s entire output
– Seller can enforce an output K even if their output increases substantially
+ Requirements K – a buyer promises to buy based on their demand
– A buyer can enforce a requirements K even if their requirements increase substantially
+ Duty of Good Faith – even though there is a lack of mutuality as to the quantity, the term is implied so long as the output and requirements are made in good faith (honesty in fact) and not unreasonably disproportional (to historical)
Exclusive Dealings (UCC & CL)
Rule – implied obligation of best efforts in exclusive dealing Ks involving goods (Lady Duff)
Form Ks & Ks of Adhesion
+ KoA – where one party has no choice but to adhere to the terms if he wants to k
– KoA likely to exist where no competing provider and goods/services not a luxury
– Pro Form K: conserves judicial resources, economies of scale, practical
– Con Form K: inadequate notice, customers more likely to take the risk, burden on consumer, no bargaining pwr
Battle of the Forms
+ CL – Last Shot Rule:
– Party who sends the last form has the advantage
– If an acceptance differs from the offer, then it’s a counteroffer
+ If party accepts by performance, then bound by the additional terms
+ If no performance, then no K was formed
UCC 2-207 – there will always be a K, but ? is what is the fate of the terms
+ If we have an unconditional acceptance and are trying to deal with additional terms
– Additional terms become part of the K if both parties are merchants UNLESS
by:
o 1) Adding new detriment
o 2) Both parties agree to rescind and create new K
o Note: Cts. reluctant to modify because of coercion (change in the balance of power)
+ Modification
– CL – Parties can modify a K, but modification must be supported by new consideration
– UCC – An agreement modifying a K does not need consideration to be binding, but MUST be made in good faith
+ Adequate Condideration
– CL – If consideration is present, courts typically not look into whether consideration is adequate
o Sham/Nominal – consideration is inadequate if nominal
o Option K – Nominal consideration is okay to enforce K, but option time must short and the price paid fair
o Legal Forbearance – adequate consideration if person giving up claim has good faith belief that claim is valid
– UCC – Option Ks between merchants can be held open for up to 3 months
V. PROMISSORY ESTOPPEL – CAUSE OF ACTION WHEN THERE IS NO CONSIDERATION
+ Promissory Estoppel can be used to estop the promisor from raising a defense for lack of consideration
– Promise – promisor makes a promise with reasonable expectation that promisee would rely
– Promise Induced Reliance – Promisee’s action or forbearance (inaction)
o Causation/Would a reasonable person rely?
– Enforcement Necessary to Avoid Injustice – the harm to the promisee has a result of his reliance
o If failure to receive the promised benefit is the only loss à promisee has weak case
– Remedy – Limited as justice requires
o Expectation – put the promisee in the position it would be in if promise fulfilled
o Reliance – reimburse the actual loss or expense incurred in relying
+ Estoppel and Offers
– An offer which the offeror should reasonably expect to induce substantial action/forbearance from the offeree before acceptance and which does induce such action/forbearance is binding as an option K (implied promise not to revoke) to the extent necessary to avoid injustice
+ Promissory Estoppel When No Promise or Offer
– If there is no offer or even a promise, the court may allow reliance damages if
o One’s actions/conduct reasonably induce another’s action/forbearance is binding if injustice can be avoided only by enforcement.
+ Promissory Estoppel & Land – promissory estoppel can be used for land transactions even if not in writing
VI. PERFORMANCE & BREACH
A. Duty of Good Faith and Warranties
+ Duty of Good Faith – implied duty the requires merchants and non-merchants to act in “honesty-in-fact” and (merchants) to observe reasonable commercial standards for fair dealing in trade.
– Prohibits both parties from doing anything that will have the effect of destroying or injuring the right of the other party receive the fruits of the K
– Typically arises where parties have unequal bargaining power, lack of sophistication, one party has exclusivity
– Defendant does not have to breach an expressed term, only implied
+ UCC Implied Warranties
– Implied Warranty of Merchantability – Merchant’s K for sale of goods always includes an implied warranty that the goods are merchantable
o A good is merchantable if it is fit for ordinary purpose (doesn’t have to be specific purpose)
o Disclaimer – any disclaimer must expressly mention merchantability and be conspicuous if in writing
§ If the buyer inspects the goods à no IWoM with regard to defects than an examination should have revealed
o Remedy – difference between value as promised less the actual value
– Implied Warranty of Fitness for a Particular Purpose – applies where 1) seller has reason to know of buyer’s particular purpose for purchasing goods and 2) buyer relies on seller’s skill to furnish the goods for such purpose
o Disclaimer – any exclusion/modification to the warranty must be in writing and be conspicuous
o Remedy – difference between the value as promised less actual value
