Contracts

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Offer

Back 1

The manifestation of a willingness to enter into a bargain, so made as to justify the other party in understanding that her assent is all that is necessary to conclude it.

Offers must be distinguished from:
(1) offers to enter into NEGOTIATION;
(2) statements of FUTURE INTENT; and
(3) ILLUSORY PROMISES.

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Acceptance

Back 2

An acceptance is an unmistakeable manifestation of an intent to be bound by the offer, and all legal consequences flowing from the offer, generally through strict conformity to the prescribed manner of acceptance therein.

Once an acceptance is effective, mutual assent is formed, and the terms of the bargain become set.

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Objective Theory of Contracts

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A question of contract formation is generally controlled by the intent of the parties. Because this can only be inferred from their conduct and the surrounding circumstances, the law imputes a person an intention corresponding to the reasonable meaning of his outward words and acts.

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Hybrid Contracts

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Michigan applies the predominant factors test. If the purchaser's ultimate goal is to acquire a product, the contract is treated as one for goods, even if service is incidentally required (e.g. delivery & installation of pre-existing product). Conversely, if the goal is to procure a service, the contract is not governed by the UCC, even though goods are incidentally required (e.g. design and ongoing service of unique system or software).

Front 5

Offer: Implied

Back 5

Arises in the absence of an express offer if mutual assent can be readily inferred from the conduct of the parties and the surrounding circumstances.

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Acceptance: Mailbox Rule

Back 6

OFFER: Time of receipt; time-limited offers begin day after.
REVOCATION: Time of receipt
ACCEPTANCE: Time of dispatch (unless option)
REJECTION SENT BEFORE ACCEPTANCE: First received.
ACCEPTANCE SENT BEFORE REJECTION: Acceptance controls.

Communications effective at the time of dispatch are effective regardless of receipt if due to mistake or accident not caused by sender.

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Offer: Implied Termination

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Implied Revocation: Occurs where an offeree acquires RELIABLE INFORMATION that the offeror has engaged in DEFINITE CONDUCT INCONSISTENT with the intent to enter into contract.

Front 8

Offer: Express Revocation (U.C.C.)

Back 8

Valid at time of time of delivery at the place of business through which the contract was made.

Front 9

Acceptance—Unilateral Contracts: Tender of Performance (CL)

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Where an offer invites acceptance through performance ONLY, the tender or commencement of performance gives rise to an option UNLESS the offeror expressly reserves the right to refuse receipt of performance, OR acceptance requires further cooperation by the offeror.

The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

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Acceptance: Commencement of Performance

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Where an offer allows for acceptance through performance, the beginning of performance or the tender of part performance creates an option contract and renders the offer irrevocable; AND gives rise to a duty to complete performance; IF the offeree promptly notifies the offeror in those cases where the performance is not readily apparent.

If the offeree does NOT NOTIFY the offeror that performance has commenced, the offeror may treat the offer as having lapsed

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Acceptance: Preparation for Performance

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Preparation for performance does NOT constitute acceptance of a unilateral contract offer What constitutes preparation will depend on:

(1) whether the preparation is CLEARLY REFERABLE to the offer; and
(2) DEFINITE & SUBSTANTIAL; and
(3) its actual or prospective BENEFIT to the offeror rather than the offeree; and
(4) course of dealing, industry custom, usage of trade.

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Offer: Option Contract (CL)

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An option contract will only render an offer irrevocable if the offeree provides consideration for the offeror's promise to keep it open.

Nominal consideration OK; sham consideration invalid. Majority requires consideration to change hands; Michigan will treat a written recitation of conveyance to be sufficient.

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Offer: Firm Offer

Back 13

Under U.C.C. 2-205, a firm offer exists where:

(1) made by a MERCHANT;
(2) in a SIGNED WRITING;
(3) that gives ASSURANCE by its TERMS that it will be held open.

The offer is irrevocable for the term stated in the offer, or 3 months, whichever is less.

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'Merchant'

Back 14

A merchant is a party that deals in goods of the kind involved in the transaction, OR otherwise holds himself out as having knowledge or skill relevant to the goods at hand, OR to whom such knowledge or skill may be attributed by his employment of an agent who by occupation holds himself out as having such knowledge or skill.

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UCC—When Applicable

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The UCC Article II governs contracts for the SALE of GOODS.

Goods are things moveable at the time of contracting (e.g. animals; nursery trees, crops & minerals where there is a current intent to sever them from the earth).

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Acceptance: Sale of Goods

Back 16

Under the UCC Article II, an offer can be accepted by any reasonable means unless otherwise indicated by its terms.

An offer to buy or sell goods for prompt or current shipment invites acceptance by either PROMPT SHIPMENT or PROMPT PROMISE TO SHIP

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Acceptance: Accommodation Shipments

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Under the UCC Article II, a shipment of non-conforming goods is NOT an acceptance IF it is accompanied by SEASONABLE NOTIFICATION that the shipment is an ACCOMMODATION ONLY. Shipments absent this notice will be held as an acceptance, and the seller will be in breach.

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Acceptance: Silence as Acceptance

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The general rule is that silence alone cannot constitute acceptance. Exceptions:

(1) where offeree takes the benefit of offered services IF she had reasonable opportunity to reject; AND she had reason to know that compensation was expected; or
(2) the offer by its terms allows for acceptance by silence; AND the offeree intends to accept; or
(3) course of dealing or usage of trade renders silence a reasonable means of acceptance.

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Acceptance: Termination of the Power of Acceptance

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The power of acceptance is terminated upon:

(1) death or incapacity of either party to a non-option offer;
(2) express or implied revocation; or
(3) lapse of a reasonable time, or the period prescribed in the offer; or
(4) rejection; or
(5) counteroffer.

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Acceptance: Rejections in Context of Option Contracts

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The rejection of an offer does not terminate the power of acceptance if an option contract or firm offer has been created, UNLESS the offeror relied on that rejection to her detriment.

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Acceptance: The Mirror Image Rule

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At common law, an acceptance that does not mirror the express terms of an offer will constitute a REJECTION and COUNTER-OFFER, regardless of whether the terms conflict (i.e., an additional term will constitute a rejection and counter-offer).

Note: This applies to option contracts, but does not terminate the power of acceptance.

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Acceptance: 'Standing By'

Back 22

Where a party to a negotiation makes a counter offer, and the original offeror responds with an indication that she is 'standing by' the terms of the initial offer, the offer will be renewed.

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Offer: Revocation of Offer Prompting Reliance

Back 23

Under certain circumstances, an offer that provokes REASONABLY FORESEEABLE RELIANCE may not be revoked.

Reliance will generally only be reasonably foreseeable where it falls within industry custom or usage of trade (e.g., an offer made in response to a general contractor's solicitation of bids, where the GC relies on that bid in securing a project).

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Counter-Offer

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A counter-offer operates as a rejection UNLESS:

(1) the offeror expressly states an intent to keep the original offer open; or
(2) the initial offer included a proper option or constituted a firm offer (but, watch for reliance).

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Conditional Acceptance

Back 25

A condition acceptance terminates an offer under both the common law and the U.C.C.

Front 26

Sale of Goods—Additional/Differing Terms

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1. Does the acceptance an additional or different DICKERING TERM, or does the response EXPRESSLY condition acceptance on assent to the additional/differing terms?

If YES, no contract.

2. Are both parties MERCHANTS?

If NO, the terms do not become part of the contract absent the other party's express assent.

If YES, the terms become part of the contract unless...

(1) the initial offer itself expressly limited acceptance to its terms; OR
(2) the acceptance altered MATERIAL terms; OR
(3) the other party OBJECTED within a REASONABLE TIME.

BUT, if the response containing the additional/differing terms was made in the form of a TIMELY WRITTEN CONFIRMATION, and AS BETWEEN MERCHANTS, it will satisfy the STATUTE OF FRAUDS despite the absence of a signature, and be actionable unless the other party OBJECTS within 10 days.

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Sale of Goods—Additional/Differing Terms: Material Terms

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Disclaimers of Warranty
Right to Cancel for Minor Breach
Unreasonably short complaint/inspection period
Indemnity Clauses

Not Material: Reasonable interest on late payment; reasonable time limits for inspection/complaint; limiting right of rejection for defects within customary trade tolerance.