Contracts – Carrasco – Fall 2012
Does the UCC Apply?
1) The UCC applies to all disputes that
a) Involve the sale of goods.
2) In any case where the UCC applies,
a) Start with the applicable code provision
b) Then go to the official comments of the provision
c) If the provision itself doesn’t fully solve the issue, use gap fillers from the UCC
d) If there are still unresolved aspects of the dispute, use 1-103 to look to common law.
Sale of Goods
1) UCC 2-105(1). Goods
Was a Contract Formed?
1) The different ways to form a contract are by
a) Offer and acceptance
b) Promissory estoppel
c) Restitution: Implied by law
Offer and Acceptance
a) An offer occurs when a reasonable person in the offeree’s position would understand that she was being empowered to create a contract by accepting
i) Usually, this means that offers must contain language of commitment, quantity or a range of quantities, and specifications or a range of specifications
b) Generally, quotes are not offers; they are the opening of negotiations
i) Exception: quotes can be offers if they include language of commitment, quantity, and specifications
c) Advertisements are usually not considered offers because no reasonable person in the position of the consumer would think that the advertising company would open themselves to unlimited liability
i) Exception: An ad may create an offer if it is clear, definite, explicit, and leaves nothing open for negotiation, and a reasonable person in the consumer’s position would understand that she was being giving the power to create a contract by assenting to the terms in the ad
d) The offeror is the “master of the offer”
i) Sets the terms that the offeree has the power to turn into a contract
ii) Manner: Offeror sets whether acceptance needs to be by promise or performance
iii) Notice: Offeror sets whether offeree needs to notify offeror of acceptance
iv) Means: Offeror sets what form acceptance needs to take
2) Option Contracts
a) Power of acceptance of an option contract cannot be terminated by revocation or death or incapacity of the offeror
b) May be created in three different ways
i) Consideration from offeree
(1) May take the form of payment or other compensation
(2) May take the form of part performance or tender
(a) Restatement section 45. Option Contract
(i) If an offeror invites acceptance via performance only, an option contract is created when the offeree tenders or begins the invited performance.
(ii) The offeror is not obligated to perform its end of the bargain until the offeree’s performance is complete.
(b) What is begun or tendered must be part of the actual performance invited. Preparations do not count. (Preparations may, however, constitute reliance)
(c) The purpose of this rule is to protect the offeree in justifiable reliance on the offeror’s promise
(d) Example: A tells B, “if you will move to my house and take care of me for the rest of my life, you may have the use and income of my farm and the property is yours once I pass.” A moves in with B and begins performance. A then tries to revoke.
(i) Since A’s offer invited acceptance only by performance, B’s beginning performance created an option contract that couldn’t be revoked by A.
(ii) If B had sold her home and begun to pack her things, then A died before B moved in, no option contract would be formed because those are mere preparations.
(iii) If A had instead said, “If you will agree to move…,” she would have been inviting acceptance by promise, so no option contract would be created. However, at the moment B accepted, a contract would be formed, and as long as B performed, A would have to perform.
ii) Reliance by offeree
(1) Restatement 87(2)
(a) An option contract is created by reliance principles when
(i) Offeror makes offer to offeree,
(ii) Offeror should reasonable expect the offer to induce action or forbearance on the part of the offeree,
(iii) The offer does induce such action or forbearance,
(iv) Injustice can be avoided only by enforcement of the option contract.
(2) Example: A is a general contractor submitting a bid for a construction job. B is a subcontractor that submits a bid to A for a portion of the work. B is the lowest bidder for that aspect of the job, so A includes B’s bid in A’s overall bid. An option contract is formed because A relied on B’s bid when it made its bid for the job, and it was reasonable to assume that A would rely on B’s bid, and injustice can only be avoided by enforcement of the contract.
iii) Firm offer under UCC 2-205
(1) Offer by a merchant
(2) Terms of the offer state that it will be held open
(a) for a specified amount of time
(b) or if no time is stated for a reasonable time
(c) but in no event for more than three months
(3) If the assurance is on a form supplied by the offeree, it must be separately signed by the offeror.
3) Termination of Power of Acceptance
a) If an offeree’s power of acceptance is terminated before acceptance occurs, the offer disappears
b) Power of acceptance can be terminated by death or incapacity of the offeror, lapse, revocation, or rejection
i) If a period is specified in the offer, the offer lapses at the end of the period
ii) If no period is specifi
ays, “If you babysit for him, I’ll pay you $50.” B does babysit, but doesn’t tell A. After a reasonable time has passed, A can no longer be expected to hold out the $50.
f) Means: An acceptance has to take the form specified by the offeror (such as by letter, phone call, etc.)
g) Nonconforming goods
i) UCC 2-206. If the seller seasonably notifies the buyer that a shipment of nonconforming goods is merely an accommodation, the shipment does not constitute acceptance.
h) Battle of the Forms
i) Common law “Last shot” rule
(1) If the offeree’s form didn’t directly mirror the offeror’s form, technically it was a rejection and counteroffer by the mirror image rule
(2) If the parties thought they had a contract anyway and the offeror rendered performance, the courts will typically conclude that the offeror’s performance constituted acceptance of the offeree’s counteroffer
(3) The terms of the contract are those contained in the counteroffer, the “last shot”
ii) UCC 2-207
(1) An expression of acceptance or a written confirmation of acceptance containing additional or different terms constitutes an acceptance if
(a) It is sent within a reasonable time,
(b) Acceptance is not expressly made conditional on offeror’s assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract.
(a) The proposed additional terms become part of the contract unless
(i) The offer expressly limits acceptance to the terms of the offer,
(ii) The proposed additional terms materially alter the offer,
(iii) Notification of objection to the proposed additional terms has already been given or is given within a reasonable amount of time after receipt.
(3) (Knock out rule) Even if a contract isn’t formed by the writings of the parties, conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale.
(a) The terms of the contract will consist of the terms on which the writings of the parties agree
(b) If the terms on which the parties agree don’t render a complete contract, the rest will be filled in by UCC gap fillers