Business Law I at Medgar Evers College

Business Law I at Medgar Evers College

Agreement

Business Law I at Medgar Evers College

Agreement – the parties must agree on the terms of the contract and manifest to each other their mutual assent. We expect forms of offer and acceptance.

An offeror makes an offer to an offeree.

Offer – promise or commitment to do or refrain from doing some specified thing in the future. There are generally three necessary elements to identify an offer.

1) The offeror must have a serious intention to become bound by the offer.

2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract.

3) The offer must be communicated to the offeree.

Intention – is determined according to the objective theory of contracts. Lucy v. Zehmer

An expression of opinion is not an offer. It does not indicate an intention to enter into a binding agreement.

A statement of an intention to do something in the future is not an offer.

Preliminary negotiations are not an offer but agreements to agree are increasingly binding in the courts.

Advertisements are invitations to make an offer.

Consider Lefkowitz v. Great Minneapolis Surplus Store, Inc., 251 Minn. 188, 86 N.W. 2d 689 (1957). In this case, the defendant had published a newspaper announcement stating: “Saturday 9 AM Sharp, 3 Brand New Fur Coats, Worth up to $1,000.00, First Come, First Serves $1 Each.” Morris Lefkowitz arrived at the store, dollar in hand, but was informed that under the defendant’s “house rules,” the offer was open to ladies but not gentlemen. Was a contract formed with an enforceable offer and acceptance?

An auction is an invitation asking bidders to submit offers. The offer is accepted when the auctioneer strikes the hammer. Before the fall of the hammer, a bidder may revoke or take back his or her bid. In an auction with reserve, the seller may withdraw the goods at any time before the auctioneer closes the sale. In an auction without reserve, the seller cannot withdraw the goods and sell them to the highest bidder.

Consider Andrus v. State, Department of Transportation, and City of Olympia, Washington State Appellate Court, 117 P.3d 1152 (Wash. App. 2005)

Scott Andrus applied for a position as a building inspector with the city of Olympia. He received a call from Tom Hill, an engineering supervisor with the city. Hill stated, “You’re our number one choise, and I’m offering you the job.” Andrus responded, “Great” and “Yes.” Hill did not discuss the specifics of the job, do Andrus asked Hill to fax him those details. The city never sent such a fax or a written job offer and request for acceptance.

On the same day that Andrus received the call from Hill, the city checked Andrus’s employment references, including his current employer (the Washington Department of Transportation), which proved unsatisfactory. Hill called Andrus the next day, informing him that the city had withdrawn the job offer because of further reference checks.

Andrus sued the city and the DOT, claiming wrongful discharge and arguing that the phone call from hill offering the position was an employment contract. He also alleged that the DOT was liable for defamation for providing a bad employment reference to the city. The superior court granted the city’s request to dismiss his claims without a trial, and he appealed only the breach of contract claim against the city. What did the Appellate Justice decide?

Definiteness – an offer must have terms that are reasonably definite so that, if it is accepted and a contract formed, a court can determine if a breach has occurred and can provide an appropriate remedy.

Usually a contract must include:

1) The identification of the parties.

2) The identification of the object or subject matter of the contract including quantity.

3) The consideration to be paid.

4) The time of payment, delivery, or performance.

Courts will sometimes supply a missing term if there is a clear intent to form a contract. But, if their expression of intent is too vague or uncertain, the courts will not supply a reasonable term. Baer v. Chase

Communication -- The offer must be communicated to the offeree. So, for example, a person cannot claim a reward if they did not know about it beforehand. The offer was never communicated to them.

Termination of the offer

Termination by Action of the Parties

A revocation is the act of withdrawing an offer. Unless an offer is irrevocable, the offeror can revoke the offer. Usually, a revocation becomes effective when the offeree or the offeree’s agent actually receives the revocation. Usually, an offer must be revoked in the same way that it is offered.

Some irrevocable offers –

option contracts – when an offeree promises to hold an offer open for a specified period of time in return for a payment. Real estate option contracts are common.

Detrimental reliance and promissory estoppel

Detrimental reliance and partial performance

Rejection – If the offeree rejects the offer, the offer is terminated.

A counteroffer is a rejection of the original offer and the simultaneous making of a new offer.

At common law, the mirror image rule requires the offeree’s acceptance to match the offeror’s offer exactly.

