Fall 2012 Dillon Outline.docx

Contracts 1- Dillon-Fall 2012- Coplin

Contracts

Introduction:

I. Concept & Meaning of “Contract”A. Pacta sunt servanda: All promises must be kept.B. Contracts are agreements, but also more:

1. Suggest a future plan: commitment to do or not do something in the future.a.“future plan” must be legally binding circumstances, not social plans, etc.

2. Contract is an abstract legal relationship composed of enforceable rights and duties. a.Physical writings, e-files, conduct, etc., are all merely EVIDENCE of the

contract. b. The evidence can demonstrate or prove that a contract exists, but it is

not the contract. C. Freedom to and freedom from contract (People do it for personal gains and to plan for their

futures.)D. The way we distribute resources: Moving commerce forward. (Argument for the finding of

more contracts)1. The “floodgates” of litigation.

E. Rest of K 2d § 1 Contract Defined: A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

F. Rest of K 2d § 2 (1) Promise Defined: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

1. Manifestation of intention means the external and objective expression of intention rather than undisclosed intention.

2. Necessary, but not sufficient to make a contract. 3. “Commitment to do or not do something in the future”

G. Types of Contracts: 1. Bilateral Contract- 2 promises are exchanged. One promise for promise of another of

act or performance. Requires mutual assent. 2 Rights, 2 Duties.a.Formation occurs before performance. Breach can occur before performance.

2. Unilateral Contract- 1 promise exchanged for an act or performance.a.Performance is acceptance.

H. Contract v Mere Agreement: Enforceability is the key difference. What were the reasonable legal expectations of the legal consequences of each party?

1. Rest of K 2d § 3 Agreement Defined; Bargain Defined:a. An agreement is a manifestation of mutual assent on the part of two or

more persons.

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i. Look at factual behavior of the partiesii. All contracts are agreements, but not all agreements are contracts.

b. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

i. An agreement to exchange promises. 2. Rest of K 2d § 17 Requirement of a Bargain:

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 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.

3. Balfour v Balfour : It may look like a contract, but the law will not enforce it. Parties were living in marital amity, and even though the parties may have intended legal consequences, the law will not enforce their agreements as a matter or policy (litigating these agreements between spouses is asking the courts to step into healthy marriages and infringes on privacy, and causes a floodgate of lawsuits.

II. Sources of the Law of ContractA. Common LawB. Restatements: Existing judicial opinions analyzed and distilled

i. Not authoritative unless a court adopts it into the common law.ii. First Restatement: Classical world-view doctrine

iii. Second Restatement: Mix on classical and neoclassical (modern) view a. Was revised in response to the passing of the UCC. More flexible than the

first. b. Did not replace the 1st Rest. Both are still in use.

C. Williston Treatise: i. Classical view; Rigid and rule oriented.

ii. “Law as a science”, any fact pattern can fit. D. Corbin Treatise:

i. Neoclassical view; more flexible. ii. Incorporates economics, social, moral and ethical considerations.

iii. “Law doesn’t stand alone, it is a social problem-solving tool.”E. UCC (authoritative): Statutory modifications to common law principles.

i. Statute has been enacted by all U.S. states.ii. Concerned only with personal property (not real property, but goods, and intangible

properties such as stocks, bonds, etc.)iii. Revised the Uniform Sales Act to provide uniformity in commercial law and was first

comprehensive commercial law code.iv. Produced by Professor Karl Llewellyn in the 1940’s, first enacted in PA in ’53,

authoritative in1962.

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v. Product of National Conference of Commissions of Uniform State Laws and American Law Institute

vi. Article 2-Sale of Goods, Article 2A-Lease of Goodsvii. Does not control all contracts

F. United Nations Contracts for International Sale of Goodsi. Official U.S. Treaty (Authoritative U.S. Law) as of 1/1/1968

ii. Uniform law for international sale of good contractsiii. Applies to contracts between U.S. corporations and 60+ other countries. iv. Displaces domestic law in contracts between parties with principle office in CISG

countries.v. Differs significantly from common law

G. Electronic Contracts:i. U.S. and state legislatures recognized need to create new statutes that would place

electronic records on par with traditional writings evidencing contracts.ii. Nat’l Conf. of Commissioners on Uniform State Laws published the Uniform

Electronic Transactions Act (UETA) in 1999. Most states have adopted. iii. Electronic Signatures in Global and National Commerce Act (E-Sign) effective Oct. 1,

2000.iv. Both foster e-commerce by removing barriers to recognition of electronic records.

III. To Begin the Study of Contract Law:A. Fundamental purpose of Contract law: protection of reasonable expectations by placing the

aggrieved party in the position that party would have been in had the contract been performed. B. Functions of Law Within Our System:

i. Channeling: Law channels the behavior of individuals and groups in society in order to keep our society functioning smoothly and running within the norms of society (economic, political and social).

ii. Decision Making: Allocation of roles (ex. Separation of powers- trial court and appellate court; state, federal; executive, judicial, legislative)

iii. Dispute Settlement: Offers parties with distinct and different interests opportunity to assert interest and settle disputes without resorting to violence. Available to large numbers, not just individuals.

C. Mechanisms preceding court intervention: Negotiated settlement, Mediation, Arbitration, Administration Decision Making, Legislative avenue

D. Precedent serves 2 main functions:i. Provides a guide against inconsistency so that similar cases are not decided

dissimilarly (stare decisis=to stand on that decision). Law remains predictable and consistent

ii. Allows judges enough flexibility to do justice in a particular case. Legal reason and law is dynamic; society changes and the law must change with it or become meaningless.

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The Agreement Process; Formation of Mutual Assent

I. A Contract is formed after there has been:1. A valid offer by one party. Rest of K 2d § 24 Offer Defined: An offer is 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.

2. A valid acceptant by the other party. Rest of K 2d §50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise:

i. Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

ii. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and include acceptance by a performance which operates as a return promise.

iii. Acceptance by a promise requires that the offeree complete every act essential to the making of a promise.

3. Consideration (Studying in spring semester)4. Murray’s 6 Essential Elements of Contract Formation (§29 Treatise)

i. Formation of Mutual Assent-Rules of Offer and Acceptanceii. Formation Validation- Consideration (2nd Semester)

iii. Two of more contracting partiesiv. Sufficient Number of Sufficiently Definite Terms- Are there enough key terms to form

a contract? The more terms, the more likely a contract will be found. The less terms the larder it is to see intent.

v. Parties have legal capacity to form a contract- Rest of K 2d § 12 Capacity to Contract

vi. No legal prohibition (Can’t be against the law)

II. Formation of Mutual Assent1. The (Predominantly) Objective Theory of Assent

i. Reasonable, third person viewii. Identifying the parties intentions to determine whether they wanted to be in a contract

and enforcing those intentions (The freedom to and from contracts)iii. Looks to the totality of the circumstances.iv. ‘Predominantly” because occasionally both parties have given disclosed, unorthodox

meanings to words, and the courts will honor those meanings.

2. Objective Theory of Assent (OTA) Modelsi. Lucy Two Pronged Test

1. Objective Reasonable Understanding: Looking at one parties manifestations from the other parties standpoint.

a. What would a reasonable person have thought the objective manifestations of the party to mean? Look at the external behavior of

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the party. (I.e. in Lucy v Zehmer, look at Mr. Z’s behavior in discussion of sale for 30 minutes, negotiating price, discussing terms, wrote agreement, re-negotiated terms, re-wrote agreement, has wife sign, and allowed Lucy to take and leave with writing)

2. Subjective. Actual understanding. What did the party involved understand the manifestations to be? Look at the parties behavior in response, are they acting in a way that can be connected to intent? (In Lucy, Lucy negotiates for 30 minutes, asks Z to write agreement, asks Z to re-write agreement, asks Z to have wife sign, takes the evidence, attempts to pay $5, calls borther next day to arrange finacnes, tells Z that he still plans to buy land, contacts and attorney to have the title examines, speaks to Z again, and sends letter.) If we get the same (yes, there is a contract) answer to both questions then there is a contract. We are protecting the person who relied on external manifestations.

ii. Lucy Three-Pronged Test1. General Rule- The law looks to external manifestations of act, words, etc

ONLY, rather than secret and undisclosed (subjective) intent.a. Meeting of the minds is no longer required. All about external

manifestations.2. Correlative- the law evaluates the manifestation from a reasonable persons

standpoint (objective test).Must look to the totality of the circumstances. How would a reasonable person view the circumstances?

