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Contracts II
University of Dayton School of Law
Kreutzer, Jacob R.

 
Kreutzer_Spring_2014_ContractsII
 
 
I. Mutual Assent:  Identifying the terms of the agreement
Form contracts or “Contracts of adhesion”
Concept
Standardized contract (take it or leave it) – consumer has no realistic hope of negotiating or bargaining terms and cannot obtain product without acquiescing to terms.
Form Contracts- Offeror generates terms of K, acceptance of K occurs upon purchase by Offeree.  Fair dealing requires notice of the terms, generally “buried terms” or other “gamesmanship” is disfavored.  Marketplace control balances out one-sided terms (one-sided terms vs. availability of competition)
1)Carnival Cruise Lines v Shutes:
Factsà Family injured on ship, sought to file suit in hometown jurisdiction. Carnival claims a violation of the forum selection clause.
Heldà Forum selection clause was not bargained for, thus not enforceable.
ROLàA nonnegotiated forum-selection clause contained in a standard K is enforceable where the court determines it meets the requirements of fairness.
2)Caspi v Microsoft Network:
FactsàForum selection clause. P claimed MSN had engaged in unilateral negative option billing.
HeldàIn favor of MSN. No fraud present.
ROLà A contracting party may be bound by the terms of a form contract even if he or she has never read it.
 
Which terms did we agree to?
Battle of the Forms / 2-207
The exchanging of written documents (or performance on K recognizes K’s existence) cues K formation between parties. However, when the offeree adds or changes the offeror’s terms, the question should be:
Are the alterations to the original offer a:
Counter-offer à acceptance is conditioned on the original offeror’s assent à NO agreement & K unenforceable
Proposal by the offeree to add or change terms of K:
Proposal accepted and such terms govern party’s K, if offeror is silent for reasonable amount of time
Proposal automatically rejected by original K if:
Original Offer states no acceptance of proposals
Proposal creates a material alteration to offer:
If proposal concerns tangible items (fell, touch, smell), then Material Alteration is created by proposal
Material alteration is a MAYBE if proposal concerns intangible thing
Proposal has already been rejected.
3)Step-saver Data Systems v Wyse Technology:
Factsà Box top licensing disclaiming warranties of product.
Heldà Step(P) never agreed to terms on Box Top as a final expression of K. No did (D) ever mention in negotiations. Box top not enforceable.
ROLà A writing will be a final expression of, or a binding modification to, an earlier agreement only if the parties so intend.
4)Union Carbide Corp. v Oscar Mayer Food Corp.:
Factsà Union(P) contended provision on back of “price book” required D to indemnify back taxes. D claimed the provision unenforceable material alteration under UCC2207(1).
Held/ROLà Terms added were material alterations thus not enforceable. Under UCC, an additional term to a K between “merchants” does not become part of the K where terms constitute a material alteration w/out which consent cannot be inferred.
Student’s Notes
UCC 2-207: Additional terms are enforceable if:
            a- Acceptance is given without condition of assent.
            b- If between merchants, the terms are immaterial alterations that have not been expressly objected to.
            c-Conduct by plaintiff and defendant which shows recognition of K is sufficient to establish that K exists whether or not it is expressly stated in K.
Last Shot Rule/Common Law approach to new terms:
            a-Where one or both parties are not merchants
            b-Performance = acceptance of new terms.
Terms that follow later
Concept
Determining Which Terms Were Agreed To
1. Material alterations
a- When a material term follows acceptance (including a warranty) it is considered a new term, which requires a new acceptance.
b- Box-Top licenses are typically enforceable because the offeree is able to get a refund/return in if they refuse the terms.
c-Must be reasonable amount of time for offeree to return/refuse terms. (Offeree must be given notice that terms will follow, and a reasonable window in which to do so; Klocek v. Gateway-5 days wasn't enough)
2. UCC 2-209 Modification of Sales Contracts
– For sale of goods, contract modification does not require consideration to be binding.
– Certain situations will require evidence for the need to modify agreement, however, a shift in the market which would lead to an automatic loss if performance were enforced, will typically satisfy need to modify the contract.
5)ProCD, Inc. v. Zeidenberg:
FactsàZeid(D), customer, bought then resold data compiled on CDRoM when clearly written on box states (Box received after purchase) they were not allowed to do so. P sued for breach of K.
Heldà D failed to reject product after receipt of product and inspection. UCC2602 states this is acceptance of a good and the terms that follow.
ROLà A buyer accepts goods when, after an opportunity to inspect, he fails to make rejection.
6)Hill v. Gateway 2000, Inc:
Factsà Hill(P) sues D after purchasing a mail order computer he was not satisfied w/. In package sent to P included paperwork w/ arbitration clause. Clause stated that products not returned w/in 30 days subject to arbitration.
Held/ROLà P conceded noticing terms and not returning. Arbitration upheld.
7)Klocek v. Gateway, Inc:
Factsà Arbitration clause included in packaging of Gateway(D) computer w/in “standard terms and conditions agreement. Only a 5 day return policy written in. No returnàarbitration.
HeldàBattle of formsà no mention of 5 day w/in original negotiations. To assume assent would be unreasonable.
ROLà A purchaser does not necessarily accept the standard terms and conditions agreement, which may include an arbitration clause, located in the package containing mail order product.
 
II. Enforceability

 
Past Consideration
Concept
Past and Moral Consideration
1. Traditionally Unenforceable: When the promisor's motivation is either:
                        a- A past benefit to the promisor (i.e. medical care for the adult son)
b- A past detriment to the promisee (i.e. predicting when the guy dies, and if she's right he pays her mortgage)
2. Exceptions for Past and Moral Consideration
a- Discharging a Moral Debt (Webb v. McGowin, saving a guy's life             and becoming injured in the process.)
i. Promise needs to be based on a material benefit (typically economic, “I'll pay you for saving me”)
ii. Restatement (Second): 'promise is binding to the extent necessary to     prevent injustice, but not if promise's value is disproportionate to benefit received by promisor.'
 
12)Moore v Elmer:
Factsà Moore (P) sued D to recover money promised in letter. P a clairvoyant performed numerous sittings for D in return, D signed a letter promising to pay (P) mortgage if D should die before 1900. P sued for monies. D claims lack of consideration.
Heldà For consideration to exist, the promise or return promise must be bargained for. Past performance does not satisfy the requirement for consideration unless the parties had previously agreed that the performance was rendered w/ the understanding that compensation would be made. Consideration cannot be satisfied based off of a conditional promise in the future.
ROLàPast consideration (the exchange of a past action for a present K) is NOT enforceable.
 
 
 
Moral Consideration
Concept
n  Moral consideration is an exception to past consideration.
n  A past action creates a moral duty to the promisor, where the promisee (the one who acted) forgives the promisor of his moral debt in the acceptance of the promise.
n  Consideration is made not on the past action, but on the present exchange of:
o    The promisor receives the satisfaction of clearing the debt and the benefit of the past action.
o    The promisee gives up the debt in exchange for the thing promised.
n  A promise may be extreme, but the courts do not use a reasonable standard to the amount or value of the thing promised.
n  If the promise is started, and it induces (either intended to induce or reasonably foreseeable to induce) reliance, then promissory estoppel is possible.