Termination by Operation of Law

Lapse of time can be determined by the contract or by a reasonable amount of time.

Destruction of the subject matter automatically terminated the offer.

An offeree’s power of acceptance is terminated when the offeror or offeree dies or becomes incompetent. This applies whether or not either party had notice of the death or incompetence. If the offer is irrevocable, the death of the offeror or offeree does not terminate the offer.

Supervening illegality – A statute or court decision that makes an offer illegal automatically terminates the offer.

Acceptance – a voluntary act by the offeree that shows assent to the terms of the offer.

Acceptance takes effect at the time the offeree sends or delivers the communication by the mode expressly or impliedly authorized by the offeror. This is the mailbox rule, which the majority of courts follow. If the authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched, and NOT when it is received by the offeror.

The mailbox rule was created to prevent the confusion that arises when an offeror sends a letter of revocation, but, before it arrives, the offeree sends a letter of acceptance. Thus, whereas a recovation becomes effective only when it is received by the offeree, an acceptance becomes effective on dispatch.

EXCEPTION: When the offeree sends a rejection first, then later changes his or her mind and sends an acceptance, the first communication received by the offeror determines whether a contract is formed. We don’t follow the rule of acceptance on dispatch here.

The Uniform Commercial Code (UCC)

§ 1-103 Construction of [Uniform Commercial Code] to Promote Its Purpose and Policies; Applicability of Supplemental Principles of Law

(a) [the Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are;

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(1) to simplify, clarify, and modernize the law governing commercial transactions;

(2) to permit the continued expansion of commercial practices through custom, usage, and assignment of the parties; and

(3) to make uniform the law among the various jurisdictions.

(b) Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause, supplement its provisions.

§ 2-102. Scope; Certain Security and Other Transactions Excluded From This Article.

Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers

The UCC and Open Terms

Term Left Open / Interpretation under the UCC
Price / A “reasonable price” is supplied at the time of delivery UCC 2-305(1-2). UCC 2-103(1)(b)
Payment / Payment is due at the time and place at which the buyer is to receive the goods. UCC 2-310(a); UCC 2-511(2)
Delivery / The place for delivery is the seller’s place of business. UCC 2-308(a); UCC 2-309(1)
Time / The contract must be performed within a reasonable time. UCC 2-311
Duration / The party that wants to terminate an ongoing contract must use good faith and give reasonable notification. UCC 2-309(2),(3)
Quantity / Courts generally have no basis for determining a remedy. UCC 2-306(1)

Does a firm offer to sell goods require consideration under the Uniform Commercial Code?

§2-205 Firm Offers

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An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months, but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

§ 2-104 Definitions: “Merchant”;...

(1) “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself 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 or an agent or broker or other intermediary who by his cooperation holds himself out as having such knowledge or skill.

UCC §2.207 and the “Battle of the Forms”

Often times, two parties negotiate contracts with written communications. They include standard terms in their proposed contracts that contain “boilerplate” terms that often look out for their party’s interests. Parties will sometimes haggle only over the most material parts of a contract and leave the other details for later; sometimes opening up later legal disputes.

For example, Buyer sends Seller a written order for a Louden LeThal model XZ100 Rivet Gun, for a price of $450, C.O.D. delivery in 30 days. The order is on Buyer’s form that contains a preprinted indemnity provision, stating that if anyone suffers injury in operating the gun and successfully sues Buyer, Seller shall indemnify Buyer by paying the judgment and Buyer’s legal fees. On receipt of the order, Seller immediately sends an acknowledgment that accords with the order in all respects, except for the indemnity. The seller’s acknowledgment has a preprinted indemnity provision that says exactly the opposite, requiring Buyer to indemnify Seller for any such claims that may be made against Seller.

1) A problem might arise if one party decides to leave the agreement. They can use the difference in the terms as a pretext for reneging. Under the mirror image rule, Seller’s nonconforming response prevents the acknowledgment from being an acceptance and makes it a counteroffer.

2) Another type of problem might arise if the Seller does deliver the machine and one of Buyer’s workers receives an injury while operating it. Buyer’s worker sues to recover damages. Whose term, the Buyer’s or Seller’s indemnity clause, became part of the contract? The “last shot” rule says that the last response by the Seller became a counteroffer. And then the acceptance of the machine by the Buyer became an acceptance of the counteroffer by the Buyer’s conduct. There was now a contract on the Seller’s terms.

