2011 Mbe Contracts

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The UCC governs

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Sales are:
transactions in which the seller transfers title to the buyer for value

(1) Sales are not:
Lease, bailment

b. Goods are broadly defined as:
Anything that is moveable

(1) Examples of goods include:
Everything on the shelves or on the sales floor, could be a jet to a ball bearing. Could be unborn young of farm animals. Growing crops and uncut timber.

(2)Goods do not include:
Intagibles, money, investments, assignment of a legal claim. Real property, services (constructions, dry cleaning)

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c. In hybrid cases, which involve both the sale of goods and a services contract, the question arises as to which source of contract law should apply.

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1) Majority rule:
Bone Break Test: determine which law applies by the predominant purpose of the transaction.
(a) To determine the predominant purpose of a contract, the following factors are used:
Factor #1: Language of the K
Factor #2: The nature of suppliers business

Factor #3: the relative values of the good vs the service
(2) Minority rule:
Involves partitioning by the K, applying the UCC to the goods section and applying common law to the services.

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There are three general categories of contractual obligations:

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(1) Express contractual obligations are found where:
Where the parties make oral or written representations of their promises.

(2) Implied-in-fact contractual obligations are:
Similar to express; arise from fully consensual contractual agreements that fail to express the agreement of the parties in its entirety

(3)An implied-in-law contractual obligation arises where:
Nothing to do with the consent of the parties. Contractual obligation arises where there is an equitable imposition of a would be contract.

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Quantum meruit

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Is a means of enforcing both implied in fact and implied in law contracts. This is the cause of action for the above contracts.

Quantum meruit has been used for implied in law and implied in fact

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The Offer

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a.The First Requirement:Outward Manifestation
(1) The manifestation can be: Oral, written, email, conduct.

(2) An offer is not about: what is going on inside your hear. Mere subjective intentions do not count as an offer.

The Second Requirement: Willingness to commit without further manifestation

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Communications withholding the privilege of further assent

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- These communications fall short of an actual offer.

(a)The key inquiry is : is the would be offeror finished negotiating or are they still going?
-Holding Back Further Assent: Lang “I would consider”, “I might” “Maybe”
- Most parties don’t conclude unless they have worked out the fundamentals of a deal.

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Commercial advertisements and the American Advertising Rule

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advertisements, catalogues, price lists that are sent to multiple parties are treated as invitations to offer

(a)The reason for the rule is:
If my catalogue is considered an offer, then everyone could accept and I would have a contract that exceeds the number of widgets I have.
EXCEPTION:
When there is language in the advertisement “First come first server” Language that identifies who will get the goods. When the advertisement has that sort of limiting language it will be considered an offer.

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Reward offers and Multiple Offeree's

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Generally, reward offers are treated as:
Offers because they are considered communications that promise a bounty in exchange for performance of a task.

(b) There are two types of reward offers
1) Self-limiting rewards:
Are reward offers that indicate the task to be rewarded can possibly be performed only once.
2) Open-field rewards:
Are rewards that indicate that the task to be preformed can be performed by multiple parties.
a) EXCEPTION:
“While supplies last” language limits the # of people who can accept.

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Auctions and Multiple Offeree's

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Third Situation: Auctions
(a) The general rule:
The auctioneer is inviting offers not making offers.

(b) An exception—if the auction is held “without reserve”, then:
The auctioneer is offering to sell to the highest bidder.

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Termination of Power of Acceptance by Lapse of Time

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(a) the maker is the master of the offer. The power of acceptance terminates on the date specified on the deadline (no day late). If not time for acceptance offer will lapse in a reasonable time.

(b) The reasonable time determination is based on the following factors:
1) Factor #1: Subject Matter of Transaction
a) influenced by the nature of the market

2) Factor #2: degree of urgency communicated by the means of transmission
a) look at the means of communication.

(c)face-to-face conversation rule:
At the end of a conversation, an offer made during the conversation, lapses after the conversation ends.