3. Exception- An unreasonable intention disclosed and shared by the parties (the expressed subjective intent).If both parties know that the external manifestation is incorrect than the subjective intent is disclosed.

a. 2nd exception- Mutual mistake: invalidating causes (mistake, unconscionability, coercion, duress, violates public policy)

3. Conduct as Manifestation of Assent (offer, prelim negotiation, acceptance, counteroffer, revocation, rejection)

i. Rest of K 2d § 19 Conduct as Manifestation of Assent1. The manifestation of assent may be made wholly or partly by written or spoken

words or by other acts or by failure to act.2. The conduct of a party is not effective as a manifestation of his assent unless he

intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.

3. The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating clause.

a. Comment B- b. Comment C-

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ii. Rest of K 2d § 227 Standard of Interpretation (Tests to apply to manifestations in order to give meaning to them)(Meaning of manifestation)

1. FILL IN LATER!!!!!iii. Rest of K 2d § 23 Necessity That Manifestation Have Reference to Each Other

1. It is essential to a bargain that each party manifest assent with reference to the manifestation of the other.

4. Intention to be Legally Boundi. Rest of K 2d § 21 Intention to be Legally Bound

1. Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract (General Rule), but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract (Exception).

a. Balfour v Balfour : There are agreements between parties that do not result in a contract within the meaning of the law (The parties in these agreements do not intend that they should be attended by legal consequences). Arrangements between husbands and wives are one of the more usual forms of these agreements for policy reasons (Could strain family relations because spouses would regularly sue each other, ask courts in intrude in privacy of marriage, and would open the floodgates of litigation.)

b. Rebuttal presumption that contracts do not need a section stipulating to the legal effect of the contract (unless exception is met). This is for policy reasons: if sections stating that were required there would be fewer contracts which would slow commerce.

ii. The General Rule: Subjective mutual assent is usually present, but it is not required.iii. The Exception: A “Condition Precedent to Formation” or “not Legally Binding Unless

or Until” Clause (i.e. letters of intent)1. Example: “Any discussions or negotiations are not contractual until both

parties sign an evidentiary writing.”2. When statements like this come into play, courts must determine the parties

intentions. Did they intend for the writing to be a condition precedent to formations? A contract can still have been formed, even though no writing has been signed.

a. Rest of K 2d § 27 Existence of a Contract Where Written Memorial is Contemplated

i. 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 intentnion to prepare and adopt a written memorial thereof (General Rule); but the

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circumstances may show that the agreements are preliminary negotiations (Exception).

iv. Dunhill: Letters of intent are not binding agreements, merely agreements to agree in the future. The parties talked about a written manifestation, but no one said that unless that happened, no one would be legally bound. Dunhill Guidelines for Intent:

1. Ambiguity in a writing will be construed against the drafter.2. Clearly stated “not legally binding unless or until” clauses will be honored,

provided that3. The agreement , or the clause itself is not illegal (i.e. an invalidating clause)4. When no ambiguity is present the plain meaning of the document will be

enforced, generally speaking.5. A contract may arise prior to the written document if the document will merely

serve as a “convenient memorial” to the agreement.6. Lack of a written memorial will not render an agreement non-binding (unless

there is an enforcebale “not legally binding unless of until” clause), especially in the face of a trade’s customary practice.

5. Invalidating Devices: Separate idea, but related to mutual assent. At first it may look like a contract is formed, but an invalidating clause makes it invalid. May consist of mistake, misrepresentation, coercion, intoxication, …….

III. The Anatomy of the Agreement: Offer and Acceptance1. Offers v Preliminary Negotiations (“ Mere Invitation to Deal”)

i. Rest of K 2d § 24 Offer Defined1. An offer is 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.

a. An offer requires a sufficient number of sufficiently definite termsb.

ii. Rest of K 2d § 26 Preliminary Negotiations1. A manifestation of willingness to enter into a bargain is not an offer if the

person to whom it is address 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 intent.

iii. Legal Effects of Offers and Preliminary Negotiations1. An offer creates a legal effect- it creates a power of acceptance in the offeree.2. The offeror is the master or mistress of the offer, and he or she has the power

to dictate the manner and medium of acceptance.a. Manner- promise or performanceb. Medium- email, telephone, mail, in person, etc

3. There is no legal liability for preliminary negotiations!!!iv. An Offer Needs a Sufficient Number of Sufficiently Definite Terms

1. We need a “Critical mass” of definite terms

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2. Some terms are more important than others.a. Sale of goods- quanityb. Land purchase- legal description of land

3. Price Quotationsa. Generally seen as a mere invitation to deal, not an offer.b. Southworth v Oliver Guidelines:

i. Reasonableness (3 prong test): Objective analysis of the offeror’s manifestations from the offeree’s position (general + correlative). Look at the totality of the circumstances.

ii. The language used in the intital correspondence. 1. Was it direct, indirect, definite, indefinite, trade usage2. Is the quote going to 15 people, or just the offeree? In

relation to Rest. 24, the offeree must understand that the offer is meant for them.

3. Was one of the parties specific about delaying the close of negotiation? Was it a price quote?

iii. The more definite/clear the terms of the proposal, the more likely it will be found as an offer.

1. Specific date of delivery or performance2. Defining the subject matter3. Defining the quantity4. Addressed to specific parties

iv. Letter did not come out of the bluec. Comparing “Price Quote” Cases

i. Moulton – salt wholesaler’s initial price quote not an offer (only a mere invitation to deal) b/c the price quote did not contain a quantity (quantity is most important term).

1. At the heart of an offer is an obligation, and even though it listed price per barrel and shipment details, Moulton did not obligate himself to buying and selling 2,000 barrels.

a. If the court imposed the quantity obligation on Moulton, it would be violating the freedom to and freedom from contract.

ii. Fairmont Glassworks – seller’s initial correspondence was a response to a request for a price quote on a specific quantity of glass jars, hence, it was an offer.

2. Purchase Ordersa. Four Manifestations that are given labels:

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i. Request for Proposal (RFP) – buyer requests a price quote from seller (generally speaking, not an offer).

ii. Price Quotation – mere statement of prices and descriptions of goods (generally speaking, not an offer).

iii. Purchase Order – buyer submits order to seller (generally treated as an offer)

iv. Acknowledgement of Purchase Order1. Other utilizations of purchase order: confirmation of an

existing agreement, instructions or authorizations to ship goods, identifying and authentication of the goods to be shipped

2. These manifestations depend on terms – if terms are sufficient, price quotation can be offer and purchase order acceptance.

3. Advertisementsa. Generally not offers.

i. Advertisements don't have a sufficient number of suffiecntly definite terms (critical mass of terms). They do not contain a promise!!!

ii. Someone reading an ad cannot reasonably understand that it is an offer.

iii. If we deem all ads offers, the offeror is put on an economic "hook." Liability for an infinite amount of the product. Might have a chilling effect on advertisements.

iv. We are the most litigious country. This rule discourages clogging the dockets with offer cases.

b. Lefkowitz – seller’s advertisement WAS an offer: the subject matter (black stole), quantity, retail value of the item, price for the item, and identity of the offeree (“first come, first served”) were all listed.

i. Whittling down the audience to whom an offer goes to weighs on whether a court will find an offer in an advertisement.