§2-207 Additional Terms in Acceptance or Confirmation

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is especially made conditional on the assent to the different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless;

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

-- To determine whether an additional term materially alters a contract, look for “surprise” (beyond reasonable expectations) and “hardship” (unbargained for burdens).

The Battle of the Forms Under the CISG (The United Nations Convention on Contracts for the International Sale of Goods) “In an international sales transaction governed by the CISG, an acceptance containing new terms that do not materially alter the terms of the offer becomes a part of the contract, unless the offeror promptly objects to the change. However, a purported acceptance that contains additional or different terms that do materially alter the terms of the offer would constitute a rejection of the offer and a counteroffer. No contract would arise at all unless the offeror in return accepted all terms of the counter offer.” (Recall, that under the UCC, a contract would arise, albeit without the new terms.)

Source: Schaffer, Richard, Agusti, Filberto, and Earle, Beverley, International Business Law and Its Environment, USA, South-Western Cengage Learning: 2009.

SAMPLE QUESTION:

Carr Buff’s hobby is restoring vintage cars. After working on it for many years, he just completed the restoration of a 1957 Ford. On December 15, he parked the car in the parking lot of a shopping mall. When he returned to it, he found a note stuck under the windshield wiper that read: “Dear owner of 1957 Ford: I love this car and would like to buy it from you. I offer to pay you $100,000 for it, which I will pay on delivery of the car and its title papers. If you would like to sell the car to me, please reply to the address below as soon as possible, but not later than December 20. On your acceptance, we will arrange a date to complete this transaction before Christmas.” The note was signed by Rod Hott, and contained a street address.

After thinking about the offer for a couple of days, Carr decided to accept it. On December 18 he mailed a letter to Rod in which he said, “I agree to sell the Ford to you for $100,000. Please note that payment must be in cash or by cashier’s check. Call me as soon as you get this letter to arrange the time for delivery. Note, however, that I sell the car to you on condition that you agree to return it to me for one day on February 15 next year, because I have already entered it in an antique car exhibition on that day.” Rod received the letter on December 21.

(a) Do Rod and Carr have a contract on December 21?

(b) If so, what are its terms?

(c) Assume that after Rod received Carr’s letter on December 21, he called Carr and they arranged for delivery on December 24. Carr delivered the Ford and the title to Rod, who handed Carr a cashier’s check for $100,000. Neither party said anything about Carr borrowing the Ford and the title to Rod, who handed Carr a cashier’s check for $100,000. Neither party said anything about Carr borrowing the Ford for the exhibition on February 15. On February 10, Carr called Rod to arrange to collect the car for the exhibition, but Rod refused to give it to him, claiming that he had no contractual obligation to do so. Is Rod correct?

SAMPLE QUESTION 2

Tutu O’Severn decided to take up dance lessons. She needed shoes, so she searched the Web and found the website of Ballet de la Forms, Inc. (Ballet), a supplier of dance equipment. She selected a pair of shoes for $150, clicked on them to place them in her virtual “shopping cart,” and filled out the online order form in which she inserted her name, e-mail address, shipment and billing address, and credit card particulars. In the box called, “delivery options,” she selected “standard, 1 to 2 weeks delivery.” She clicked the “submit” button. A couple of seconds later, an automated response appeared on the screen headed “Order Confirmation.” It set out a confirmation number, the details of the order as submitted by Tutu, and instructions on how she could track the progress of the shipment.

Two days later, Tutu received an e-mail from Ballet, which stated, “Thank you for your order. Regrettably we are out of stock of the item that you ordered. We expect new supplies shortly and will ship as soon as possible. Please allow 4 to 6 weeks for delivery.” Tutu was disappointed, but resigned herself to wait for the shoes.

Three weeks later, Tutu received another e-mail from Ballet, which said, “We are pleased to inform you that the shows that you ordered are now in stock. Unfortunately, the manufacturer has increased the price since you placed your order, and the shoes now cost $250. If you would still like to buy the shoes at the new price, please resubmit your order.” Tutu insists that she had already bought the shoes at the original price, and that Ballet is obliged to deliver them to her at that price. Is she correct?