UCC §§ 1-103
Construction of Uniform Commercial Code to Promote its Purposes and Policies: Applicability of Supplemental Principles of Law.
The Uniform Commercial Code must be liberally construed and applied to promote its underlying purpose and policies, which are: (1) to simplify, clarify and modernize the law governing commercial transactions; (2) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and (3) to make uniform the law among the various jurisdiction.
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.
UCC §§ 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.
Benefit-detriment conception of consideration
Legal detriment
A legal detriment means promising to do anything that you didn’t have to do or promising to forbear from doing anything that you might have done.
Under Hammer v, Sidway, a return promise to be a sufficient consideration doesn’t have to be an actual detriment, it is enough for it to be a “legal” detriment to the promisee.
Restatement (Second) § 71 Bargain conception of consideration
Situation
Uncle promised his nephew that he would pay him $5,000 if the nephew refrain from drinking, using tobacco, swearing and playing cards or billiards for money until he became 21 years old.
The nephew assented thereto, and fully performed the conditions
The nephew turned 21, and the uncle promised again to keep the money for him
The uncle died without paying the nephew
Sidway’s (representing the uncle) argument:
Uncle’s promise to pay is not enforecable because the necessary consideration. Sidway argued that in return for the uncle’s promise, the nephew hadn’t given up enough because nephew had only promised to forbear from doing things that would have harmed him.
Summary:
Promissory estoppel, another basis for enforcing promises without bargain for exchange.
Restatement (Second) § 90 Promissory Estoppel
“A promise which the promisor should be reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.”
–> pay attention: there are 3 elements required:
Expectation damages
Expectation damages put the promisee inthe position she would have been in had the promise been performed.
Reliance damages
Reliance damages compensate the promisee for the costs incurred in reliance on the breached promise and so put the promisee in the position she would have been in had she never relied on the breached promise.
Situation
The old gentlemen “took out a piece of paper in the shape of a note; that is the way it looked to me; and he says to Miss Scothorn, ‘I have fixed out something that you have not got to work any more.’ He says, ‘None of my grandchildren work and you don’t have to’.
A year later, with the consent and assistance of her grandfather, she got a new job. Miss Scothorn sued the executor of her grandfather’s estate for the remaining balance.
–> In this case, there is NO consideration. Her quitting her job as a bookkeeper is voluntary and is not a condition to receive money from her grandfather.
Ruling
Despite the lack of consideration, the court held that justice required the promise to be enforced.
The grandfather “intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, [so] it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration.”
Summary
(Before) pacta sunt servanda. Parties must abide by contracts no matter what
Paradine (English case from 1647):
“When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract.”
UCC § 2-615 (Courts are now more lenient)
“Non-delivery…by a seller…is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made…”
Summary
UCC § 2-302(1)
“If the court finds as a matter of law… nay clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract…”
“This section is intended to make it possible for the courts to police against the contracts or clauses which they find to be unconscionable…The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract…The principle is one of the prevention of oppression and unfair surprise ” - § 2-302, comment 1
Unconscionability: Judge Wright
Epstinian Inversion
Would a libertarian more concerned with procedural or substantive unconscionability? should be procedural, but
Substantive unconscionability can be evidence of procedural unconscionability
Situation
Procedural unconscionability:
Defects in the contractual bargaining process
Substantive unconscionability:
Unfairness in the outcome of that process - i.e., in the contractual terms
Usually both must be present for a court to declare a contract unconscionable.
Judge Danaher’s Dissent
Many poor people lack credit and thus pose a risk to companies selling goods on installment. He suggested that companies might only be willing to sell goods to those when their pricing policies can commensurate with the risk. If the courts refused to enforce Walker-Thomas Furniture Company’s contracts, might the company cease selling expensive items to low-income purchasers at all?
Courts v. Congress - who should decide what contractual terms are too exploitative?