4. Reward Offersa. Terms are more sufficient b/c rewards narrow down the field of who

can logically be an offeree.b. Creates a unilateral contract (promise (reward money) for performance

(providing information)).

2. Who Can an Offer be Directed to, and Who May Accept an Offer?i. Second Restatement § 29 To Whom an Offer is Addressed

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1. The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.

2. An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.

ii. Second Restatement § 50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

1. Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

2. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.

3. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.

iii. Second Restatement § 52 Who May Accept an Offer1. An offer can be accepted only be the person whom it invites to furnish the

consideration.iv. Boulton v. Jones – A manager of a store (C) purchased the store from its owner (B).

A long-time customer (A) sent a purchase order to the store (an offer) and C filled the order. A refused to take or pay for the shipment when he discovered that C filled the order. There is no contract, b/c C was not the intended offeree.

1. If A learns who the goods came from, and then retains or uses them, he has accepted C’s offer.

3. Standardized Agreementsi. Second Restatement § 211 Standardized Agreements

1. Except as stated in subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (General Rule).

2. Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing (Correlative).

a. The law will hold one to it without regard to his knowledge or understanding of the terms (Purely objective test – everyone is treated by this rule as an average member of society – we don’t care who they are, we only care what a reasonable person would have understood).

3. Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement (Exception).

ii. Existence of Contract where written memorial is contemplated:1. 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;

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but the circumstances may show that the agreements are preliminary negotiations.

a. Assent that is enough to show a K is not prevented by in intention to create a writing, BUT circumstances can show it was just negotiations and not a K.

iii. The Pros and Cons to Standardized Forms1. Pros: facilities the “greasing of the wheels of commerce.”2. Cons: only one person drafts the form, so he could take advantage for his

client. People don’t read standardized forms.iv. B.C. Tire – The form was produced by GTE and then given to BC Tire to sign. By

signing the form, B.C. Tire made the offer. Paragraph #1 of the application was a condition precedent to formation/not legally binding unless and until clause, which means that no contract arises until GTE performs the event (i.e. publishes the ad).

1. Is this decision just? B.C. Tire lost profits, right?a. But how do you prove someone saw your ad and came in for that

reason? It is difficult to prove lost profits were a result of the mistake.b. Courts are concerned about profit loss (amount claimed is way

disproportionate to the cost of the K).c. If B.C. recovers, ad prices skyrocket.

2. The court is saying that both parties understood that the form was an offer. This is mechanical thinking. The analysis is completely kosher, although it seems surreal (Classical Contract Analysis).

4. The Duration of an Offer & Lapse of Timei. Second Restatement § 41 Lapse of Time

1. An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.

2. What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.

3. Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.

ii. Vaskie: 1. Where an offer does not specify, the offer is deemed to be outstanding for a

reasonable period of time2. What is a reasonable time is ordinarily a question of fact to be decided by a

jury and is dependent on the circumstances3. There are situations where the question of reasonable time may be decided as a

matter of law (EXCEPTION, which applies to regular, continually recurring events)

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4. Reasonableness of the time an offeree takes to accept an offer is measured from the perspective of the offeree and how they understand

a. UCC 2-309 Absence of specific Time provision, notice of termination

b. Rest of K 2d § 205. Duty Of Good Faith And Fair Dealing

i. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

c. UCC 1-304: Obligation of Good Faithi. Every contract or duty within the UCC imposes an obligation of

good faith in its performance and enforcement.

d. UCC 1-205 Reasonable Time: Seasonableness:i. Whether a time for taking an action required by the UCC is

reasonable depends on the nature, purpose, and circumstances of the actions.

ii. An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

iii. Caldwell v Cline: Cannot be an offeree if you do not have knowledge or understand of the offer (Rest of K 2d §23)

1. . Offer takes effect in the place where the person whom it sent receives it (Receipt Rule). Offer exists once it “strikes the ear” of the offeree.

2. To consummate a contract for the sale of land, there must be mutual assent3. Where the proposal to sell stipulates a limited time for acceptance, is is

essential, to constitute a valid contract, that the acceptance be communicated to the proposer within the time limited.

IV. Termination of the Power of AcceptanceSecond Restatement § 36 Methods of Termination of the Power of Acceptance

i. An offeree’s power of acceptance may be terminated by1. Rejection or counter-offer by the offeree, or2. Lapse of time, or3. Revocation by the offeror, or4. Death or incapacity of the offeror or offeree.

ii. In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

UCC 2-106 (3) Termination:

i. Termination occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On termination all obligations which are still executor on both sides are discharged but any right based on prior breach or performance survives.

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1. Rejection by Offeree

i. Second Restatement § 38 Rejection1. An offeree’s power of acceptance is terminated by his rejection of the offer,

unless the offeror has manifested a contrary intention. This rule protects the offeror. He should be able to rely on the offeree’s manifested No, as a hell no. (He can then take his business elsewhere and not be hung up later by the first offeree)

2. A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement. This rule also protects the offeree in accordance with his manifested intention that his future conduct should not be treated as an acceptance.

a. Unless rule’s gives effect to the intentions of the parties.i. Offeror states offer will continue despite rejections, POA stays

intact despite offeree’s rejection.ii. Offeree states that he rejects for now, but will reconsider at a

future time: no rejection; POA stays intact; no basis for change of position by the offeror in reliance on a rejection.

ii. Chaplin v. Consolidated Edison – D offered settlement, which basically purported “take it or leave it”; P rejected, and then tried to accept. Court found no contract.

2. Revocation of Offer by Offerori. Direct Revocation

1. Second Restatement § 42 Revocation by Communication from Offeror Received by Offeree (Direct Revocation)

a. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

2. Farley v. Champs Fine Foods, Inc. – plaintiff accepted on the same day defendant revoked. There was a factual dispute as to which occurred first. Guidelines:

a. Revocation Guidelines:i. Revocation must occur before acceptance.

ii. Offeror may revoke even if there is a specific duration clause.iii. UNLESS, the offer is given for consideration (irrevocable

offer/option contract).b. Acceptance Guidelines:

i. General rule (offers, counter-offers, revocations, rejections, and MOST acceptances): not effective until received (receipt rule).

ii. Exception: an acceptance sent by mail is binding from the moment an offeree puts his acceptance in the course of transmission (mailbox or dispatch rule-very narrow).

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1. This rule does not apply to unilateral contracts.2. There is a risk of transmission (it could get lost), which

must be allocated to one of the parties. The offeror, as master of the offer, is the only one who could have avoided the risk by specifying the medium of acceptance, so he bears the risk.

3. The offeree needs a reasonable basis for her decision whether to accept an offer.

iii. Second Restatement § 63 Time When Acceptance Takes Effect

Unless the offer provides otherwise:1. An acceptance made in a manner and by a medium

invited by an offer is operative and completes the manifestation of assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but

2. An acceptance under an option contract is not operative until received by the offeror.

a. There is no risk that the offeror will take the offer off the table, so the offeree is already protected, and no dispatch rule is needed.

ii. Indirect Revocation1. Second Restatement § 43 Indirect Communication of Revocation

a. An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

2. In-Class Guidelines for Indirect Revocationa. The offeree must have knowledge that the offeror intends to not follow

through/offer is being revoked (receipt rule).b. The offeree learned of the offeror’s manifestationc. The offeror’s manifestations must such that he doesn’t intend to

continue (objective theory of mutual assent)/ taking the offer off the table.

d. Manifestation must be dependable as showing the offeror’s intente. Information must be factually accurate

f. The information must have come from an objectively reliable source.i. Protects offeror and applies objective theory of assent. Would a

reasonable person consider the information reliable?

