Contracts I: Fall 2014 – Prof. Verstein
BODY OF LAW – Common Law vs. UCC
UCC: applies to transactions in goods (2-102)
Mixed Transactions
Predominant Factor Test – Pass v. Shelby Aviation
Tests whether the predominant factor is the rendition of services with goods incidentally involved, or sale of goods with services incidentally involved.
RULE: 4 factors from Bonebrake:
Language of parties' contract
Nature of the business of the supplier of goods and services
Reason the parties entered the contract
Respective amounts charged for goods and services
Gravaman Test
RULE: Court breaks into the contract into separate parts and applies Article 2 to those parts that involve the sale of goods, but not to those parts that do not
Software as goods
Conwell v. Gray Loon – UCC 2 applies to transactions of goods – goods = all things movable at time of identification to the contract. Used predominant thrust to determine if UCC 2 applies.
Calling for the designer to fashion, program, and host its operation is neither tangible nor moveable in the conventional sense – UCC does not apply based on predominant thrust doctrine
MUTUAL ASSENT
R(2) § 17
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is:
a manifestation of mutual assent to the exchange and
a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82- 94.
Comment c. “Meeting of the minds.” The element of agreement is sometimes referred to as a “meeting of the minds.” The parties to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a party to a bargain does not impair the obligation he purports to undertake. The phrase used here, therefore, is “manifestation of mutual assent,”
Objective Standard
Morales v. Sun Constructors
P employed by D – signed document that had an arbitration provision, claims English is not his first language and that he should not be subject to arbitration provision
RULE: Acceptance measured by outward expressions of assent – “manifestation of mutual assent”
Mutual assent is determined objectively – signature is an objective manifestation of assent
SR International v. World Trade Center
RULE: Subjective evidence can be used to determine objective manifestation of assent
Example: what do checkmarks mean on a document
Duty to Read
James v. McDonald's
P played McD's game and claims she won – rules of game contain an arbitration provision
RULE: Contract is binding if assent was manifested and opportunity to read was present
A contract need not be read to be effective
Accepted McD's offer through playing (scratching cards)
Hoffman v. Supplements Togo Mgmt
P sued D, and D had a FSC, but it was not prominent on D's website as it was below icon to purchase and site would skip ahead
RULE: Reasonable notice and opportunity to read terms is required to be binding
Bad Jokes
Lucy v. Zehmer
P wanted to buy farm from D – went drinking, D wrote out papers that said “we hereby agree to sell P the farm complete for $50K, title satisfactory to buyer” – claimed it was a joke the next day
RULE: Look to an outward expression of a person as manifesting intention rather than secret, unexpressed intention
Court concerned with P's reasonable understanding of manifestation, not subjective understanding of D
Leonard v. PepsiCo
P seeks specific performance of an offer of a Harrier jet, featured in a TV ad for a Pepsi Stuff promotion and required 7m points, which could be purchased
RULE: Objective person / reasonable person test – look to see what an objective, reasonable person would understand the commercial to convey.
Court applies this rule to show why a reasonable person would not understand the commercial to convey a serious offer:
Commercial suggests that the advertised product will transform a fairly ordinary experience
Reasonable viewer would understand that this is puffery and not statements of fact
Youth in commercial could not pilot a plane – “sure beats the bus” is insouciant (casual) attitude
Notion of traveling to school in Harrier jet is exaggerated adolescent fantasy and is extremely unrealistic
Primary mission of Harrier jet is to attack and destroy surface targets, not a way to get to school in the morning
Cost of Harrier is $23m, not 7m Pepsi Points – acquiring those through Pepsis would require one to drink 190 Pepsis a day for the next hundred years – unlikely probability – disproportionate value hints at unreasonableness
OFFER
R(2) § 24
Offer – 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.
Manifestation = objective standard
Giving other party the full power of acceptance – holding back = no offer
*Price quote = generally not an offer
UCC 2-204
(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
Nature/Qualities
Fletcher-Harlee v. Pote Concrete
Interpret documents in accord with their plain language – **Express terms are given greater weight than usage of trade
Solicitation is generally not an offer
RULE: To be an offer, the language must give the offeree the power to conclude the deal
Reasoning from case: uses reasonableness (makes no sense to make an offer for 20 people to concrete), industry custom, NJ case law – **on EXAM connect these dots**
Babcock & Wilcox v. Hitachi
RULE (Default): Price quote is typically considered an invitation for an offer, rather than an offer to form a binding contract
Exception from Mead – Price quote can amount to an offer if it is sufficiently detailed – includes items such as “description, price, quantity, terms of payment” – reply by PO can be acceptance
Exception not found here
PO looks like an offer, price quote was followed by negotiations and other meetings (= no offer), negotiations ceased after PO was sent (= memorialization of contract = offer)
Advertisements
R(2) § 26
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Leonard v. PepsiCo
RULE: Ads generally do not count as offers unless they meet the exception
Mesaros – no contract was formed until after callers ordered and payment was processed
RULE (Default): that ads do not constitute an offer
Exception: ad = offer if:
Some performance was promised in return for performance requested
Le
new offer
The buyer's signature on the counteroffer constituted a counter-counteroffer, which was not accepted by the seller. Therefore, no contract exists.
Trinity Homes v. Fang
P alleges that he placed an Agreement to Purchase & Sale in his fax machine, dialed the number for D, pushed the button to start, and went on an errand – was never received
R(2) § 64 – acceptance given by telephone or other medium that is instantaneous is governed by principles when parties are in each other's presence
HELD: Mailbox rule applies to faxes – USE 2 PRONG TEST
2 prong test:
Must be substantially instantaneous: within a few seconds (at most within a minute or two)
Communication must be 2-way: must be able to determine readily whether the other party is aware of the first party's communications, through immediate verbal response or, when communication is face-to-face, nonverbal cues
If this does not exist, use mailbox rule
Inadvertent Acceptance
RULE (Default): Must know of the offer (it must be sufficiently communicated) to accept it and the offer must be sufficiently definite
Anderson v. Douglas & Lomason
P fired without following protocol in employee handbook, however P did not read the handbook provisions regarding discipline protocols
EXCEPTION to general rule: Employee handbooks – exception to general rule:
Not an individually negotiated agreement
Exception to general rule – if it is a standard agreement that everyone is subject to, all employees, whether they read it or not, are treated alike
Unnecessary that the particular employee seeking to enforce the promise made have knowledge of the promise – all employees, those who read and those who didn't, are treated alike
Employee's lack of knowledge of progressive discipline did not preclude his acceptance of employee's offer
Consented to employment handbook
Therefore – there was sufficient communication
Silence as Acceptance
RULE (Default): Offeree does not have to take affirmative steps to reject an offer – he can reject by not responding
Offeror cannot change this by writing the offer in a way that compels the offeree to respond to avoid being bound
R(2) § 69 – an offeror does not ordinarily have the power to cause the silence of the offeree to operate as acceptance
Exceptions:
Where parties have a relationship under which it is reasonable for the offeree to notify the offeror if he does not intend to accept
Takes advantage of services offered with reasonable opportunity to reject them and reason to know that they were offered with expectation of compensation
Acts toward the property in a manner inconsistent with offeror's ownership of it
This rule is for the protection of the offeree – does not apply if offeror has indicated that the offer may be accepted by inaction and the offeree does intend to accept the offer by remaining silent
