Contracts Outline – Swaine Fall 2007
- What Law Applies?
Common Law / UCC / CISG
Applies / Applies when neither UCC nor CISG comes in, and may supplement the UCC & CISG. / Article 2 applies to transactions in goods (see §2-102: Scope) / Applies to sale of goods between parties whose places of business are in different countries that are party to the CISG (Article 1)
Exceptions / §2-105(1) defines goods: moveable things; NOT services, real property, investment securities, or “things in action” – copyrights, patents, etc / Does NOT apply to goods bought for personal, family or household use; to ships/vessels/aircraft; to investment securities… (Article 2)
Merchant / §2-104(1): person w/ knowledge or skill in this type of transaction. Broadly interpreted – generally includes Universities bc they have purchasing dept, eg.
Princess Cruises v. General Electric: When there is a mixed transaction, look at Coakley Factors:
1.Language of the K
2.Nature of supplier’s business
3.Intrinsic worth of the materials
- Is there a Contract?Damages are what P expected to receive if K was fulfilled
Common Law / UCC
Contract Defined / Rest 2nd §1: Contract is a promise for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty / §1-201(11): Contract means the total legal obligation which results from the parties’ Agreement as affected by this Act and any other applicable rules of law.
Agreement Defined / §1-201(3): Agreement means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance…
Formation / §17: Standard contract requires a bargain, manifestation of mutual assent, and consideration / §2-204: (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
Intention to be Legally Bound / §21: Neither real nor apparent intention that promise be legally binding is essential to formation of K
- Manifestation of Mutual Assent? – MODIFIED OBJECTIVE PERSPECTIVE
Common Law / UCC / CISG
Intention to be Legally Bound / §21: intention that promise be legally binding is NOT essential to formation of K. If a party acted as though he intended to be bound, he is bound.
Misunder-standing / Meaning of Terms / §20, §201:
1. If Parties attach materially different meanings and neither or both knew/had reason to know of other’s meaning = No mutual assent;
2. If (a) one party knew of the other party’s meaning and the other did not know [subjective asymmetry], OR (b) one party should have known of the other party’s meaning and the other had no reason to know [objective asymmetry], the meaning of the innocent party is used. / Article 8(1): Meaning of statements/conduct are interpreted by intent, where the other party knew or could not have been unaware what the intent was;
(2) by reasonable person interpretation if (1) does not apply;
(3) to determine intent, consider all circumstances: negotiations, practices between the parties, subsequent conduct of parties
Moment of Formation / §22:
(1) Normally, assent is through offer and acceptance, BUT
(2) Manifestation of mutual assent can exist even if offer, acceptance, or moment of formation can’t be determined / §2-204(2): An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
Duty to Read / §70: One who manifests acceptance of the terms of a writing which he should reasonably understand to be an offer or proposed K, is bound by the K, though ignorant of the terms of the writing or its proper interpretation. / Note tension between duty to read vs. “adhesion contract / reasonable expectations doctrine” – the latter applies to standard form contracts only, and generally where a non-sophisticated / inexperienced party is entering contract
Raffles v Wichelhaus (the “Peerless” case) UK 1864: Raffles (cotton seller) sued Wichelhaus (buyer) for non-performance of contract because buyer refused shipment of cotton when it arrived on the ship Peerless which left Bombay in December for Liverpool; buyer had expected cotton to arrive on Peerless which left Bombay in October.Holding: There was no manifestation of mutual assent because there was no mutual understanding of terms. Found neither party at fault for misunderstanding, so neither party’s definition could prevail.Subjective understanding of contract – OUTDATED theory.
Lucy v Zehmer(Va. 1954): Lucy, would-be purchaser of Ferguson farm, sued owner (Zehmer) for specific performance of contract in which Zehmer and his wife agreed to sell farm for $50,000, but on which Zehmer reneged, saying the K was a joke to Z all along.Holding: The subjective intention of the parties is NOT relevant, nor does it matter that a party did not intend for promise to legally binding – it is the outward expression, and how it would appear to a “reasonable man” that matters.Objective understanding of contract – MODERN theory. (Modern actually “modified objective” theory – subjective intent matters when the parties agree on meaning, or when they disagree by mistake)
Ray v. William G. Eurice & Bros, Inc. (Md. Ct App 1952) p.23: Contractors bound to build house despite claims they had not seen the specs attached to contract – K referred to the specs and contractor signed. Test of K is Objective: K is interpreted by what a reasonable person in the position of the parties would think the K means, not what one of the parties meant/thought it meant.
- Offer?
Common Law / UCC / CISG
Offer Defined / §24: Offer is manifestation of willingness to enter into a bargain, so as to justify another in understanding that assent is invited and will conclude K. / [Not defined, therefore use common law def’n] / Art. 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.