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ii. If the person might normally be reliable, but is inebriated, or hard of hearing, or has some other disability which might mean that the information is not factual and valid, the revocation may not be valid.

3. Dickison v. Dodds – defendant revokes land sale; third party tells plaintiff. Revocation was valid.

3. Counter Offer by Offereei. Second Restatement § 39 Counter-offers

1. A counter-offer is an offer made by an offeree to his offeror relating to the same subject matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.

2. An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. Counter offer creates termination of power of acceptance and makes new offer

a. 7 Case Types that Lurk on the Borderline:i. Proposal for modification (acceptance with other stuff – offeree

is proposing to change terms, but it’s just a proposal. This is not a counter offer). (sidecar 1-5)

ii. Proposal for separate agreementiii. Mere inquiry (not a counter offer)iv. Request for better offer (not a counter offer)v. Comment on the offer (not a counter offer)

vi. Contrary statement from offeree: “I’m still thinking about your offer, but in the meantime, here is a counter offer.” (does not terminate POA)

vii. Contrary statement from offeror: “My offer will continue for X amount of time, and in the meantime, I’m willing to accept counter offers.” (does not terminate POA)

b. Counter Offers reject the original offer, but seek to continue negotiations.

c. This rule requires that an acceptance be the mirror image of the offer. If it does not match exactly (if it purports a different or additional term), it is not valid acceptance, and it is a counter offer if it meets the definition of § 39.

d. Counter offers do not include a condition that the original offeror accept the terms in order to close the contract.

ii. Second Restatement § 59 Purported Acceptance Which Adds Qualifications

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1. 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 counter offer.

Second Restatement § 61 Acceptance Which Requests Change of Terms1. An acceptance which requests a change or addition to the terms of the offer is

not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.(sidecar)

a. §§ 59 and 61 are known as Conditional Acceptances.b. These sections do NOT support the mirror image rule. We are not

talking about the mere presence of a new or additional term.i. §§ 59 and 61 are more modern approaches, and are more

relaxed than the mirror image rule.ii. Conditional acceptances propose a new or additional term,

PLUS insist that the other party accepts.c. A conditional acceptance is not an acceptance; it is a special type of

counter offer.iii. There is no material difference between counter offers and conditional acceptances.

Both require the original offeror to accept.iv. Ardent v. Horan – House sale; plaintiff wanted furniture included, and their

manifestation was a conditional acceptance. Guidelines:1. Objective Theory of Mutual Assent2. Acceptances must be definite and unequivocal. (A response which is equivocal

is not an acceptance, but it is not always a counter-offer. It must meet the definition of counter-offer (§ 39) and conditional acceptance (§§ 59 and 61). Sometimes it’s just a non-acceptance, nothing, no legal meaning).

a. Policy: an offeror is entitled to know in clear and definite terms whether his offer is accepted. It is not enough that the words of reply justify a probable inference of assent.

3. Conditional Acceptance: the acceptance is conditional upon the assent and acceptance of the original offeror.

4. Interpretation: court must use a common-sense process of interpretation of each party’s manifestations.

4. Death or Incapacity of the Offeror or Offereei. Second Restatement § 48 Death or Incapacity of Offeror or Offeree

1. An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.

a. This has to occur after an offer but before acceptance. b. Don’t confuse this with when an actual contract has been made. This is

only the rule for offers.

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c. This rule is a “relic,” out of order with the objective theory of mutual assent. It doesn’t take into account knowledge or its absence. The un-afflicted person doesn’t have knowledge of the death/incapacity, so he or she still thinks there is an offer and is apt to act (or, from the offeror’s standpoint, thinks he or she is unable to make the offer to someone else).

d. The drafters acknowledge that this is an old rule, but they did not take it out.

V. Making Offers Irrevocable1. Introduction

i. An offer creates a power of acceptance in the offeree. However, an offeror can terminate that power at any time before acceptance occurs by directly or indirectly communicating that the offer has been revoked. It is not remarkable that an offeree may wish to avoid the offeree’s power of revocation and retain the power of acceptance while considering whether to accept the offer. (Normal K defined in §25)

2. Option Contracts – Right of First Refusali. Not in and of itself an option contract.

ii. Under the right circumstances, can give rise to an option contract. (the following 3 rules must be met)

iii. Transformation Process:1. Tenant (right of first refusal holder) must know that granter/optionor was

trying to sell the real property/ grantor is trying to sell property2. Granter must have a bona fide third party purchaser.3. Granter must notify tenant of the bona fide third party purchaser.

a. These steps are all referring to the granter. Once the option has arisen from the right of first refusal, the power shifts to the holder.

iv. Orlowski v. Moore – tenants lease contained a right of first refusal. He was aware Ds were trying to sell property; Ds found a bona fide third purchaser; Ds notified P of purchaser.

1. No time period for the option contract was named, so the “lapse of time” rules apply (it is outstanding for a “reasonable” time).

a. “Reasonableness” here – Ds let him know 3 times: before the lease was signed, middle of January, and in February. Option contract was created in mid-January. P was having financial problems.

v. There are 2 POAs (powers of acceptance) in an option contract: the first when the right of first refusal is created, and the second when it becomes an option.

3. Irrevocability through Reliance – Firm Offers

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i. Second Restatement § 87 Option Contract1. An offer is binding as an option contract if it:

a. is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; OR

b. is made irrevocable by statute.2. An offer which the offeror should reasonably expect to induce action or

forbearance of a 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 the extent necessary to avoid injustice.

i. § 87 opens up possibilities for more option contracts to exist. The validating device/consideration is being tinkered with (moving away from doctrine of consideration).

ii. To find an option contract under § 87(1)(a), we need:1. A deliberately intended, firm offer.2. Which is in writing.3. A purported consideration and false recital of nominal consideration (basically,

consideration may be offered but never paid).4. Which proposes an exchange on fair terms5. Within a reasonable time

a. This represents the formality found in classical contract law. Traditionally, consideration and the affixing of a seal were the 2 validating devices. Sealed instruments have disappeared, and a person’s signature has become the natural formality.

iii. To find an option contract under § 87(2) (“Promissory Estoppel” or “Detrimentary Reliance”) we need:

1. An offer.2. That the offeror should reasonably expect to induce action/reliance OR the

offeree justificably relies on the offer3. The offeree materially/substantially changes his or her opinion/ position.4. The offer causes/induces the offeree to act or forbear from acting (connect the

1st and 3rd element).5. Injustice can only be prevented bby the finding of a contract- SCREAMING

JUSTICE FACTOR!a. Under this subsection, promissory estoppel/detrimentary reliance

replaces the validating devices.b. For the fifth element, we must look to the aggrieved party’s interests

(expectation, reliance, or restitution).iv. Janke Construction v. Vulcan – Applying 87(2): D made an offer to supply specific

pipe for a job P was bidding on (1). D should reasonably expect P to use their bid in its general bid (2). D refused to sell the pipe, and P is bound to its contract with the

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state, so P’s position is materially changed (3). D’s offer induced the act of reliance (4). P had to spend more money with a third party to get the proper supplies (5). (Third element leads us to see how injustice was suffered for the fifth).

v. § 87(2) does NOT protect a sub-contractor in the converse case (i.e. general contractor gets the job, but then participates in “bid-shopping” (looking for a cheaper price elsewhere) or in “bid-chopping” (negotiating with the sub to get a better price)).