Property Rules:
Liability Rules:
How is Legal Right Protected? it can be complex because it can be a mix of both.
Take by who?
Your home is protected by property rules against other citizen to take your home, but only liability rules applied when it is taken by the government
How is it taken? If you intentionally take my car, then the criminal law sends you to jail, but if you negligently destroy my car, the tort law only requires you to compensate me
Transaction Cost Theory
Calabresi & Melamed suggest that
For example, dock owner who has the entitlement to exclusively use a dock under normal circumstances where the third parties have an opportunity to bargain to rent dock use, the entitlement is protected by a property rule
But tort doctrine of necessity says that under unusual exigencies of a severe storm where third parties may not have the opportunity to contract, a ship owner can use your dock without your consent and only have to pay you reasonable compensation (liability rule).
Contractual Rights
Two main issues
Was the installation of Eeading pipe a constuctive condition precedent to the owner’s duty to pay the last installment due ot were the promises to pay and to install Reading pipe independent?
Is the measure of damage for a breach by the builder the
Duty to Pay Rules
Perfect Tender -> don’t need to pay (defensive) unless everything is done exactly to the contract
Independent Promises -> Unconditional Contractual Duty to Pay -> if somebody contract with you to sell you a car but show up empty-handed, you still need to pay the money, and can only sue (offensive) for the damage later
Substantial Performance by Cardozo (somewhere in between): “Where a breach is trivial AND innocent, a breach may be atoned for by allowance of the resulting damage.” The non-breaching party has no duty to pay if there is
What is substantial performance
Factors for determining material breach in the Second Restatement:
Restatement (Second) § 344
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:
Situation
Expectation Interest (Expectancy Damages)
Reliance Interest
Restitution Interest
Summary
The plaintiff has the option to choose which one is most beneficial.
Restatement (Second) § 71
To constitute consideration, a performance or a return promise must be barginaed for and a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
Summary
Restatement (First) § 75
Consideration for promise is:
Comment c: “the fact that the promisee relies on the promise to his injury, or the promisor gains some advantage therefrom, does not establish consideration without the element of bargain or agreed exchange.”
Restatement (First) § 71
Williston’s Benefit Test
Will the occurance of a promise’s condition benefit the promisor?
If so, fair inference that the occurance of that condition was requested as consideration for the promise.
–> The fact that the condition would benefit the promisor suggested the promisor’s promise was meant to induce the promisee’s conduct
Situation
“you will receive. pension of $100 per month as long as you live and preserve your present attitude of loyalty to the company and its officers and are not employed in any competitive occupation”
Was the promise to pay Langer the $100 per month life pension supported by consideration and so enforceable, or was it merely a gratuitous promise?
Ruling
“it is to the advantage of the defendant if the plainfiff,… who, undoubtedly, had the knowledge of the methods used by the exmployer, is not employed by a competitive company… That must have been the inducing reason for inserting that provision”
Nominal consideration is the payment of a very small sum, such as one dollar to satisfy the contract’s consideration requirement. As we will see, while many courts REJECT the idea that nominal consideration is sufficient for a contract.
Restatement (Second) § 79 cmt. D
Disparity in value, with or without other circumstances, sometimes indicates that the purported consideration was not in fact barginaed for but was a mere formaility or pretense. Such a sham or “nominal” consideration does not satisfy the requirement of [a contract].
UCC §2-203 cmt. 1
Decline of the Seal. During the early 20th century, many US states passed statutes that radically reduced the legal effect of a sealed writing. Some abolished the seal entirely.
“Every effect of the seal which relates to ‘sealed instruments’ as such is wiped out insofar as contracts for sale for concerned”
UCC §2-209 (1)
An agreement modifying a contract within this Article needs no consideration to be binding.
UCC §2-205 Firm Offers
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.
The Seal
Back then the Common Law Rule: An agreement under seal is binding without consideration if:
The Model Written Obligations Act
A written release or promise made and signed by the person releasing or promising shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement in any form of language that the signer intends to be legally bound.