Identity of Offeree / Offeree must be a specific person. Form letters, and usually ads, aren’t offers. See §26, Longergan, Izadi / Addressed to one or more specific persons (Art. 14(1)).
Preliminary Negotiations / Intention for further assent / §26: manifestation of willingness to enter bargain is NOT an offer if “offeree” knows that offeror does not intend to conclude K w/o further manifestation of assent / Art. 14(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
Certainty / §33: Offer must be reasonably certain in order to “confer power of acceptance” (missing terms may = not an offer)
Terms are certain if they provide:
- Basis for determining breach;
- Basis for appropriate remedy for breach
Lonergan v. Scolnick (CA Dist Ct of Appeal, 1954): D, Scolnick – seller, placed ad in paper offering to sell property, P, Lonergan – buyer- (in New York) responded to ad and further correspondence, but D sold property to 3rd party. P sued for specific performance or damages on breach of contract theory.Advertisements and form letters are not offers – there is a §33 lack of certainty (as to whom the offeree is) and §26 indication that further manifestation of assent is required.
Izadi v Machado (Gus) Ford (FL Dist Ct App, 1989): P attempted to purchase Ford Ranger Pickup from D dealership for $3595 cash plus a trade in; D refused despite newspaper advertisement implying this deal was offered. Court rules that Ad is an offerbecause the objective interpretation of the ad is that all of the terms are clear and the car will be sold at the price shown. There are lots of cars, so offer could be extended to many readers and contract entered w/ all who accept.Enforcement here partly punitivefor “bait & switch.”
- Acceptance?
Common Law / UCC / CISG
Acceptance defined / §50(1): manifestation of assent to terms of offer, made by offeree in manner invited by the offer / Article 18(1): statement or conduct indicating assent is an acceptance.
Ninja Rule / §69: silence/inactivity operate as acceptance only when:
(a) Offeree takes benefit of services which he had the opportunity to reject & knew were offered w/ expectation of compensation;
(b) Offeror permits acceptance by silence AND offeree intends to accept by silence;
(c) Previous dealings make it reasonably for offeree to notify offeror if he doesn’t accept / Article 18(1): Silence or inactivity does not in itself amount to acceptance
Termination of Power of Acceptance / §36: (1)Power of acceptance is terminated by:
(a) rejection/counter-offer
(b) lapse of time
(c) revocation
(d) death of offeror;
(2) or by non-occurrence of a condition of acceptance / Art. 18(2): An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
c. Acceptance, cont’d: Battle of the Forms?
Common Law / UCC / CISGBattle of the Forms;
Mirror Image Rule; Last Shot Rule / §59: Acceptance must be the “mirror image” of offer, or else it is a counter-offer;
§39: Counter-offer is rejection of original offer
But note: inquiry re: possible other terms is not a counter-offer & does not terminate power of acceptance
Last shot rule: Effect of common-law mirror image rule on battle of the forms is that the last form controls – it is a rejection & counter-offer to the previous offer, which is accepted by performance (usually acceptance of services by buyer – so this rule favored sellers) / §2-207(1): (1)A definite and seasonable [= “timely”] expression of acceptance [= assent] or a written confirmation which is sent w/in 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 expressly made conditional on assent to the additional or different terms.
(2) The additional terms are 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 w/in a reasonable time after notice of them is received. / Art. 19(1): mirror image rule: a reply to an offer which purports to be an acceptance but contains additions, limitations, or other modifications is a rejection of the offer and constitutes a counter offer.
(2) HOWEVER, if the different terms do not materially alter the offer, then it’s an acceptance AND the new terms come in if the original offeror does not object “without undue delay.”
Bottom Line: material changes in purported “acceptance” make it a rejection & counter-offer.
§2-207(2) Knock out Rule / Knock-out Rule: new terms that are different (instead of “additional”) can be handled 3 ways:
- Treat as add’l terms (but co-existence of the different terms usually doesn’t work);
- Give no effect “first shot rule”
- Knock out conflicting terms & all other additional non-material alterations are included – majority rule
§2-207(3): Conduct creates K / §2-207(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 w/ any supplementary terms incorporated [by] this Act.
Material Alterations / §2-207 cmt 4: “surprise or hardship”: negating std warranties, choice of law, reserving seller power to cancel if payments not made when due, requiring complaints in shorter time than customary, etc.
NOT MATERIAL: force majeure clause, reasonable interest rate, reasonable time for complaints, providing for inspection, limiting remedy in a “reasonable manner” / Art 19(3):
MATERIAL ALTERATIONS:
Price, payment, quality/ quantity of goods, place/ time of delivery, extent of liability, disputes settlement (& other)
c. Acceptance Cont’d: Unilateral Contracts?
