Normative Underpinnings
v Moral Obligation vs. Economic Efficiency
§ P.S. Atiyah: 2 situations where K demands enforcement – moral
§ Benefit-based liability – money has been exchanged for a promise (e.g. insurance policy)
§ Reliance-based liability – someone has acted in reliance on a promise, to his own detriment
§ Charles Fried: the sanctity of the promise is important
§ Disappointed expectations, even where there’s no monetary damages, are important
§ Promise-based liability is based on liberal values of free choice, but some people are better equipped to exercise free will
§ Reliance-based liability reduces free will because a person has to limit their free
v Protecting the Expectation Interest
§ The primary goal of contract law is to protect the expectations generated by the formation of the promise
v Objective theory of contract – party’s intent is deemed to be what a reasonable person would think the other party would think the first party’s manifestation of intent is à see Lucy v. Zehmer à if I sound serious but I’m really joking, the other party could only think I was serious, so what I said in the serious way is what goes
v Sources of Contract Law
Ø Common Law
· Based on common law of England
· Also used to refer to the combined decisions of judges in American legal history
· If UCC is silent on an issue, common law controls, per UCC §1-103
Ø The UCC, Articles 1 and 2
· Established to deal with the problems of federalism, law in all but 1 state
· Uses broad and vague language like “unconscionable”
· UCC Article 2 – governs contracts for the sale of goods – supposedly mandatory when a K involves sale of goods
¨ §2-105: Goods: identify based on the concepts of moveability and severability and includes crops and unborn young animals
¨ If transaction involves both sale of goods and services, you are governed by Article 2 if the services are incidental to the good
Ø Restatement (Second) of Contracts – Secondary authority only – never authoritatively governs
· Chapter 1, §1: Contract defined – A promise or set of promises where law recognizes as a duty or provides a remedy for breach
Ø Default rules v. Mandatory rules
§ In Peevyhouse, judges rely on statute that says, “In spite of the agreement of the parties, these sections limit the damages recoverable”
· Judges in K cases tend to rely on common law rather than statutory authority, but for some reason here statutes appear as the only authority supporting their decision
FORMATION
Ø Offer
· Offer is manifestation of willingness to enter into a bargain, which justifies another person believing that his consent to the bargain makes the bargain complete à an offer is something that creates the power of acceptance
· unilateral k vs. bilateral k – offer may propose either type
· bilateral k – both sides make promises (Ruth says to Anne: I promise to pay you $50 dollars on January 1st if you promise now that you make me a rocking chair on December 25th)
· unilateral K – involves exchange of offeror’s promise for offerree’s act – (Ruth says to Anne, if you make me a rocking chair, I will pay you $50.00 upon completion)
v Type of Offer
v Example
v Is it enforceable?
v jest – offeree knows/ should know it’s a joke
v I have oceanfront property in KS to sell you
v No. Objective theory of K formation.
v Preliminary negotiations – soliciting bids is not the same as an offer, and cannot be accepted
v I would like to sell my original Spiderman comic book collection for at least $500
v No. Could not accept simply by giving a check for $500 à this is invitation to begin negotiating
v Words of commitment – committing to take certain action in response to consumer’s action.
v Send in three UPC codes + shipping & handling for free Jabberjaw Action Figure.
v Yes. This is a unilateral K (promise in exchange for an action)
v Advertisements – these are not offers to sell, because they do not contain a commitment to sell
v circular saying Snorks Action Figures, $19.99 each
v No. Contains no info re quantity of snorks, duration of price, etc. (terms not specified)
v Exception where ads are offers
v 20 Snork Action Figures for sale, $19.99 each, first come, first served
v Yes. Terms are specified
v Auction: an invitation for people to submit bids.
v Jetsons action figures – bids starting at fifty cents
v No. This is an offer for people to submit bids, like preliminary negotiations
v Exception: If auction is said to be “without reserve”, auctioneer may withdraw goods even after s
formed even though acceptance is different from offer
Ø UCC wants to find K wherever possible
Ø §2-207(1) – any “expression of acceptance” or “written confirmation” constitutes acceptance even where terms are additional to or different from terms of offer
§ “Expression of acceptance” does not form K if “expressly made conditional on assent to … additional or different terms” (§2-207(1))
· Courts are reluctant to enforce this provision of UCC unless party’s form makes it clear they are unwilling to proceed w/ transaction unless 1st party agrees to 2nd party’s changes
Ø Additional terms in acceptance – depends on whether parties are merchants
§ If at least one party is not a merchang, additional term does not prevent offeree’s response from creating K, but additional term becomes part of K only of offerror explicitly assents
§ If both parties are merchants, additional term automatically becomes park of K
· 2 exceptions
¨ Not part of K where additional term “materially alters” K (“disclaimer of warranty always materially alters K)
¨ Objection – if offeror objects to having additional term become part of K
Ø Conflicting terms in dox – if issue is one way in offer and phrased a different way in acceptance, courts apply the KNOCK OUT RULE, meaning that neither version of the term is part of the K
§ UCC GAP-FILLING provision is used if possible, otherwise, common law controls
Ø Response diverges too much to be acceptance – if terms are completely different, no K is formed
§ BUT if divergence occurs but parties’ conduct recognizes existence of K, a K is formed even though the writings of the parties do not indicate there is a K UCC §2-207(3)
§ Where K is formed by conduct, terms “consist of those terms in which the writings of the parties agree, together w/ any supplementary terms incorporated under the provisions of this act” – §2-207(3)