1. It does not apply here because there is no contract yet (general contractor hasn’t accepted).

2. We’re only worrying about offeree (general contractor’s) detrimentary reliance. There is no threat of injury in this converse case (no screaming justice factor that needs to be protected). The general contractor hasn’t exercised his option, so there is nothing to stop him from bid-chopping or shopping.

vi. However, a conditional bilateral contract (Pavill)would protect them both. 1. If there was an exchange of promises binding the party to each other, and that

exchange of promises was made before bid opening, a valid bilateral contract, conditional upon the general being awarded the job, would form. It forms the minute the general contract bid is accepted.

2. Protects both parties by requiring both parties to perform. 3. This theory could be used for any case that requires § 87(2) and also use it for

the converse fact pattern.vii. § 87(1)(b) refers us to UCC 2-205 Firm Offers

1. Firm offer is a synonym for option contract or irrevocable offer.2. Six provisions for a firm offer under UCC 2-205:

a. An offer (UCC does not define offer, so due to UCC 1-103b use 2nd Restatement § 24 definition).

b. Merchant (2-104 (1), comment 2&3) c. To buy or sell goods (apply UCC gatekeepers: 2-102, 2-105, 2-106)d. A signed writing (1-201(b)(37)signed and 1-201(b)(43)writing)e. Assurance from optionor to make a firm offerf. During the time stated or a reasonable time if not stated (not to exceed

3 months) (1-205(a)binding for the 1st 3 months without consideration)i. When there is a standardized form supplied by offeree with a

firm offer provision, the provision must be signed separately. 1. No one reads standardized forms, so this makes sure the

offeror doesn’t inadvertently make a firm offer.2. Obviously, this doesn’t apply in every case.

4. Irrevocability Through Part Performancei. Bilateral vs. Unilateral Contracts

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1. Contract Formation:a. Bilateral: formed when party 2 says “I accept your promise and I give

mine in exchange.” b. Unilateral: formed when there is full performance in compliance with

all the terms of the offer.2. Rights and Duties:

a. Bilateral: at least 2 rights and 2 duties (one of each on each side). If one makes a promise, they are creating a duty for themselves and a right for the other party.

b. Unilateral – 1 right on one side, 1 duty on the other. Offeree has no duty (he’s free to revoke). Offeree has a POA (not a right, per se, but he has that power). No right or duty beyond POA until full performance. Once performance/acceptance is completed, offeror has duty and offeree has right.

ii. The Offeree’s Vulnerability in Part Performance:1. Even if one can stop his performance after beginning, there is still injustice.

iii. Second Restatement § 45 Option Contract Created by Part Performance or Tender

1. Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

a. Elements of § 45(1):i. Offer (intended to be a revocable offer).

ii. Three alternative offeree acceptances:1. Tenders the whole performance (tender: an obligor

(person who is obligated) lets the obligee know of his readiness, willingness, and ability to perform).

2. Begins the whole invited performance.3. Tender:

i. Manifest to the other party thatii. Ready

iii. Willingiv. Able to perform

b. Hypo: trying to deliver product; it’s raining; buyer won’t let me in to deliver (accept). He can say I breached b/c I never delivered the product: breach without tender is a dog chasing its tail. Tender affixes the moment of breach.

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c. Tender vs. begin: tender may involve a single act. Beginning may involve more than one act. In most cases, beginning a performance carries with it an implied promise to complete the performance.

d. Preparations to perform are not good enough under § 45. To discern between preparations to perform and actually beginning, look to the offer’s terms. (i.e. offer to pay for you to paint, scrape, and caulk my house: doing those acts is beginning, but buying paint, ladders, etc. is just prep.)

i. HOWEVER, preparations may constitute justifiable reliance under § 87(2).

2. 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.

a. Offeror is under no duty to perform until the offeree’s performance is complete

b. Offeror is the only one bound. c. Two possible breaches: if offeror revokes after part performance, or if

offeree completes performance and offeror won’t fulfill his promise. iv. § 87 (Promissory Estoppel) vs. § 45 (Part Performance)

1. Both impose option contract theory as a matter of law for justice purposes (option Ks were not intended but will be seen as such as a matter of law).

2. However, each uses a different theory to get there:a. § 45 contemplates a particular type of offer (unilateral offers only); §

87 does not limit itself (refers to “offers”).b. § 87’s broad scope renders § 45 superfluous (a fortiori – by even

greater force of logic)i. Argue them both on the final (more points); you never know

what a judge will hinge his decision on.c. § 45’s option contract is temporary and conditional. The terms may

have a time period. If not, it’s a reasonable time period (not talking about duration of offer, talking about duration of option contract). Duration is only as long as needed to complete performance under the terms.

VI. The Nature of Acceptance1. Knowledge (of the offer) and Motivation (to accept)

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i. These can be tricky, as they are subjective states of mind.ii. Knowledge (need to know you are the offeree)

1. Required because an offeree must assent to the terms of the offer (the offeror has the right to select who the offer goes to; if one does not know of the offer, how can we say the offeree selected him?). How do we know an offeree had knowledge of the offer? The receipt rule.

2. Public Rewards – courts tend to relax this requirement in these circumstances; this encourages people to help the public.

3. Another relaxation: Second Restatement § 51 Effect of Part Performance Without Knowledge of Offer

a. Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance.

i. The offer provides incentive for offeree to finish his performance (the offeror intended to create that effect; this inference is stronger when the part performance means nothing to the offeror unless completed, or when the offeree knows of the continuing performance and fails to revoke).

iii. Motivation1. The offer does not have to be the primary motivation, but it does have to be A

motivation in performing. 2. Second Restatement § 53(3) (rebuttable presumption)

a. The rendering of the invited performance will be presumed to constitute an acceptance unless before the offeror performs his promise the offeree manifests an intention not to accept.

i. This rule eliminates the need for a party to prove subjective intention (otherwise, he could lie about his motivations).

ii. Creates a rebuttable presumption, and shifts the burden to the offeror to show that offeree’s motivation did not exist.

iii. The essence of contract law is a bargain: there has to be a causal nexis between the manifestations in order to find a contract; NOT requiring motivation would set up a rule that discourages contracting.

iv. Simmons v. United States – Simmons accepted the brewery’s offer by performing the requested act, i.e. catching the marked fish. He knew of the offer, but didn’t necessarily set out to catch the fish. The court imagines there must have been some scintilla of motivation to catch the fish, and it finds a contract.

2. The Requirement of Volition – Notice of Acceptancei. Second Restatement § 54 Acceptance by Performance; Necessity of Notification

to Offeror

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1. Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. (General Rule).

2. If an offeree who accepts by rendering performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged (Exception) unless

a. The offeree exercises reasonable diligence to notify the offeror of acceptance, or

b. The offeror learns of the performance within a reasonable time, orc. The offer indicates that notification of acceptance is not required.

i. General Rule: notification itself is not part of the acceptance, even if it is required; the performance itself is acceptance.

1. Usually, the offeror will be notified indirectly by the performance.

ii. Exception: if the offeree knows the offeror probably won’t find out, the offeror is not bound.

iii. Exceptions to the exception: if the offeree tries reasonably to notify offeror, the offeror learns of the performance within a reasonable time, or the offer indicates that notification isn’t required.

ii. Second Restatement § 56 Acceptance by Promise; Necessity of Notification to Offeror

1. Except as stated in § 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive acceptance seasonably.

a. General Rule: Notification of acceptance is required.i. Here, notification is an element of the acceptance itself.

ii. The acceptance is a return promise, and one can’t make a promise unless the offeror receives notice somehow (just by nature of the return promise itself, you are giving notice).

b. Two Exceptions:i. Silence as acceptance (see below), or

ii. Offeror manifests intention that notice isn’t required.iii. Second Restatement § 69 Silence as Acceptance :

(General Rule: Silence is not acceptance)1. Where an offeree fails to reply to an offer, his silence and inaction act as an

acceptance in the following cases ONLY:a. Offeree silently takes offered benefits of offered services with

reasonable opportunity to reject them and reason to know that they

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were offered with the expectation of compensation. (restitutionary interest)

i. To fall here, we need:1. A benefit of 2. offered services.3. The expectation of the offeror of compensation.4. The offeree understands that the benefit was offered

with the expectation of compensation.5. The offeree has a reasonable opportunity to rejection,

and does not reject.6. The offeree takes the benefit.

ii. This creates a duty to speak; if the offeree rejects the benefits, he must say so (or by default “he bought the farm”).

b. Where the offeror has stated or given the offeree reason to understand that acceptance may be manifested by silence, and, the offeree, in remaining silent and inactive, intends to accept.

i. To fall here, we need:1. The offeror setting up silence as acceptance, 2. the offeree’s reliance on that set-up, and 3. the offeree’s intent to accept by remaining silent.

c. Where, because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror only if he does NOT intend to accept.

i. Rest. Of Ks 2d § 223: Course of Dealing: A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

(2) Unless otherwise agreed, a course of dealing between the parties

gives meaning to or supplements or qualifies their agreement.UCC 1-303 Course of Performance, Course of Dealing and Usage of Trade:

a. Course of performance is a sequence of conduct between the parties to a particular transaction that exists if:…

b. A course of dealing is a sequence of conduct …. establishing a common basis of understanding for interpreting their expressions and other conduct.

c. A usage of trade is any practice or method of dealing ….as to justify an especation that it will be observed with respect to the transaction in question….

d. A course of performance….is relevant in ascertaining the meaning of the partie’s agreements, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement…

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ii. Here, we’re concerned about the offeror’s reliance: he imagines, because of previous dealings, that the offeree will either receive the order and ship the goods, or they will formally notify him of rejection.

iii. Implicit or explicit manifestations count.iv. Party to be charged’s silent intent doesn’t matter, unless it was

an intent to accept. a. Rationale for § 69: freedom to and freedom from

contract; we cannot impose contractual liability on someone; objective theory of mutual assent).

2. An offeree who does any act inconsistent w/ the offeror’s ownership of offered property (goods or real) is bound in accordance w/ the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. (restitutionary interest)

a. Wrongful act= exceeds the terms=acting intentional to property (conversion?) Offeror can treat the offeree’s actions as acceptance/breach of K rather than as a tort. (corollary)

b. Inconsistent act= if you do the thing the offeror wants (like use the item) then you are bound in a K (GR)

c. No K if terms are unreasonable, protecting the offeree.(Exception)d. Offeree has to take benefits, need same 5 elements as 1(a).

iv. Vogt v. Madden – D’s silence regarding allowing P to farm new crop on his land was not acceptance.

VII. The Manner of Acceptance1. Classical Contract Law vs. Neoclassical Contract Law

i. Classical Contract Law (First Restatement)1. Rigid, rule-oriented, and mechanical.2. Focuses on the magic moment of formation.3. Seeks to find certainty and predictability.

ii. Neoclassical Contract Law (UCC)1. Emphasizes the factual bargain of the parties.2. Seeks to uncover the true understanding of the parties.3. Seeks to enforce more contracts (a contract should not be rejected b/c it doesn’t

fulfill a rigid rule, when there was clearly an agreement between the parties).iii. Note: Restatement (Second) is influenced by both.

2. Classical and Neoclassical Similaritiesi. Both embrace objective theory of assent.

ii. Formation mutual assent.

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iii. The contextualization of all relevant facts when assessing assent (totality of the circumstances).

3. When to use the U.C.C.Hybrid and Mixed Transactions Princess Cruises Predominant Purpose of Transaction Test:

1. Determine the nature of what is involved: is there a hybrid or mixed transaction (both sale of goods and sale of non-goods in one fact pattern)?

a. Non-goods: real property, services, licensing intellectual property, etc.).b. If it is simply goods or non-goods, we do not need to apply the

predominant purpose test.2. What is the predominant nature or subject matter of the contract? Consider:

i. The language of the contract.ii. The nature of the business of the parties.

iii. The intrinsic worth of the materials (the comparative value of the goods vs. the non-goods).

b. What was the intent of the parties? Consider:i. The language of the parties.

ii. The nature of their businesses.3. Which body of law do we use?

a. Predominantly non-goods: general contracts law (Restatements).b. Predominantly sale of goods: UCC

i. On the final, write “The UCC only applies to the sale of goods, which means all things which are moveable at the time…(2-105)” (See below).

4. Apply the correct law.ii. Anytime you need to apply a UCC article, you must first tend the gate, use to

determine whether transactions facts get through article 2:1. UCC “Gatekeeper” Provisions:

a. UCC § 2-102 – Is there a statute directly on point for the type of sale at issue?

i. Article 2 does not impair or repeal any statute regulating sales to consumers, famers, or other specified classes of buyers.

b. UCC § 2-105 – Do the items in the fact pattern meet the definition of goods?

i. “Goods” means all things (including specially manufactured goods) which are tangible/moveable at the time of identification to the contract for sale. “Goods” also includes growing crops or other things to be severed from realty and the unborn young of animals. “Goods” does not include the money for payment, investment securities, and things in action (a property right that has no intrinsic value except the right to sue in respect of it, e.g. copyrights or trademarks).

c. UCC § 2-106 – Is there a contract for sale?

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i. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. (Clear this up – bilateral/unilateral Ks?)

ii. A “sale” consists in the passing of title from the seller to the buyer for a price.

d. UCC § 2-107 – (Only needed sometimes; are the goods to be severed from realty?)

i. When unaffixing materials from land (oil, gas, other minerals), the materials are “goods” if the seller severs them; if the buyer severs the materials, they are realty.

1. Crops and timber – does not matter who does the severing, as long as it is severed.

e. UCC § 1-201(b)(3) Agreement, as distinguished from “contract,” means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade.

f. UCC § 1-201(b)(12) Contract, as distinguished from “agreement,” means the total legal obligation that results from the parties’ agreement, as determined by the UCC as supplemented by any applicable laws.

i. Parties determine if there is an agreement; the law determines if there is a legal obligation. A contract presupposes an agreement.

g. Under the UCC you don’t need to chase down definitions of offer and acceptance, or try to attempt if they were met. It is undesirable to do so.

iii. If the code does not define what you need:1. Apply UCC § 1-103, which allows other law to supplement the code’s

provisions, as long as the supplement is not displaced by a particular provision in the code.

a. Things to ask when trying to apply 1-103:i. Does the code have a provision on point? If the code has no

provision on point, then there still may be a displacing provision (some statutes are specifically silent on an issue (negative pregnant), which usually means there is nothing that is displacing).

ii. If there IS a provision on point, is it displacing? Not every provision is displacing, so flipping out is not always inappropriate. (No displacing = flipping out ok). If the provision IS displacing, supplementing is not ok.

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iii. If it is ok to flip out, make sure to find provisions that are philosophically compatible.

Flipout Provision§ 1-103(b): general rule: the principles of general K law can apply EXCEPT:

i. If a particular provision of the UCC displaces the general lawSo, if not in the UCC, you can “flipout” to general law to find answers

ii. “flipout” is not the right term; use ‘extra code law’Applying §1-103:

iii. Does the code have a provision on point?iv. If so, is it displacing?3v. If there is a displacing provision, DO NOT flipout

1. Blake – the court ultimately found a contract, but it did so incorrectly. It did not need to supplement the definition of “offer” when it could have found the contract under §§ 2-204 and 2-206.

2. The court in Blake also flipped to the Williston treatise to find the definition of “offer,” which is not philosophically compatible. The language of § 2-204, in using “agreement” and “contract” should direct that we don’t need to find “offer” and “acceptance” to have a contract. In commercial reality, people don’t think about the exact moments of offer and acceptance, and when courts spend time trying to figure this out, they are might miss the reality between the parties. In UCC, we are simply looking for circumstances that show that there was an agreement.

4. Formation under UCCi. UCC § 2-204 Formation in General

1. A contract for the 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.

a. Conduct is put on the same footing as language. Classical contract law wants language (classical recognizes conduct, but under UCC, conduct is just as good as language).

2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

a. When offer and acceptance go out the window, the magic moment of formation goes out the window, too. UCC talks about “dynamic continuum” – there are a number of moments where the agreement formed.

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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.

a. Three Key Ideas from Subsection (3):i. Intent – Parties intended to make a contract – There is a

package of terms that arise, either through the language or the conduct, and if that package of terms is not there, we cannot say there is a K. (Sufficient # of sufficiently definite terms is just as important here. This is how we determine the parties’ intentions).

1. Be careful here – this element does not mean that parties intended legal consequences. Parties generally do not think about legal consequences, and if we make that a requisite, there will be fewer Ks. Parties simply have to manifest intents to enter into an AGREEMENT, and the law will find the legal obligations). (Reminder - Rest. 21 and 19(2)).

ii. Remedy – There is a reasonably certain basis for giving an appropriate remedy – S#SDT also important here. The law will not impose liability and give a remedy if there is no agreement. Objective theory of assent is still very much in play.

iii. Critical mass of terms – Even if one or more terms are left open, the contract does not fail (critical mass of terms demonstrating parties’ intent to be bound is all that is needed. How many terms are needed will vary from case to case. In UCC, quantity is more important).

1. If there IS a critical mass, which finds a contract, but there are open terms, apply the gap-filling provisions found below.

ii. § 2-204 is the general formation provision, which will be used the majority of the time. §§ 2-205-7 were drafted to correct problems that may arise. The general yields to the specific, so if we have a problem, 5, 6, or 7 will apply. § 2-204 is the sun, and 5, 6, and 7 are the planets, used in a more specific situation.

iii. § 2-204 is a displacing provision! If we supplement, we’re undercutting neoclassical principals.

iv. UCC § 2-205 Firm Offers1. Six provisions for a firm offer under UCC 2-205:

a. An offer (UCC does not define offer, so use 2nd Restatement § 24 definition).

b. Merchant (2-104 (1)) c. To buy or sell goods (apply UCC gatekeepers: 2-102, 2-105, 2-106)

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d. A signed writing (1-201(b)(37) and 1-201(b)(43))e. Assurance from optionor to make a firm offerf. During the time stated or a reasonable time if not stated (not to exceed

3 months) (1-205(a))i. When there is a standardized form supplied by offeree with a

firm offer provision, the provision must be signed separately. 1. No one reads standardized forms, so this makes sure the

offeror doesn’t inadvertently make a firm offer.2. Obviously, this doesn’t apply in every case.

v. UCC § 2-206 Offer and Acceptance in Formation of Contract1. An offer to make a contract shall be construed as inviting acceptance in any

manner and by any medium reasonable in the circumstances (general rule),2. Unless otherwise unambiguously indicated by language and circumstances

(exception).a. Both general and exception comport with the cardinal maxim that the

offeror is the master of his offer.b. There is a supposition here that is the exact opposite of that under

classical contract law. Classical assumes people think about and prescribe a particular acceptance. (The general and exception are switched). First Restatement presumed that a “typical” offer requests a specific manner of acceptance (i.e. promise or performance). Using that law, courts must spend a lot of time deciding what the offeror intended and wanted, and if the offeree didn’t give exactly what he wanted, no contract. UCC 2-206 reasons that the “typical” offer is one in which the offeror does not specify how one can accept. Thus, unless the offeror unambiguously insists upon a particular manner of acceptance, the offer may be accepted by performance OR promise, whichever is the ultimate desire of the offeree. Second Restatement 30 (2) also follows this idea.

Relationships o §2-204 can solve most formation mutual assent cases

More specific cases under §§2-205,06,07; these attempt to fill holes in classical K lawo §2-204

Use generallyo §2-205

Firm offer is a narrower version of an option K. To have an a firm offer you must have:

1) An offer under Restmt (2d) § 242) UCC 2-104 "Who constitutes a merchant?"3) A sale of goods4) A signed writing

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5) A manifested intent to create a firm offer6) Stated time must be reasonable but it cannot exceed 3 months

If one of these 6 is missing, it is not a firm offer 3 months can be extended by consideration or renewing the original offer

7) (alternative). When a form prepared by the offeree is inadvertently signed by the optionor it does not work. It must be separately signed by the offeror so we know he knew he was entering a firm offer.

in general K law: had to have consideration for an option K §2-205 doesn’t require consideration; firm offers can exist w/o it

o §2-206 Classical K says “typical” offer is one where manner of acceptance is prescribed

“rare” offer is one that is ambiguous to the manner of acceptance §2-206 reverses this: the now “typical” offer is one in which the manner of acceptance

is not prescribed; it is ambiguous “rare” offer insists on a manner of acceptance

o §2-207 Battle of dueling standardized forms

Gap-Filling Default Rules o When you have a critical mass of terms, but a few holes need to be filled in, use the gap-

filling rules They create default rules that a K should be guided by They are “term-like” things/provisions relating to obligations of the parties that the

parties didn’t include, but statutes creates them §2-305open price term §2-307delivery in single lot or several lots §2-308absence of specified place for delivery §2-309absence of specific time; notice of termination

o If drafter of a K doesn’t specify time provisions of performance or notice of termination, the “reasonable time” idea (§1-205) applies

o (1) general rule: time for shipment, delivery or any other action shall be a reasonable time UNLESS:

Otherwise agreed Otherwise provided in UCC

o (2) general rule: if K provides for successive performances, it is valid for reasonable time UNLESS:

Otherwise specified May be terminated at anytime (unless otherwise agreed)

o (3) termination of a contract requires reasonable notification UNLESS: Otherwise agreed

§2-310open time for payment or running of credit; authority under reservation Southwest Engineering v. Martin Tractor Co. 1970

o (F) Π was general contractor; Δ was subcontractor Δ was to supply generator to Π; Π used Δ’s bid, won the general K Δ sends letter to Π: ‘we withdraw all verbal quotations”

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This is anticipatory repudiation, or when someone repudiates a K before performance was due

Π had to get generator from 3rd partyo (I) was §2-204 satisfied? §2-310?

§2-310 (gap-filling provision)o (a) Deals with buyer performance obligation

Time/place of payment When and where does buyer have to pay for goods?

The time and place buyer receives goods Buyer has right to inspect goods before he accepts

o (b) buyer and seller and carrier of goods Carrier delivers rather than seller Buyer, before payment, can still inspect goods, but after inspection, payment is due

Must have transportation documents to prove he bought the goods o (c) buyer and seller and carrier (not default rule)

Payment at time and place when buyer receives the documents Documentary sale; must be agreed on by parties

o (d) open credit Seller allows buyer X days of open credit after delivery without payment Runs from time of shipment Must be agreed upon by parties

The Deviant Acceptance “Battle of the Forms” Mirror-image rule clashes with standardized forms

o §2-207 looks to help with this clash Downside of standardized forms:

o Procedural: People generally don’t read standardized forms (often in legalese); they might read the

dickered terms, but not the boilerplate terms Dickered terms- terms agreed on by the parties

o Price, quantity, quality, etc Boilerplate terms- terms not normally discussed/agreed upon by parties

o Warranties, remedies, adjudication, etco Substantive:

Dueling standardized terms (terms on parties’ forms that don’t match up) Which do you use?

o “last shot analysis” (approach is one of the downsides! Needs to be fixed) Whoever sends the last form, those will be terms of K Parties generally don’t fight about dickered terms, only boilerplate Seller’s form is usually last

When buyer receives acknowledgment with different terms than his purchase order, he usually ignores new terms and performs the K

o Conduct shows buyer “accepts” this “counteroffer” §2-207 is here to help!