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Termination of Power of Acceptance by Death or Incapacity of Either Party

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(a) Death: Supervening death of either terminates
(b) Incapacity: terminates the offer

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Termination of the Power of Acceptance by Offeror’s Revocation

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(a) The American rule of the free revocability of offers:
Offeror may revoke an offer at any time and for any reason so long as:

1) Requirement # 1: Revocation must be before the acceptance

2) Requirement # 2: Revocation must be communicated to the offeree.
a) Direct revocation: directly stating to the offeree that the deal is off.

b) Indirect revocation: offeree will learn of the offerors intention to abandon the deal by other means.

i) Requirement # 1: offeror has to take some action that is inconsistent with the offer to sell to buyer.

ii)Requirement # 2: you learn about it from a reliable source.

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Revocation of an Offer Made to Multiple Offerees

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1) Functional Equivalents Rule:
Where an offer has been made in a newspaper or other general notification to the public, the offer will stand until it is revoked in the same or functionally equivalent manner

a) Further consideration(s) to take into account:
if there is a means that is reasonably available or is more effect then you need to use that method.

2) Legal effect of functionally equivalent revocation:
An offeree who never heard the revocation still loses the power of acceptance if the offeror followed the rule

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Preventing Revocation by Means of a Common Law Option Contract

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i) First element: an offer
ii) Second element: a promise to keep the offer open
iii) Third element: Some valid enforcement mechanism for securing enforcement of the K.

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Special rule for preventing the revocation of construction contracts

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•The majority rule is where a general contractor uses a particular subcontractor’s bid to formulate his own:
a GC must rely on the SubCon’s to make his offer. American Courts protect the GC from the revocation by a Sub by promissory estoppel

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Preventing Revocation by Means of a “Firm” Offer Under the UCC

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i) Under the UCC § 2-205, a merchant can make a firm offer (an irrevocable offer) to either buy or sell goods without consideration so long as these conditions are met:
• Condition #1: the offer is made by the merchant
• Condition #2: the offer is made in writing and signed by the merchant
• Condition #3: the offer expressly states by its terms that it will be held open.
ii) A firm offer that meets all of these requirements becomes irrevocable for:
the time stated or if not time stated for a reasonable time

iii) Under the UCC, the shelf life of a firm offer can be

• Three-month rule: outside limit.

• Offers for longer than three months: 1) signed written renewal 2) pay the merchant and engage the contract.

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Termination by Offeree’s Rejection

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1)The first way: outright rejection!
The second way:
a) via Counter-Offer on the same subject matter but on a different set of terms destroys your ability to accept the prior offer.
b)The Mere Inquiry Rule:
You are allowed to make an inquiry into what the offeror would accept that doesn’t terminate the power of acceptance.

The third way: Rejection by a Non-Conforming Acceptance

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Rejection by a Non-Conforming Acceptance

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The Mirror Image Rule: the acceptance must not vary the terms of the offer, if it does the it does not operate as an acceptance and terminates the power of acceptance.

b) However, where there is a combination of a bad-faith attempt to back out of a contract and a de minimis variation in the terms of the acceptance, courts have two “devices” to save a contract.
i) Device #1: where the added term is reasonably customary the court will allow
Device #2: a change or Mere Suggestion will not destroy the K.
c) The common law “last shot” rule:
after the parties have fully performed. Whoever sends the last communication, that last communication controls the terms of the deal.

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BILATERAL CONTRACTS

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K where I make a promise and seek from you a promise in exchange
Once the promises are made both are bound

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UNILATERAL CONTRACTS

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I make a promise to you and all I seek is your performance
Offeror is only bound once the offeree completes performance
The offeree is never bound, can start or stop performance.
Up to the offeree to perform because the offeree has never promised to perform

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Revocation of the Offer in a Unilateral Contract

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(1) Under common law:
The offeror of a unilateral K was free to revoke at any time before performance was complete

(2) Under the modern rule:
Once the offeree begins performance an option K has been created and offeror cannot revoke.

(a)Note: The modern rule is NOT the majority rule; courts are split
(b) With the modern rule, there are two things that are unchanged from the common law
1) The offeree of a unilateral contract is still:
Free to decide to complete performance.

2) Acceptance of the offer is still: (Highly Tested)
Effective only upon complete performance.

(3) A couple of nuances:
(a) Beginning of performance vs. mere preparations:
Mere preparations do not terminate the offeror ability to revoke

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The “Mail Box” Rule in the context of a unilateral contract

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- Mail Box doesn’t apply to unilateral contracts. Offeror is seeking performance not performance.

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Acceptance Under Common Law

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1. There are only two general requirements to constitute effective acceptance:
a. The first requirement: Acceptance must mirror the terms of the offer.

b. The second requirement: Acceptance must be communicated to the offeror.
(1) If the offer stipulates a particular means of communicating acceptance:
The maker is the master of the offer and if the maker stipulates a manner of acceptance then acceptance MUST be made in that way.

(2) If the offer is silent as to the means of communication:
Offeree is free to use any reasonable means of transmission.

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Under the Common Law, unless the circumstances indicate otherwise, a means of transmission of acceptance is reasonable if it is:

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1) means used by the offeror

2) means used ordinary in the trade

or
3) means that is equivalent in expeditiousness and reliability to what the offeror did.

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There are three Common Law exceptions to the requirement that acceptance be communicated

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1)Default rule: Generally silence is not acceptance.
2) The “acceptance by silence”
3) Silence is acceptance for a Unilateral Contract
4) Acceptance by Mail or Other Correspondence

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Acceptance by Silence

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Default rule: Generally silence is not acceptance.

2) The “acceptance by silence” exception is in play in the following situations:
a) Situation #1: where the offeree takes advantage of offered services.
b) Situation #2: Estoppel against the offeror. Where the offeror has signled to the offeree that silence will constitute silence and the offeree intends for silence to constitute acceptance.

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Acceptance by Silence in a Unilateral Contract

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1) By rendering the performance requested.

2) Bilateral contract distinguished:
if you are acceting an offer to make a bilateral K both parties are bound at the moment promises are exchanged. If starting performance is meant to accept the offer then the performance must be communicated by the offeree.

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Acceptance by Silence and the Common Law Mailbox Rule

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acceptance is effective upon dispatch.

a) The mailbox rule applies only to acceptances and not to any other communication.
b) Consequences of the rule:
i) The first consequence of the mailbox rule: when acceptance is dispatched before a revocation is received it is too late to revoke.

ii) The second consequence of the mailbox rule: it applies not just to the offeror but also to the offeree. Because the offeror is bound on dispatch so is the offeree.

iii) The third consequence of the mailbox rule: even if the acceptance is lost in the mail, the parties have a binding K.
acceptance is effective upon dispatch.

a)The mailbox rule applies only to acceptances and not to any other communication.
b) Consequences of the rule:
i) The first consequence of the mailbox rule: when acceptance is dispatched before a revocation is received it is too late to revoke.

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Acceptance and the UCC

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1. The Relevant Provision [§ 2-206(1)(a)]:
a. “Unless the contract language or circumstances UNAMBIGUOUSLY indicate otherwise, acceptance may be made in ANY manner and by ANY medium reasonable under the circumstances” (emphasis added).
b. Any kind of acceptance will work as long as the offer doesn’t state otherwise.

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Acceptance by Seller’s Shipment of Conforming and Nonconforming Goods under the UCC

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(1) Under the UCC, a seller can accept a buyer’s offer to purchase goods for prompt or current shipment in one of three ways:
(a) The first way:
Rendering a promissory acceptance. Seller promising the buyer that he will ship the requested goods.

(b) The second way: Shipping conforming goods.

(c) The third way: By shipping non-conforming goods.

1) EXCEPTION: if the seller sends the non conforming shipment as an accommodation it is considered a counter offer.
2) Paradoxically, absent accommodation, the seller’s shipment of nonconforming goods does two things at once:
a)accepts the offer and forms K and
b)breaches the K.

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The UCC’s Rejection of Common Law: Case #2—The Battle of the Forms

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b. A so-called “battle of the forms” may occur when the terms of the form used by the seller do not match the terms of the form used by the buyer.
(1) “Dickered” terms vs “Boilerplate” terms:
(a) “Dickered” Terms: terms that are specific to a particular transaction (type of goods, price ect.)

(b)“Boilerplate” Terms: arbitration agreement, limited warranties,

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The UCC solution to the “Battle of the Forms”

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UCC § 2-207: “a DEFINITE AND SEASONABLE EXPRESSION OF ACCEPTANCE will operate as an acceptance EVEN THOUGH it states ADDITIONAL or DIFFERENT TERMS…” (emphasis added).
(a) In other words: Gets rid of the mirror image rule.

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§ 2-207’s Exception for Conditional Acceptance

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(a) “a definite and seasonable expression of acceptance will operate as an acceptance even though it states additional or different terms UNLESS acceptance is expressly made CONDITIONAL on ASSENT to the ADDITIONAL or DIFFERENT TERMS”

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(2) Effect of Nonconforming Acceptance on a Contract Between Consumers or Between Consumer and Merchant:

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the additional terms that appear on the back of the forms. They are mere proposals that the offeror may accept or reject and are not part of the K.

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Effect of Nonconforming Acceptance on a Contract Between Merchants

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(a) Critical distinction: “additional” vs. “different” terms.
1) “Additional” terms: when the seller addresses a topic that wasn’t addressed in the buyers offer at all.
2) “Different” terms: the buyer said red the seller says green. Where buyer has addressed
(b) Effect of “Additional” terms
1) Generally, automatically become part of the K

a) Exception #1: the offer expressly limits acceptance to its own terms.
b) Exception #2: if the buye within a reasonable time obects to the additional terms they aren’t part of the K
c) Exception #3: additional terms wont be a part of K if they materially alter the terms of the K.
Material: terms that would result in surprise or hardship if incorporated without the express assent by the party.

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What happens when, as a follow-up to a contract made in real-time, a Party Sends a Written Confirmation?

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(a) As is the case for a contract formed by an offer followed by a nonconforming acceptance, the treatment of the additional or different terms depends on the identity of the parties.
1) Transactions not between merchants:
a) anything that is in the written conformation that adds to or changes the original deal is a mere proposal.

2) Transactions between merchants:
a) Additional terms are part of the contract unless:
i) they materially alter the K
or
ii) the receiving party objects w/I a reasonable time.

b) Different terms are: mere proposals for addition to the original K.

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Insufficient Consideration

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a promisor can defend against an attempt to enforce a gratuitous promise in several ways:
1) the promise is not supported by consideration
2) there is a want of consideration
3) consideration is lacking
4) there is legally insufficient consideration

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Failure of Consideration

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is a claim that the party as not performed in accordance with his promise.

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What counts as a “legal detriment”?

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- Legal Detriment: Did you do something you had a legal right to not do? Or Did you forego something you had a legal right to do?

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Inadequacy of Consideration

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Courts don’t weigh the equivalence or the fairness of the exchange for the purposes of applying consideration doctrine

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Distinguishing a “Condition on a Gratuitous Promise” from “Consideration

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(a) Factor #1: language of the parties

(b) Factor #2: commercial vs. charitable/familial context

(c) Factor #3: Does the detriment to the promisee create a benefit to the promisor?

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The “Past Consideration” Rule

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a promise given in exchange for something already given or already performed will not satisfy the bargain.

-Past consideration is not consideration at all.

b. The Exceptions to the “Past Consideration” Rule
(1) Exception #1: a promise to pay to debt barred by the statute of limitations

(2) Exception #2: a promise to pay all or part of an indebtedness that has been discharged in bankruptcy.

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Enforcing an Unsupported Promise Using the “Material Benefit” Test

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a.This test is supported by the Second Restatement but is used in only a minority of jurisdictions
b. The “Material Benefit” Test explained:
(1) The benefit was conferred on the promisor and not a third party

(2) The benefit is material

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Enforcing a Gratuitous Promise through Promissory Estoppel

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There are four requirements that must be met in order for promissory estoppel to be available.
(1) Requirement #1: Promise. Mere vague assurances aren’t sufficient
(2) Requirement #2: the reliance has to be reasonably foreseeable.
(3) Requirement #3: There must be actual reliance on the promise.
(4) Requirement #4: there must be injustice if the promise is not enforced.

(a) There are several specific factors that courts use to analyze the “injustice” requirement in an exacting way:
(1) blameworthiness of the breach
(2) strength of proof of the other elements.
(3) The relative positions of the parties
(4) Proof of detrimental reliance. Must be detrimental. (5) availability of options short of enforcing the promise.