–> But the proposal met with a singular lack of success. Only Pennsylvania has adopted and retained the Act
Summary
Summary
Situation
Plaintiff provide a electronic trading system. The defendant use it for a few years, and then all other people also use electronic trading system. The defendant stop paying, claiming that the technology was not “novel” and thus there was no consideration
Ruling
The Appeal court rule in favor of the plaintiff
Summary
Question: what if there is misrepresentation?
UCC § 2-302 Unconscionability
If the Court as a matter of law finds the contractor any clause of the contract to have been unconscionable at the time it was made the court may
Situation
Was a contract for the sale of a $300 freezer for over $1200 unconscionable as a matter of law within the meaning of UCC 2-302?
Ruling
“No doubt, the mathematical disparity between $300, which presumably includes a reasonable profit margin, and $900, which is exorbitant on its face, caries the greatest weight”
“These alone, may be sufficient to sustain the decision”
–> this is unique . Usually the court would need to find both procedure and substantive unconscionability to rule the contract is unconscionable. However, this court use primarily the price term and inferred procedural unconscionability from substantive unconscionability.
Where there is an objective disparity in the value of the bargain, courts should be concerned about whether that apparent disparity was in fact bargained for. While the court may still want to protect the subjective value in true bargains, it does not want to impose the disparity on one party when it was not in fact bargained for.
Relying on the price term to find unconscionability under UCC Section 2-203 is controversial . Most courts are reluctant to find the price term unconscionable. For one thing, the term is always disclosed, so there is NO unfair surprise .
Summary
Restatement § 73
“Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.”
Pre-Existing Duty Rule
Modifications to contract unsupported by additional consideration or changed circumstances are unenforceable.
Situation
Ruling
Alaska Packers’ consent to the workers’ demands was “without consideration, for the reason that it was based solely upon the libelants’ agreement to render the exact same services, and none other, that they were already under contract to render
The fisherman waited until “it was impossible for the appellant to secure other men in their places” and, “without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money.”
BH Question…isn’t it how strike work in general?
With the question of consideration aside, the court in Alaska Packers is also clearly concerned about the apparent duress exerted by the fishermen. The fishermen seem to be saying to defendants, without justification, unless you pay us more money to do the same work, we will quit and leave you stuck in a remote Alaskan Bay without a paddle
The Case of the Dissatisfied Entertainer
Ajax and Bond entered into a written contract whereby the Ajax, a professional entertainer, was to perform at Bond’s resort hotel for $20,000.
Ajax had a hit record which virtually overnight made him a star and he demanded a renegotiated fee of $50,000.
The trail judge intructed the jury: “If you find that the $20,000 contract was prior to or at the time of the execution of the $50,000 cancelled and revoked by the parties by their mutual consent, then it is your duty to find that there was consideration for the making of the contract in suit and, in the event, the plaintiff is entitle to your verdict in the amount of $30,000.”
This opinion has been heavily criticized!!!
BH: if this can be the case, the fisherman case can also be that the old contract was canceled and then new contract was formed?
Mutuality
UCC § 2-306(1)
–> If Price requests no sand or 20 times as much sand as he said he would need, a court would likely find that the amounts required were unreasonably disproportionate to the estimated amounts
–> If Price made reasonable efforts and could not sell any sand, that might not be a breach, but important questions arise as to how much effort and whether the resale must be profitable
Situation
Are requirements contracts void for lack of mutuality?
McMichael stopped supplying sand to Price because he argued that the contract lacks mutuality (and so no consideration?)
Ruling
Count found that the parties’ obligations under the contract:
Summary
UCC § 2-306(2)
“A lawful agreement by either the seller of the buyer for exclusive dealing the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.”
cmt. 5: “… the exclusive agent is required, although no express commitment has been made, to use reasonable effort and due diligence in the expansion of the market or the promotion of the product.”
