Contracts Outline

CONTRACTS FRIER FALL 2016
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IS THERE A CONTRACT?
 
 
OFFER – Offeror is the master of Offer §30(1)
 
R2K §24 – The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
UCC §2-204 – Contract made in any manner sufficient to show agreement
Even if terms not certain and definite, it will not fail if parties have intended to make contract and there is reasonable certain basis for giving appropriate remedy – §2-204(3)
Intent to be bound
Certain & Definite Terms
COMMITMENT TO OFFEREE
INTENT TO MEMORIALIZE AGREEMENT IN WRITING
Intent to be bound manifested
If actions or words make it clear they intend to be bound = enforceable
Letter of Intent
Anticipates further negotiations
Test is whether parties intended to be bound by letter of intent itself §26
Majority will look to written document
Oral Agreement
Situation Management Systems v. Malouf (Oral Agreement)
: SMS sells training materials and conducts seminars; LMA does the same and purchases materials from SMS; LMA  wanted to buy Kasten Co., but would only do it if they could secure 5-year K from SMS; In meetings, chairman of SMS assured LMA that existing contract would be changed to 5 years; President confirmed; no written K; LMA began negotiations w/ Kasten, and subsequently purchased; SMS sent over contract w/ huge changes (12% sales increase/yr or contract terminated); finally SMS pulled out of negotiations
Result: LMA’s sales went down – lost profits at $3.8 million
: Yes, there was enough information here supporting a jury verdict that the parties had come to an oral agreement (even though nothing signed or finalized)
Much of material terms had been agreed upon
The objective theory of contract views the parties as have come to an agreement on all material terms (this is probably influenced in part on D’s acquisition of the company, as perhaps constituting beginning of performance of the contract)
Evidence: Their past 17-yr relationship, the consistency of the agreements (basically never changed), personal relationship, that the parties had done business before in past w/out contract, and that SMS was aware LMA purchasing Kasten on reliance of deal
Even though parties intended a written contract, this only creates a strong inference that the parties didn’t intend to be bound
But, because all material terms agreed to, can be inferred that the writing of the K was assumed to be a mere formality
R2K §27: “Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations (only)”
 
VALIDITY OF PARTICULAR KINDS OF OFFERS
Offer made in Jest – Leonard v. Pepsico (Commercial)
Preliminary Negotiations
Solicitation of Bids = Not an offer
Agreement to Agree = Not an offer
Price Quotations
If there is Quantity: Offer
Use of term “quote” or “offer”: More likely an offer
Quotation by is not an offer unless specific
– Invitation to bargain NOT offers unless specific words of commitment (quantity included. . .)
Offers proposing series of contracts
Offer & Reliance:
Offers by Sub-Contractors (§87(2))
Double AA Builders v Grand State Const. (Reliance forms Contract – Construction BIDS ONLY)
Background: In anticipation of submitting a bid for constriction of a Home Depot, Double AA (General Contractor – GC) solicited bids from subcontractors. Grand State (Subcontractor – SC) submitted a bid and its proposal stated the price was good for 30 days. GC’s bid was accepted and thus, GC accepted SC’s bid 24 days later. SC indicated that it could not follow through on the project. GC used a substitute at a cost of $16,5000 and at trial, was awarded that money in damages.
Leading case: Drennan v. Star Paving Co. – When a GC uses a SC’s offer in competing his own bid, he has bound himself in reliance on SC’s terms. It is reasonable to suppose SC submitted the bid to obtain the subcontract and thus, a lower price is more likely to be accepted. SC had a stake in GC’s reliance
Consequences: Bid shopping and Bid-Chopping
Bid-shopping – using the lowest SC’s bid as a tool in negotiating lower bids from other subs
Bid-chopping – pressuring SCs to lower their bids
Courts have routinely enforced a limit on Drennan by holding that the contract was not binding if the general bid shops or bid chops – but that’s not codified, it’s just judicial
R2K §87(2) – An offer which offeror should reasonably expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to extent necessary to avoid justice
 
WHEN DOES OFFER TERMINATE? §36
(1) If offeree rejects or makes counteroffer
(2) At time specified in contract (or if not, reasonable time after offer made based on surrounding circumstances – R2K §41(2)
(3) If offeror revokes after:
Express Revocation §42
Implied Revocation (Offeree finds out from reliable source) §43
Revocation of General Offer
Can be revoked by similar general notice
Offer Explicitly Revocable
Even if offeree starts actual performance, offer will be revocable if offer itself makes clear that revocation is reserved to offeror (R2K §45)
(4) If either offeror or offeree dies or incapacitated
(5) If terms of offer include condition for acceptance and conditions fail to occur
Davis v. Satrom (Counter-Offer)
Davis sends letter of terms and conditions to Satrom for sale of real estate. Satrom changes some terms and returns it to Davis. After few exchanges, Satrom sends additional handwritten conditions specifying agreement subject to approval of sellers' attorney. David signs.
leave an offer on the table and proceed on the assumption that it will not be accepted
Ardente v. Horan (Condition as Counter-Offer)
Ardente signed a purchase agreement for defendant’s property following that the bid was acceptable. Ardente included a letter outlining certain items Ardente wanted to have included in the purchase. The seller/defendant refused to agree to sell the items and did not sign the agreement.
R2K §59 – A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counteroffer
BUT, §39 – Definite and seasonable expression of acceptance is operative despite the statement of additional or diffe