Important to see if the forms differ on material terms

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o Material terms are terms that would negatively affect if not seen by non-drafting party Material: ex: subject matter, price, quantity, remedies, dispute resolution, warranties Immaterial: ex: §2-207 comment 5

§ 2-207 USE ONLY WITH STANDARDIZED FORMS!!!!o (1) is divided into 3 chunks:

Chunk 1: 2 case types Case type 1: “a definite…acceptance”

o Forms are the manifestations that will/will not make the agreement Case type 2: “written…time”

o Oral/informal correspondence make the agreement; the writing confirm it

If you don’t have either of these case types, NO §2-207 Restmt (2d) §59 overlaps with §2-207, but §2-207 can only be used with

standardized forms, whereas §59 is all cases Chunk 2: “even…upon”

Essentially, this is the negation of the mirror-image rule If there are no additional or different terms, NO §2-207

Chunk 3: “unless…terms” If the offeree makes additional/different terms a condition of acceptance (which

the offeror must assent to), then this chunk is triggered, and you must go to §2-207(3)

Only deals with 1st case type from chunk 1o (2) here, the agreement is already made

General rule: additional terms are proposals for addition to K Did they forget “different” terms? (comments have both)

o Murray’s view : they just forgot it, so you’re supposed to read in “different” and apply §2-207(2)

o Dillon’s view : if you come out of §2-207(1) (there is a K), but have different terms, go to §2-209(1) to make it a unilateral offer to modify

If you have a counteroffer, can’t be in §2-207(2) 1st and 2nd sentences perform different functions

1st- additional terms are mere proposals (unilateral offer to modify)o We assume there’s a K via §2-207(1) (if were in (2), we are post

formation!)o Very broad; doesn’t include term ‘btw merchants’

2nd- between merchants?o §2-104(1)- merchant def: person who deals in goods of the kind or

otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker

o General rule: additional terms become part of K, UNLESS: Offer expressly limits acceptance to terms of offer

This is mirror-image rule but after formation They materially alter terms Buyer (offeror) objects to the terms within a reasonable time

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o So, general rule basically says that unobjected, immaterial terms will be put into K

Think: parties wouldn’t be mad about these terms if they didn’t know about them

o (3) when forms didn’t create a K, the conduct between parties can indicate a K Terms then are those that are agreed upon in original forms

Forms may not have critical mass of terms, but can give some terms; add in gap-fillers

If the offeree insists the offeror assent to the terms of a K (true counteroffer in the situation):

If the offeror knows the terms and agrees to them, we have a K If the offeror doesn’t realize the new terms, but still proceeds to perform, we go

to §2-207(3) to explain that conduct can still create a Ko When K has been created under (3) by conduct, the terms of the K should be:

Whatever terms parties agreed to in writings Conflicting terms get knocked out (only conflict if both parties mention them)

Gap-fillers fill in holes Itoh v. Jordan Int’l Co.

o (F) Π sent Δ a purchase order for steel coils. Δ sent acknowledgement form, but it had an additional term (arbitration) and said that Δ’s acceptance is “expressly conditional” on Π’s assent to the additional term. Π never manifested an assent to the term; regardless, Δ shipped the steel and Π accepted.

New term condition: “Seller’s (Δ) acceptance is expressly conditioned on Buyer’s (Π) assent to the

addition or different terms. If terms and conditions are not acceptable, Buyer (Π) should notify Seller (Δ)at once”

o (I) whether the arbitration term should be in Ko Court’s (H) (Dillon/Murray say the court did it wrong) Court found that Π did not expressly

assent to the new terms, which was clearly conditional to Δ’s acceptance. Therefore, the court believes that the ‘unless’ clause (3rd chunk) of §2-207(1). This means that Δ’s acknowledgment is a counteroffer, and Π didn’t accept, therefore there is no K created by the forms. Because the unless clause is activated, we go to §2-207(3) which says that conduct created the K, thus, the terms are the ones the parties agreed to

the parties didn’t agree on the arbitration clause, therefore it is not in the K this also assumes (probably incorrectly) that Π didn’t know about the new term

(ignores objective theory of assent)o Dillon/Murray (H) The court failed to correctly interpret the “expressly conditioned” clause.

The clause states that if the buyer(Π) does not agree with the new term, he needs to immediately tell seller(Δ). Π did not reject the new term, so both parties probably believe they are engaged in a K by ways of the standardized forms. Since there is a K via the forms, we cannot go to §2-207(3) (because that deals only with K created by conduct after a counteroffer), and, instead, must go to §2-207(2) because we are dealing with additional terms.

Both parties are merchants. As per §2-207(2), the terms of the K should be the terms of the forms+additional term, as long as the additional term is unobjected and immaterial

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Arbitration clauses are material terms; therefore, the arbitration clause is not included in the K

o The court’s (h) and Dillon/Murray’s (h) arrive at the same conclusion, but for different reasons. Dillon/Murray think the court was wrong and ignored important facts.

Court ignored, especially, the fact that both parties believed there was a K (objective theory of assent)

Interests Interests and remedies are not synonyms

o Interests show the nature of the harm; how the party is aggrievedo Remedies are legally available options to repair injury caused by breach

Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:

(a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,(b) his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or(c) his “restitution interest,” which is his interest in having restored to him any benefit that he has conferred on the other party.--Restmt (2d) §344purpose of remedies

3 types of interests:o Expectation: benefit of the bargain fro the aggrieved party had K been performed

What aggrieved party expects to get out of K Being deprived of economic value

Promised, but undelivered performance §1-305UCC’s version of expectation remedies/can’t punish the breaching party, only

compensate the aggrieved partyo Reliance: being reimbursed for losses suffered by aggrieved party like if K was never made

Undertake acts of reliance that lead to loss Returning to the status quo

o Restitution: benefit being restored I pay you for widgets, you don’t give them to me; I want my money back (restitution) Not only am I losing something (payment for widgets) but you are gaining something

(payment w/o losing widgets); needs to be fixed Both parties being restored to status quo Most severe

§344 comment ao Law prefers to protect expectation interest

What should’ve happened but didn’t? $ estimate by imagining what performance would’ve accomplished/looked like

2 types of reliance:o Active: organizing business affairs in some fashion that wouldn’t have happened without the

K (ex: buying lumber to build, then being told you are not the one building it anymore, but you already bought the lumber)

o Passive: passing on a different K, etc

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o Reliance only returns aggrieved party to status quo §344 comment b

o Foreseeability-party who breaches, what do they know about what would happen to other party if they breach

o Certainty- reasonable, not mathematicalo Avoidable consequences- did you mitigate damage? Cant recover what could’ve been avoidedo Its not what someone hopes is going to happen from a K, it is the actual value of the loss that

you expected, but never received because of breach §344 comment d

o Restitution is a body of law on its own outside of K law Age old Simply overlaps Can be an independent cause of action

Interests are important in K law because at the heart of a K is enforceability “expectation is the starting pitcher”—Dillon

o -just cause the starting pitcher doesn’t work out, you can go to the bullpen (reliance, restitution)

o reliance and restitution are generally less than the K priceo if reliance>expectation, then the K price is the upper limit

-we only compensate in K, not punish (§355) §371 (a)measure of restitution interest

o Substitute market value- reasonable value that would be charged in fair market price comparison

o Functional test-

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Fall 2012 Dillon Outline.docx

Documents

Transcript of Fall 2012 Dillon Outline.docx