Situation
Central Issue
The agreement gave Wood the exclusive right to do certain things, to place Duff-Gordon’s endorsements on other designs, market products, grant licenses, and prescribed Wood’s conduct when doing those things. But it’s NOT clear that the contractual terms actually required Wood to endorse, market, or license anything. So it wasn’t clear what he was promising in exchange for Lady Duff-Gordon’s promise of exclusivity. (BH: so is there consideration?)
Cardozo’s Opinion
Acknowledge that the literal words of the party’s agreement did not convey any binding obligation on Wood’s part
But!! “The law has outgrown its primitive stages of formalism when the precise word was sovereign talisman, and every slip fatal”
The whole writing may be ‘instinct with an obligation’ imperfectly expressed ”
Where’s the promise?
–> “We are not to suppose that one party was to be placed at the mercy of another”
Cardozo argued the acceptance of the exclusive agency was an assumption of its duties.
This implied promise to reasonable efforts to bring profits and revenues into existence constituted consideration that created an enforceable agreement and allowed the plaintiff to recover for Lady Duff-Gordon’s breach.
Lady Duff-Gordon and Unconscionability
Unconscionable contracts present mutual obligations that courts decline to enforce, while
This contract appears to lack mutuality, but the court reads in a promise, rendering it enforceable
–> Cardozo apparently felt that the one sidedness was NOT a product of procedural defect, but merely an imperfect expression of the exchanged promises.
Implied-In-Fact Contracts
“An implied-in-fact contract has the same legal effect as an express contract. The only difference between them is the means by which the parties manifest their agreement. In an express contract, the parties”manifest their agreement by their words, whether written or spoken. In an implied-in-fact contract, the parties’ agreement si inferred, in whole or in part, from their conduct.”
e.g. You walked into a restaurant and ordered the food. You didn’t say you will pay, but it’s implied. (a reasonable person would assume you intend to pay, not whether you intended to pay when you ordered)
Quasi-Contracts (not a true contract)
Quasi-contracts involve obligations that are not chosen, not mutual assented to. They are instead implied-in-law, chosen by courts to emulate the deals that the parties would have agreed to if they had had the chance . For example, a person passed out on sidewalk, and somebody saved the person without consent and later sue for damages (the cost to save the person).
One perspective is whether the they could have reach an mutual agreement, whether express or implied-in-fact. If you provide a service and sue for damage later while you could have asked for an express contract, then it’s unlikely to establish quasi-contract.
Situation
Questions:
Ruling
“There was no mutual agreement and”intent to promise’ between the plaintiff and the defendant so as to establish a contract ‘implied in fact.’”
NOT implied-in-fact. It wasn’t reasonable for Bailey to think that he had an agreement to board. Bailey didn’t even know with whom he was contracting and sent bills to both West and Strauss. His assumption that he was to take care of this horse was unreasonable. The plaintiff had reason to know that there was no mutual assent. The defendant neither said nor did anything to create reasonable expectations or from which a promise to pay can be implied.
Also NOT quasi-contract (implied-in-law). Defendant never accepted the benefit conferred by the plaintiff, mainly the raising of the horse. The court especially emphasized the importance of respecting individual autonomy in contracts. A person is not required to deal with another unless he so desires, and ordinarily, a person should not be required to become an obligor unless he so desires.
Summary
3 key terms
Situation
While traveling abroad, the Wyman’s adult son became ill, without Wyman’s request or consent the plaintiff, Mills, cared for Wyman’s son. Afterwards, Wyman promised to pay Mills for his expenses, but later recanted and refused to pay, Mill sued to enforce Wyman’s promise. The trial court granted defendant a non-suit. The instant court affirmed.
The Central Issue
Was the defendants moral obligation arising from the plaintiffs care for the son sufficient consideration to bind his promise?
Ruling
Moral Obligation + Material Benefit = Consideration
“It is well settled that a morel obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.”