Common Law / UCC / CISGUnilateral K – acceptance by performance / §32: In case of doubt, offer is interpreted as inviting the offeree to accept either by promising to perform or by rendering performance, as the offeree chooses. / § 2-206. Offer and Acceptance in Formation of Contract.
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment… / Art. 18 (3): If, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time [req’d by offer or a reasonable time if offer isn’t explicit].
- Revocation of Offer?
Common Law / UCC / CISG
Offers are generally Revocable? / Yes. Written offer that states it will be held open for 30 days is revocable within the 30 day period if not supported by consideration. (Normile v. Miller; §42 Cmt a).
But, Promissory Estoppel can be applied to make an offer irrevocable where the promisee relied on the promise (construction bidding, e.g.) / Not by merchants. §2-205: 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 exceed 3 months. Any such form supplied by the offeree must be separately signed by the offeror. / Yes. Art. 16(1) Until a K is concluded, an offer may be revoked if the revocation reaches the offeree before he has dispatched acceptance.
HOWEVER, Art. 16(2), if the offer indicates that it will be held open, it is irrevocable.
d. Revocation of Offer, Cont’d: Mailbox Rules
Common Law / UCC / CISGMailbox Rule: Revocation / §42: 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.
§43: communication of offeror’s intention not to enter a contract rec’d by offeree from a 3rd party is an effective rejection. / Art. 15(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.
Mailbox Rule: Rejection / §40: Rejection is effective when it reaches the offeror;Acceptance dispatched after rejection is dispatched is effective as acceptance if it reaches offeror before the rejection does. / Article 17: Offer is terminated when rejection reaches the offeror
Mailbox Rule: Acceptance / §63(a): Acceptance is effective when dispatched, regardless of whether it ever reaches offeror.
* Dispatched means put out of the offeree’s possession (mail clerk @ office, private courier service = still in possession).
*Once dispatched, acceptance can’t be withdrawn. / Article 16(1): otherwise revocable offer cannot be revoked once acceptance has been dispatched, BUT
Article 18(2): acceptance effective when it reaches the offeror (onus on offeree to make sure acceptance is actually received by offeror);
Rules re: means of com-munication / §63: acceptance must be by means invited by offeror “Offeror is Master of Offer”
§65: choose medium appropriate to type of transaction;
§66: must be property addressed, steps taken to assure receipt
What constitutes “receipt” / §68: - rec’d by addressee
-Rec’d by authorized party;
-Deposited at place where similar communications are rec’d by the party / Art. 15(1) An offer becomes effective when it reaches the offeree.
Art 24: An offer, acceptance, or other declaration of intention “reaches” the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address, or if he does not have one of those, to his residence.
Normile v Miller (SC of NC, 1985): P (Normile) attempted to purchase property belonging to D by accepting her counter-offer, after he had been notified by her real estate agent that the property had been sold. Holding: There was no contract: 1. Counter-proposal is an effective rejection of original offer for K; 2. Option requires consideration; 3. An offer is generally freely revocable and can be rescinded by offeror @ any time prior to acceptance (R2d §42). Here, offer was revoked by agent telling Plaintiff that property had been sold to someone else – Plaintiff could not then “accept” the offer. (Plaintiff may have also effectively rejected offer by not accepting when orally informed of its terms – industry standard re: timeliness – R2d §36 – this would probably be a fact question for court.)
d. Revocation, Cont’d: Unilaterial Contract
Common Law / UCCUnilateral K – Offer not revocable once performance is begun or tendered
– Offeree must complete performance for K to be effective / §45: (1) Where offer invites offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when the offeree tenders or begins the invited performance or tenders a beginning of it
(2) The offeror’s duty of performance under any option K so created is conditional on completion or tender of the invited performance in accordance w/ the terms of the offer.
Petterson v. Pattberg;Cook v. Coldwell Banker / §2-206(2) Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
Petterson v Pattberg (NY Ct App 1928): Pattberg (D), owner of bond secured by Petterson’s (P) house, offered P that if P paid off mortgage prior to May 31, 1924, and made regular payment due 4/25/24 on time, D would reduce cost by $780. When Petterson appeared on Pattberg’s doorstep with $ to pay off mortgage prior to May 31st, Pattberg said it was too late – he’d sold the mortgage to someone else. Holding: No contract – offer was revocable until accepted; Petterson did not accept because he did not pay. R2d §45 softens this – Petterson’s tendering performance would have rendered the offer irrevocable – BUT, whether Petterson managed to tender performance before Pattberg revoked is still a question.