Restatement § 86
Situation
Webb was an employee at McGowin’s Mill. One day, Webb was badly injured when he saved McGowin’s life by diverting the path of a 75 pound pine block falling from the upper stories of the mill. After the incident, in return for saving his life, McGowin promised to pay Webb $15 every two weeks, or $390 per year for the rest of Webb’s life.
After McGowin’s death, his executor refused to continue the payments. Webb sued for the continuation of the payments. The trial court found for the defendant on basis of defendants demur, but the instant court reversed and remanded for new trial.
Central Issue
Is the defendant’s “moral obligation” sufficient consideration to bind him contractually?
Summary
Remedies based on promissory estoppel
2 views:
Restatement (Second) § 90 cmt. D
Situation
Allegheny College, a college in Northwestern Pennsylvania ran a fund raising drive in 1921 and persuaded Mary Yates Jamestown, who lived in New York, to promise to make a donation of $5,000 upon her death. She signed a document to that effect, and two witnesses signed as well. She donated $100 in 1923 while she was still alive. She later retracted her promise.
Cardozo Ruling
Cardozo notes that judges in New York have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions.
Implied Consideration:
–> another implied consideration from Cardozo
Kellogg dissent
Restatement (second) § 110
The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:
UCC §2-201
“[A] contract for the sale of goods for the price of $500 or more is not enforceable … unless there is some writing”
Exception
Restatement (second) § 134 - did you sign when buying online?
“the signature…may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.”
Situation
1677 English Parliament enacts a Statute of Frauds. “For prevention of many Fraudulent Practices which are commonly endeavoured to be upheld by Perjury and Subornation of Perjury”
section 4
“[N]o action shall be brought…unless the agreement upon which such action shall be brought…shall be in writing, and signed by the party to be”
section 17
“no contract for the sale of any goods,…, for the price of ten pounds sterling, or upwards, shall be allowed to be good, except the buyer”
Failure to Comply
UCC §2-204: Formation in General
UCC §2-205: Firm Offers
An offer by a merchant to buy or sell goods in a signed writing
UCC §2-206: Offer and Acceptance in Formation of Contract (default rule)
Situation
Ruling
They had to find both that the president uttered the aforementioned phrase and that both parties by such conversation to contract for plaintiffs re employment. The jury found for defendant. The instant court reversed and remanded to find out what words were used.
Central Issue
Was an intention by defendant to contract necessary for a contract to be formed if plaintiff was reasonable in interpreting defendant’s behavior as reemploying him?
The court is clear that it is really the objective manifestation of consent that controls. What the speaker subjectively meant or what the listener subjectively believed the speak to mean doesn’t count.
Situation
Central Issue
Did Zehmer’s action bind him contractually, despite his claim subjective intent to jest?
Ruling
The court applied the objective theory of manifestation of mutual assent. The undisclosed intention of the promisor is immaterial if his outward actions would lead a reasonable person to conclude that he intends to form a contract.
Efficient point of view for objective rule
Even if some people attach idiosyncratic meaning to their words or actions, it may be more efficient to make those people change rather than to make the majority change. The idiosyncratic bargainers could probably adjust their behavior more easily and at a lower cost than the majority. Part of the efficiency from the objective listener standard is that it allows contract law to avoid jury questions and have disputes decided on the papers. Under a subjective theory, a defendant might cause almost any case to go to trial to decide whether both parties really intended to contract.
If Zehmer wins, written contracts become less useful. A completely subjective theory of intent also creates a serious moral hazard problem. Parties who later wish to get out of or modify regrettable bargains could claim idiosyncratic meanings after the fact.
Malcolm Sharp’s reliance approach, countering objective rule
In light of the costs to individual freedom, the objective test should be employed only where the defendant has induced actual and justified reliance by the plaintiff.
If Zehmer told Lucy that he was joking before Lucy left the bar, then what difference does it make to Lucy? Lucy hasn’t yet relied on the promise, so is not worse off than he would have been had Zehmer told him it was a joke immediately before the signing.
downside…whether the promisee relied on the promise can itself be a matter of dispute that may require jury adjudication of whether there was actual and justified reliance.
Three views of advertisements:
–> In general, advertisements nowadays are usually interpreted belong to categories two and three. Category one is rather exceptional
Situation:
Ruling:
The court lays out a rule for when advertisements constitute an offer, saying that where the offer is
–> it constitutes an offer, acceptance of which will complete the contract.
That is if an ad specifies the
–> the ad is an offer and the buyer can enforce once he or she has accepted it.
<professor thought: >
Take notice something odd about this rule….
It seems to be intended to encourage definite
contracting, presumably to protect consumers from
unscrupulous businesses. But what would you do if you owned a store and
you read this opinion?
!!!You would make sure that all advertisements in the future were
indefinite enough that no one could enforce
them against you in court!!!
Notice that Murphy’s rule has a perverse likely consequence. The reluctance of courts to enforce indefinite contracts seems to be intended to encourage both parties to take more care to resolve ambiguities in their drafting language. But Justice Murphy’s being unwilling to give legal effects to indefinite offers might have the opposite effect. What would you do if you owned a store the week after you read this opinion? What kind of an ad would you place the next week? Well, you might make sure that all the advertisements you issued from here on out were indefinite enough so that no one could enforce them against you in court.
Restatement (second) §26 - cmt. b
“Business enterprises commonly secure general publicity for the goods or services they supply or purchase. Advertisements… are NOT ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public…but there must ordinarily be some language of commitment or some invitation to take action without further communication.”
Situation:
Arguments:
Ruling:
The Southern District of New York agreed with the defendant, granting summary judgment to PepsiCo.
Summary:
Restatement (second) §36
Restatement (second) §45 Offer accepted by performance only: Option Contract Created by Part Performance or Tender
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.
Restatement (second) §45 cmt f: Preparations for performance
What is begun or tendered must be part of the actual performance invited in order to preclude revocation under this Section. Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror’s promise binding under § 87(2).
Restatement (second) §62 Offer could be accepted by promise OR by performance
Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. BH: contrast to option contract in §45 above
Situation:
Ruling:
The trial court found for the defendant and the instant court reversed.
Central issue:
Did defendant’s offer terminate due to the passage of time?
An offeree has the power to create a contract by acceptance until:
Did plaintiff’s action constitute sufficient performance to accept the agreement?
“Formal acceptance of the contract was not made under the signature and approval of an agent of plaintiff. It was, however, the intention of plaintiff to accept the contract by commencing the work, which was one of the ways provided for in the instrument for acceptance.”
professor Q: the court ruled that the contract starts when the truck is loaded, but the defendant argued that the contract starts on the site. What could be the implication if the contract starts when the truck is loaded? If 10 companies loaded their truck, now the defendant has 10 contracts without knowing he is in any of the contract?
Summary:
Restatement (second) §54
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. (A default rule)
If an offeree who accepts by rendering a 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 unless
Unilateral Contract
a contract that is formed by an offer that
For example, an offer to pay a reward if someone can find a lost dog.
Situation:
Central issue:
Was there consideration in this case?
Yes, consideration need not be a benefit to the promisor. A detriment to the promisee can also be consideration, and inconvenience sustained by one party at the request of the other is enough to create a consideration. Applying the carbolic smoke ball three times a day for two weeks is such an inconvenience.
The central issue is this, did the Carbolic Smoke Ball Company’s ad constitute a contractual offer accepted by plaintiff’s performance? whether there was an offer and acceptance?
Summary:
Restatement (second) §69
Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
UCC §1-201(b)(3)
UCC §2-206
Situation:
Ruling:
Summary:
Federal Arbitration Act
Uniform Consumer Credit Code §3-205
“Whether or not a change is authorized by prior agreement, a creditor may change the terms of an open-end credit account applying to any balance incurred before or after the effective date of the change.”
Restatement (second) §63: Time when acceptance takes effect
Unless the offer provides otherwise (merely a default rule),
(In other words, the moment you put the acceptance in the mail and can’t get it back, the contract takes effect.)
Restatement (second) §40: exception - overtaking communcation
Situation:
Central issue:
Was the plaintiff’s acceptance valid when mailed?
Ruling:
Yes, “[A]t the momment of the acceptance of the offer of the defendants by the plaintiff”
The court realized that when contract is formed at a distance, either the offeror or the acceptor will not be able to know precisely when the contract is formed. In this case, the defendant/offeror was responsible for the misdirected letter and hence for the predicament of contracting to sell the wool twice.
As long as the offeree selects a reasonable method of communicating assent, he should be able to rely on the formation of a contract.
Other Timing Issues:
Reasonable Method of Acceptance:
Carol claims that the resignation had been withdrawn in time because the acceptance letter should have been handed to her.
Central issue:
Summary:
Restatement §59:
“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”
Restatement §61:
“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.”
Mirror Image Rule
Restatement §39(2): Double-Sided Default Rule
“An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a countrary intention or unless the counter-offer manifests a contrary intention of the offeree”
-> In other words, an offeror can specify that an offer is not terminated by a counteroffer, and an offeree can make a counteroffer without rejecting the original offer.
Situation:
Central issue:
Was the Defendant bound to honor the plaintiff’s final acceptance of the offer to sell 2,000 tons of iron rails?
Ruling:
The Court held that a proposal to accept or an acceptance upon terms varying from those offered is a rejection of the offer and puts an end to the negotiation unless the party who made the original offer renews it or assents to the modification suggested. Since the plaintiff’s qualified acceptance varied the number of tons, it was in law a rejection of the offer. Having once rejected the offer, the party cannot afterwards revive it by tendering an acceptance of it.
–> In other words, the acceptance must be the mirror image of the offer.
UCC §2-207(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 expressly made conditional on assent to the additional or different terms.”
–> UCC rejects the common law’s mirror image rule. 2-207(1) tells us that non-matching acceptances operate as acceptances and can form contracts.
UCC §2-207(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:
BH: note - additional terms become part of contract BETWEEN MERCHANTS.
UCC §2-207(3): The Knock Out Doctrine
“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 parties agree, together with any supplementary terms incorporated under any other provisions of this Act.”
The “knock out doctrine”:
Situation:
Central Issue:
whether the arbitration clause is enforceable even if Textile Unlimited never explicitly agreed to it.
Ruling:
In this case, BMH, the offeree’s form is quite explicit. Sellers willingness to sell yarn to you is conditioned on your acceptance of these terms of sale. So A..BMH’s form expressly triggers the unless clause. There is therefore no contract based on 2-207(1).
It’s interesting to note that in this context, Textile Unlimited’s receipt of the yarn wasn’t an acceptance of the new terms. As Judge Thomas notes, we don’t want a rule where whoever sends the last form wins.
UCC §2-204(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.
Situation:
Judge Easterbrook and ProCD v. Zeidenberg:
Klocek and the Rejection of Hill:
Restatement §211(c): Know Thy Customer
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.
Key terms:
Clickwrap:
user indicates agreements to terms by clicking on a radio button, checking a box, or the like, usually as a condition of using a device or piece of software
Browsewrap:
terms of use, often found via a link on a website’s main page that purport to bind a user solely by virtue of his or her continued use of the site. These terms come from the use of shrinkwrap contracts, which were frequently litigated in the 1990s
Shrinkwrap:
Shrinkwrap contracts were commonly used in boxed software purchases, which contain a notice that by tearing open the shrinkwrap, the user assents to the software terms enclosed within.
Situation:
Main Issue:
whether the plaintiffs are bound by the terms of a download program if they could have reasonably downloaded the program without becoming aware of the existence of the terms. –> whether these browsewrap agreements are enforceable.
Ruling:
an offeree must receive clear notice of a contract’s associated terms if a download is to constitute acceptance of those terms. A contract requires mutual assent. Because plaintiffs did not assent to the contractual terms and could not be expected to be aware of the terms existence, they are not bound by the arbitration clause.
Summary:
Restatement §87(2):
“An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by 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.”
Subletting and Subcontracting Fair Practices Act (California)
This statute provides that a general contractor bidding on any public work or improvement must disclose in its bid, the name of any subcontractor whose bid is incorporated into and exceeds one-half of 1% of the price of the general contractor’s bid. The statute further provides that a general contractor whose bid on a public project is accepted shall not replace a subcontractor listed in his bid with another subcontractor, except under certain conditions and with the awarding authority’s consent.
–> consequence: Since a general contractor cannot bargain with subcontractors after winning the bid, it must make an all or nothing choice beforehand, induce all competition beforehand or solicit no bids.
Situation:
Main Issue:
Did plaintiff’s reliance make defendant’s offer irrevocable?
Ruling:
Summary:
Restatement (Second) § 20 (for asymmetrical case)
Situation:
Main Issue: whether there was a contract at all, given that the two parties had had different understandings of which ship would carry the cotton
Ruling:
The court said no.
The key concept is in this case is typically called meeting of the mines in american contract law. This case and British law generally call it consensus ad idem, which is Latin for agreement on the same thing. The idea is that in order for two parties to form a contract, they must be thinking the same thing when they make it.
Summary:
Situation:
Joseph Hoffman, who together with his wife operated a bakery in Wautoma, Wisconsin, wanted to expand his business by opening a grocery store. He contacted Red Owl, a grocery store chain operating throughout the Midwest. Red Owl stores were often extended franchises. Hoffman began negotiating with Red Owl manager, Lukowitz, to establish a Red Owl franchise in Hoffman’s town.
From here began a series of moves Hoffman made on the belief he’d soon be a Red Owl franchisee.
In order to gain experience in the grocery business, he purchased a small grocery store in Wautoma, a move that Lukowitz approved.
But several months into its successful operation, Lukowitz advised him to sell it. Though Hoffman did not want to sacrifice the profits the summer tourist season would bring, he was assured he’d be operating a larger Red Owl store by the fall.
In the fall, the Red Owl manager suggested Hoffman exercise an option to buy a lot in a different town Chilton, where he would build his Red Owl franchise. Hoffman took the suggestion and in September of 1961, put down $1,000 for the lot.
After Hoffman put down the $1,000 on the Chilton lot, Lukowitz had indicated that everything is ready to go, we are set.
But soon thereafter, Lukowitz told Hoffman the only remaining hitch in the plan was Hoffman’s bakery. He and his wife would have to sell it. They did so in November in 1961 Hoffman sold the bakery. He and his family moved to a different town, and he began working the night shift in another’s bakery.
At the end of November, Red Owl informed Hoffman he’d need to invest $24,000 rather than the $18,000 he’d originally anticipated. This number was soon raised to $26,000 in order for Hoffman to meet the new amounts.
Hoffman’s father in law agreed to contribute $13,000 provided he’d be a partner in the business. Though Red Owl originally told Hoffman that this sounded fine, Hoffman was informed in late January or early February of 1962 that his father in law would have to agree that the $13,000 contribution was a gift.
Red Owl then increased the amount needed from Hoffman and his father in law to $34,000 at that point.
Hoffman broke off negotiations. Hoffman sued Red Owl for expenses and lost income and a jury awarded him damages for the sale of the grocery store, sale of his bakery, and the option on the lot, as well as incidental expenses
Central Issue:
The court had to determine whether promissory estoppel could apply when the promise in question did not embrace all essential details of a proposed transaction between promisor and promisee so as to be the equivalent of an offer that would result in a binding contract
Ruling: