CONTRACTS_OUTLINE
FALL SEMESTER 2021
I.
INTRODUCTION: THE PRINCIPLE OF MUTUAL ASSENT
A. The UCC
1.
2.
3.
4.
The Uniform Commercial Code must be liberally construed and applied to promote its
underlying purposes and policies, which are:
a) to simplify, clarify, and modernize the law governing commercial transactions;
b) to permit the continued expansion of commercial practices through custom, usage,
and agreement of the parties; and
c) to make uniform the law among the various jurisdictions.
“The U.C.C. applies to you and me!”
Example of when UCC applies
a) Buy carpet from Home Depot and have it installed - it’s a HYBRID CONTRACT
How do we determine if the UCC applies?
a)
Predominant Purpose of the Contract
(1)
(2)
(3)
B. Audio v. Tanzer
1.
2.
3.
4.
Rule:
a)
Under the predominant-purpose test, the Uniform Commercial Code governs
contracts to install electronic components as primarily involving the sale of
goods.
Party seeking UCC application is the party that has to convince the judge of the predominant
purpose being the sale of goods.
What we have to look at to determine issue:
a) Language of contract
(1) In this case “equipment” is a tip off to the meaning of “goods”
b) The nature of the business of the supplier of goods and services
(1) Integrated computer system (which have been held to be a sale of good)
c) Why did parties enter into the contract
(1) A strong indicator of predominant purpose of contract
d) What are the amounts paid?
(1) The sale of equipment made up about 82% of the contract price
Great example of predominant purpose case
C. PSS v. Shelby
1.
🏡
✈️
The service was established to be part of the predominant purpose of service - not goods, the
brackets were just a small part. So …UCC does not apply
a)
Gravamen Test
(1)
(2)
1
If mostly goods - UCC
If not mostly goods - common law applies
The court looks to four factors with neither being dispositive:
(a) (1) The language of the contract;
(b) (2) The nature of the business of the supplier of goods and services;
(c) (3) The reason the parties entered into the contract and
(d) (4) The amounts paid for the rendition of the services and goods,
respectively.
is Prof. complaining about the carpet itself or the installation?
The installation is incidental to the purpose of the purchase of the carpet to
have in the home so predominant purpose applies.
(3) Anthony Pools v. Sheehan
(a)
🏖
Rule: as goods after performance, and damages result from a
2.
3.
4.
defect in those goods, then the implied warranties of the Uniform
Commercial Code apply to those goods even if the transaction is
predominantly for services.
(b) Sheehan slipped and fell off the diving board, which was a “good”
as part of the contract when he had a pool built in his backyard.
(c) Used the minority view of the Gravamen test to determine in the
UCC applied
The only time you’ll have a warranty of merchantability is under UCC, not common law
UCC has 4 year statute of limitations
Tennessee follows predominant purpose test.
1.
It deals with the sale of goods.
D. Article 2 of the UCC
a)
“Goods”
(1)
(2)
2.
Merchant language and meaning
a)
II.
means all things (including specially manufactured goods) which are movable
at the time of identification to the contract for sale other than the money in
which the price is to be paid, investment securities (Article 8) and things in
action. “Goods” also includes the unborn young of animals and growing crops
and other identified things attached to realty as described in the section of
goods to be severed from realty (Section 2-107).
The definition of goods refers to personal (as opposed to real) property, the
items that your course in Property calls chattels. Article 2 therefore does not
apply to transactions involving land or interests in land, to employment
agreements, to service contracts (such as contracts with a health spa), to the
sale of paper rights (such as stocks or bonds), or to the sale of intangibles
(again, insurance).
Some of its rules only apply if one party is a merchant (or both parties are merchants).
In general, a merchant is “a 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.” UCC §2-104(1). For example, a car dealer is a
merchant when he or she enters into a contract involving automobiles.
Chapter 1: Intent to Contract: Agreement
A. Introduction: The Principle of Mutual Assent
1.
Does a contract exist? When considering whether a contract exists, consider the
following three elements:
a)
b)
c)
2.
Requirement of Mutual Assent
3.
4.
An agreement is only enforceable if the parties mutually assented to forming the contract.
The mutual assent requirement is most often fulfilled by an offer to contract by one party and an
acceptance of the offer by the other.
a) See Restatement § 22(1). (1) The manifestation of mutual assent to an exchange
ordinarily takes the form of an offer or proposal by one party followed by an
acceptance by the other party or parties.
b) But see Restatement § 22(2):
(1) “A manifestation of mutual assent may be made even though neither offer
nor acceptance can be identified and even though the moment of formation
cannot be determined.”
c) and U.C.C. § 2-204(2):
(1) “An agreement sufficient to constitute a contract for sale may be found even
though the moment of its making is undetermined.”
Determinations as to mutual assent are made based on an objective standard.
5.
2
Offer
Acceptance
Consideration
6.
Objective v. Subjective Test
B. Lucy v. Zehmer
1.
2.
3.
Rule:
a)
The objective, outward expression of a party’s intent to be bound in an
agreement, as opposed to that party’s subjective mental assent to the
agreement, is all that matters when determining the existence of a valid and
enforceable contract.
illustrates the objective standard courts use to determine if there is mutual assent.
a) What we care about is the external or objective appearance of a party’s intent as
manifested by his/her actions.
b) The fact that Zehmer may have been joking with Lucy is irrelevant unless Lucy had reason to
believe that he was joking.
Specific performance
a) Lucy was entitled to specific performance
b) You have to do the “thing” in the contract
C. PepsiCo TV Ad Suit
1.
2.
3.
The district court quoted Restatement § 26:
a) “A manifestation of willingness to enter a bargain is not an offer if the person to whom
it is addressed 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 assent.”
The TV ad was not a definitive offer because it merely referred to the Pepsi Stuff catalog and
made no mention of the steps an offeree would have to take to get the jet.
Moreover, “the absence of any words of limitation such as ‘first come, first served,’ render[ed]
the alleged offer sufficiently indefinite that no contract could be formed.”
D. Meyer v. UBER
1.
2.
3.
Rule:
a)
A smartphone app user has reasonably conspicuous notice of the app’s terms of
service if a reasonably prudent user would have known about the terms and the
conduct that would be required to assent to them.
A click can suffice to signify acceptance of a contract so long as the layout and language of the
site give the user reasonable notice that a click shows agreement to terms.
Clickwrap v Browsewrap
a)
4.
Courts generally uphold clickwrap agreements because the user has affirmatively
agreed to the terms by clicking “I agree.”
b) Browsewrap agreements do not require the user to assent. Here, terms and
conditions are just posted on a website via a hyperlink. Because no affirmative action
is required by the user, validity of these depends on whether the user has actual or
constructive knowledge of a website’s terms and conditions.
c) Browsewrap agreements state that a user agrees to terms when the user accesses the
site and uses it. They are usually enforceable if a user has actual or constructive notice
of them.
The next question is whether Meyer unambiguously manifested his assent to the terms.
a) “ A reasonable user would know that by clicking the registration button, he was
agreeing to the terms and conditions accessible via the hyperlink, whether he clicked
on the hyperlink or not.”
b) The court noted that the app allowed Meyer to review the terms prior to registration.
c) “While it may be the case that many users will not bother reading the additional terms,
that is the choice the user makes; the user is still on inquiry notice.”
E. Kolodziej v Mason
1.
2.
3
Rule:
a)
An enforceable contract requires mutual assent by both parties to agree to
perform an act or forbearance with a full understanding of the terms of the
agreement.
The law student tries to collect from the attorney who made a “challenge” on TV but it was
hyperbole, not a real offer.
3.
Bilateral v. Unilateral
a) Bilateral - both sides make promise
(1) I promise to sell book to you. You promise to give me $$
b) Unilateral - only one side makes a promise that doesn’t require a promise from the
other party
(1) I’ll give you a free startbucks on Sunday just for driving through.
F. Categories of Contracts (see slides)
1.
2.
3.
Express Contract
a) Requires proof of all elements of a contract.
b) Assent to the terms of the contract is actually expressed in terms of an offer and an
acceptance.
Implied-in-fact Contract
a) Requires proof of all elements of a contract.
b) The court infers that the parties assented to the contract by looking at surrounding
circumstances, including the parties’ conduct and declarations.
c) The plaintiff bears the burden of showing it was reasonably certain that a contract was
intended.
Implied-in-law Contract (a/k/a Quasi-contract)
a) A legal fiction created to effect equitable result.
b) Not a contract; elements don’t have to be proven.
4. Stepp v Freeman
(1)
(2)
(3)
III.
B.
C.
C.
D.
Farnsworth calls the offer “the penultimate communication in the making of a contract.”
In other words, it is a manifestation of intent that empowers another to enter into a contract by
responding: “I accept.”
An offer may be spoken, written, or implied by a party’s conduct. The key: did the offeree have reason to
believe it was intended as an offer?
Solicitations and advertisements are usually not offers, but rather invitations to enter into negotiations.
See Restatement § 26, cmt. B.
1. They could be offers if they are clear, definite, and explicit, and leave nothing open for
negotiation.
Preliminary Negotiations
A.
4
The offer is the first of the three predicates to a contract (offer, acceptance, consideration).
1. But remember, there can be mutual assent without a formal offer and acceptance
(implied-in-fact k).
“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 the bargain is invited and will conclude it.”
1. Restatement § 24.
It occurs when the promisor manifests her intent, either through words, actions, writing, or implication,
such that it is reasonable for the promisee to believe an offer was made.
The Offer
A.
B.
V.
In express contracts, assent to the terms of the contract is actually
expressed in the form of an offer and an acceptance. On the other
hand, in implied in fact contracts the parties' meeting of the minds
is shown by the surrounding circumstances, including the conduct
and declarations of the parties, that make it inferable that the
contract exists as a matter of tacit understanding.
The contract was an implied-in-fact contract, because the facts and
circumstances surrounding the lottery ticket pool made it “inferable that a
contract existed as a matter of tacit understanding.”
There was an implied agreement that members would be informed when
money was due and would not be unilaterally dropped from the group.
Defining the Offer
A.
IV.
Rule:
(a)
Consider whether an offer or a form of preliminary negotiation is involved.
B.
A preliminary negotiation exists if a person who hears a communication “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 assent.” Restatement (Second) of Contracts § 26.
C.
Roberson v. Volvo
1.
Rule
a)
VI.
Solicitation
A. Lefkowitz v. Greater Minneapolis Surplus
1.
Rule
a)
VII.
B.
B.
X.
5
A court may find that, even though no writing is required under the law for the particular type of
agreement at issue, the parties did not intend to be bound until a writing was executed.
“Manifestations of intent 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 memorial
thereof; but the circumstances may show that the agreements are preliminary negotiations.”
1. Restatement § 27 (emphasis added).
a) [T]he extent to which express agreement has been reached on all the terms to be
included;
b) whether the contract is of a type usually put in writing;
c) whether it needs a formal writing for its full expression;
d) whether it has few or many details;
e) whether it is a common or unusual contract;
f)
whether a standard form of contract is widely used in similar transactions; and
g) whether either party takes any action in preparation for performance during the
negotiation.
Continental Labs. v. Scott Paper Co.
A.
IX.
An advertisement constitutes a binding offer if it is clear, definite, and explicit, and
leaves nothing open for negotiation.
(1) A newspaper ad or other public solicitation may constitute an offer,
acceptance of which completes a contract, but only if the ad is “clear, definite,
and explicit, and leaves nothing open for negotiation.”
(2) “Bait advertising is an alluring but insincere offer to sell a product or service
which the advertiser in truth does not intend or want to sell. Its purpose is to
switch consumers from buying the advertised merchandise, in order to sell
something else, usually at a higher price or on a basis more advantageous to
the advertiser. The primary aim of a bait advertisement is to obtain leads as
to persons interested in buying merchandise of the type so advertised.” - 16
C.F.R. § 238.0
(a) The Federal Trade Commission (FTC), and the states through their
own consumer protection laws, have the power to regulate against
these.
(b) Note the FTC guidance on p. 49.
(c) Do you agree with the public policy decision to regulate these types
of “offers”?
Written Contract to Follow
A.
VIII.
No definitive offer to enter into a contract has been made where necessary details to
the contract are still being negotiated.
“If either party intends not to be bound in the absence of a fully executed document, no amount of
negotiation or oral agreement as to specific terms will result in the formation of a binding contract.”
The court, of course, uses an objective standard to determine the parties’ intent.
1. The documents indicate that a writing was anticipated.
2. The parties required that modifications and amendments required a writing. “It would be
strange for Scott to require written modifications without first contemplating a written contract.”
3. Continental failed to show a genuine issue of material fact because, based upon all of the
circumstances, Scott communicated its intent to be bound only by a written and signed contract.
4. Because no written contract existed, Scott’s motion for summary judgment is granted.
Acceptance
Effect of Acceptance
A.
B.
C.
D.
E.
XI.
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.
1. Most offers invite acceptance by a promise rather than by performance.
2. Farnsworth identifies three general requirements for an acceptance by a promise:
3. 1) Must be an expression of commitment.
a) Merely acknowledging the receipt of the offer expressing interest in it is not enough.
4. 2) Must not be conditional on any further act by either party.
5. 3) At common law, must not vary, even slightly, from offer’s terms.
a) This protects the offeror, who is free from any sort of contract except on the terms of
the offer.
Note that upon acceptance, the parties are bound by the terms of the contract proposed by the offer.
The offeror is the “master of the offer.”
Manifesting Assent to an Offer
A.
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.
B.
ProCD v Zeidenberg
1.
Rule:
a)
b)
C.
Shrinkwrap licenses included within a product’s packaging are enforceable unless their
terms are objectionable on grounds applicable to contracts in general, such as
violating a positive rule of law or being unconscionable.
(1) Through continuing to use the software, Z accepted by performance.
(2) By both buying and using, he accepted.
The court applies the U.C.C. § 2-204(1):
(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.”
(2) “A buyer may accept by performing the acts the vendor proposes to treat as
acceptance. And that is what happened. ProCD proposed a contract that a
buyer could accept by using the software after having an opportunity to read
the license at leisure. This Zeidenberg did. He had no choice, because the
software splashed on the license on the screen and would not let him
proceed without indicating acceptance.”
Beard Implement v Krusa
1.
Rule
a)
b)
c)
d)
Court let Krusa get out of the contract because his offer hadn’t been accepted yet.
You can take back an offer until someone accepts it
U.C.C. § 2-206(1).
(1) The key term for purposes of this case is “unambiguously.”
(2) “If [Krusa’s] offer contained on the purchase order is unambiguous in inviting
acceptance only by the signature of plaintiff’s “dealer,” no contract exists until
the purchase order is signed accordingly.”
U.C.C. § 2-204(1):
(1) “A contract for the sale of goods may be made in any manner sufficient to
show agreement, including conduct by both parties that recognizes the
existence of such a contract.”
D. Fujimoto v. Rio Grande Pickle
6
1.
RULE:
a)
E.
#1 Offer and acceptance in formation of contracts
(1) “Any reasonable manner of acceptance is intended to be regarded as
available unless the offeror has made quite clear that it will not be
acceptable.”
(a) Even though someone says “Email me if you’re interested” if you
call, you’re still in the terms of acceptance because the directions
were not explicitly “You can only email me by 10pm.”
b) #2 Where no mode of acceptance is provided by the offer, an offer is considered
accepted when the offeree clearly communicates his intention to accept to the offeror.
c) From Slides
(1) ​The offeror is the master of the offer, including the mode of acceptance.
Quoting Corbin:
(a) “[I]f the offeror specifies no mode of acceptance, the law requires
no more than that the mode adopted shall be in accord with the
usage and custom of men in similar cases.”
(2) “Where, as here, the offer and surrounding circumstances are silent as to
permissible modes of acceptance, the law requires only that there be some
clear and unmistakable expression of the offeree’s intention to accept.”
UCC Doesn’t Apply to Fujimoto Case because UCC only applies to GOODS
1. 2-204: Formation in General - Sale of Goods: U.C.C. § 2-204
2.
3.
4.
(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.
(2) An agreement sufficient to constitute a contract for sale may be found even though the
moment of its making is undetermined.
(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.
F. 2-206: Acceptance Where Contract is for the Sale of Goods: U.C.C. § 2-206
G.
H.
I.
J.
XII.
Option contract
A.
XIII.
Pay a sum of money that would not come back to me in any circumstances, but leave the contract open to
me.
FTC Cooling Off Rule aka Buyer’s Remorse
A.
7
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 of conforming or
non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance
if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the
buyer.
a) They can either accept by telling me, or by doing the thing
b) IF they send you non-comforming good after “acceptance” then they’ve breached
c) Here’s where the UCC give you an out “but such a shipment of non-conforming
goods does not constitute an acceptance if the seller seasonably notifies the
buyer that the shipment is offered only as an accommodation to the buyer.”
(1) Now, you can send them back, getting OUT of the contract, because
they’ve breached.
(2) In the seller sending blue shirts, it’s a counter offer.
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.
The Federal Trade Commission has promulgated a rule that generally allows individuals who make
purchases of $25 or more for a personal, family, or household purpose a three-day cooling off period (that
is, three days to cancel the transaction) when the buyer’s “agreement or offer to purchase” is made at a
place other than the regular place of business of the seller. 16 C.F.R. §429.1. The purpose of the rule is to
XIV.
B.
give consumers who buy from door-to-door sellers a time within which to reconsider the transaction. The
“agreement or offer to purchase” language prevents a door-to-door seller from requiring home office
approval and then arguing that the sale is at the regular place of the seller’s business.
You can cancel without reason - you have the right to change your mind.
Silence as Acceptance
A. Restatement § 69(1): Acceptance by Silence
1.
2.
3.
4.
5.
6.
7.
8.
B.
Day v Caton
1.
2.
3.
XV.
Black’s Law Dictionary under “Legal Maxims” - Qui tacet consentire videtur. ”A party who is silent
appears to consent.”
“If a party…voluntarily accepts and avails himself of valuable services rendered for his benefit,
when he has the option whether to accept or reject them, even if there is no distinct proof that
they were rendered by his authority or request, a promise to pay for them may be inferred.”
The maxim applies only if circumstances require. In other words, the offeree “is silent in the face
of facts which fairly call upon him to speak.”
Postal Reorganization Act of 1970 §3009 - Mailing of Unordered Merchandise
A.
B.
C.
D.
E.
(a)Except for (1) free samples clearly and conspicuously marked as such, and (2) merchandise mailed by a
charitable organization soliciting contributions, the mailing of un­ordered merchandise or of
communications prohibited by subsection (c) of this section constitutes an unfair method of competition
and an unfair trade practice in violation of section 45(a)(1) of title 15.
(b)Any merchandise mailed in violation of subsection (a) of this section, or within the exceptions contained
therein, may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or
dispose of it in any manner he sees fit without any obligation whatsoever to the sender. All such
merchandise shall have attached to it a clear and conspicuous statement informing the recipient that he
may treat the merchandise as a gift to him and has the right to retain, use, discard, or dispose of it in any
manner he sees fit without any obligation whatsoever to the sender.
(c)No mailer of any merchandise mailed in violation of subsection (a) of this section, or within the
exceptions contained therein, shall mail to any recipient of such merchandise a bill for such merchandise
or any dunning communications.
(d)For the purposes of this section, “un­ordered merchandise” means merchandise mailed without the
prior expressed request or consent of the recipient.
Norcia v. Samsung Telecommunications America,
1.
2.
3.
4.
5.
8
Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in
the following cases only:
Where an offeree takes the benefit of offered services with reasonable opportunity to reject
them and reason to know that they were offered with the expectation of compensation.
Where the offeror has stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and inactive intends to
accept the offer.
Where because of previous dealings or otherwise, it is reasonable that the offeree should notify
the offeror if he does not intend to accept.
As a general rule, a promise will not be inferred from mere inaction or silence by the offeree.
Silence in the face of the offer gives the offeror no reason to believe that the offeree intends to
buy; thus, it is usually not acceptance.
Restatement § 69(1) is, therefore an exception: certain enumerated circumstances in which a
binding promise may be inferred by silence.
Q: What type of contract is formed when the offeree accepts by silence?
a) A: An implied-in-fact contract; there is no express offer and acceptance
Does a product brochure purporting to require arbitration of disputes unless the customer opts
out create a binding arbitration agreement? (NO)
Did the district court err in denying Samsung’s motion to compel arbitration? (NO)
Therefore, no binding agreement to arbitrate exists between Samsung and Norcia. The ruling
refusing to order the parties to arbitrate is accordingly affirmed.A party cannot be required to
submit to arbitration any dispute which he or she has not agreed to submit.
A valid agreement to arbitrate must exist.
A party cannot avoid the terms of a contract by claiming that he or she failed to read it before
signing.
6.
7.
8.
XVI.
Knowledge of Offer
A.
XVII.
“Courts must determine whether the outward manifestations of consent would lead a
reasonable person to believe the offeree has assented to the agreement.”
As a general rule, silence and inaction do not constitute acceptance of an offer.
Exceptions include, for example, situations in which a party agrees that silence constitutes
acceptance and situations in which a party retains a benefit offered. p. 80.
Most jurisdictions will hold that if the reward offer is made by a government entity the usual rules of
contract do not apply, and any citizen who performs the requested service is entitled to the reward, even
if the claimant had no idea that the reward was being offered.
Mode of Acceptance
A.
Bilateral v. Unilateral Contracts
1. Traditionally, contract law distinguished between bilateral and unilateral contracts.
2. In bilateral contracts, both parties make a promise.
a) Contract formed when the promises are made.
3. In unilateral contracts, only the offeror makes a promise; the offeree renders performance or
forbearance, rather than a promise, as acceptance.
a) Contract not formed until full performance is done.
4. The Restatement (Second) abandons these terms that were in the Restatement (First) because of
“doubt as to the utility of the distinction,” which may cause confusion where acceptance may be
done by performance and an incidental promise.
B.
Davis v Jacoby (Caring for Mrs. Whitehead Case - Niece from Canada Case)
1.
Rule
a)
2.
XVIII.
Restatement (Second) of Contracts § 62
A.
B.
C.
XIX.
An offer is to enter into a bilateral contract as opposed to a unilateral contract when
only a promise to perform and not actual performance is requested by the offeror as
proper acceptance.
When an offer falls into the “vague field” between obvious bilateral (offer to sell) and obvious
unilateral (reward offer), courts should look at “the intent of the offer and the facts and
circumstances.”
a) Presumption = bilateral contract.
(1) 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.
(2) Such an acceptance operates as a promise to render complete performance.’
Comment a. The offeree's power to choose. …The offeror can insist on any mode of acceptance, but
ordinarily he invites acceptance in any reasonable manner; in case of doubt, an offer is interpreted as
inviting the offeree to choose between acceptance by promise and acceptance by performance.
Termination of the Power of Acceptance
A. Restatement § 36: Methods of Termination of the Power of the Acceptance
1.
2.
XX.
An offeree’s power of acceptance may be terminated by
a) Rejection or counter-offer by the offeree, or
b) Lapse of time, or
c) Revocation by the offeror, or
d) Death or incapacity of the offeror or offeree.
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.
Revocation by Offeror
A.
Dickinson v Dodds
1.
Rule:
a)
There need not be an express and actual withdrawal of the offer; rather, there is a
revocation upon knowledge by the offeree of the offeror’s definite action that is
inconsistent with the offeror’s intent to enter into a contract.
2. Restatement § 43: Indirect Communication of Revocation
9
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.”
3. Nadum pactum
a)
XXI.
“An agreement that is unenforceable as a contract because it is not ‘clothed’ with
consideration. ” Black’s Law Dictionary
Limits on the Power to Revoke: Option Contracts and Firm Offers
A.
B.
Although the offeror is usually the master of the offer- and thus can revoked before the offeree accepts parties can change this rule and make an offer irrevocable by forming an option contract
1. Under common law, an option in an agreement in which the offeror promises not to revoke an
offer in return for the offeree providing consideration.
2. Options create a kind of “force field” around an offer.
a) Offeror cannot revoke during the option period.
b) Additionally, a rejection or counteroffer by the offeree does not necessarily terminate
the offer
3. This is a separate contract.
Even though consideration is required at common law, the UCC, in 2-205, has an exception for firm offers
from merchants.
1.
UCC 2-205
a)
C.
D.
E.
F.
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 McCorkle case involves a lease of a sign (a good), but the applicable UCC section is the same as that involved
with a sale of goods.
Option contracts are valid irrevocable offers.
The option itself is a contract and is sometimes called an “option contract.”
Consideration is needed.
G. 2949 Inc. v. McCorkle
1.
Rules:
a)
b)
There was no option contract under common law because there was no consideration.
The consideration for the option contract needs to be separate from the consideration
that supports the main contract. There was no option contract under the UCC because
the McCorkles, as offerors, needed to separately sign the form prepared by the
offeree.
Remember that under the merchant firm offer rule (applying without consideration),
the maximum period of irrevocability is three months. With consideration, there is no
three- month period in place.
H. LOOOK FOR THIS Ever-Tite Roofing Corp. v. Green
1.
Rule
a)
b)
XXII.
I.
When an offer does not specify a time limit, it remains open for a reasonable period of
time, unless revoked.
“Actual commencement or performance of the work therefore began before any notice
of dissent by defendants was given to the plaintiff. The proposition and its acceptance
thus became a completed contract.”
Option Contracts and Firm Offers
Revocation and Acceptance of Offers to Enter into Unilateral Contracts
A. Unilateral Contracts
1.
2.
3.
4.
10
Early on, under traditional common law, the only way to accept an offer to enter into a unilateral
contract was to completely perform the act that the offeree requested.
Even after the offeree had spent time, energy, or money trying to perform, the offeror was free
to revoke.
See the walking across the Brooklyn Bridge example. This is a harsh approach.
See p 106, Restatement § 45 – “…an option contract is created when the offeree tenders or
begins the invited performance or tenders a beginning of it.”
B.
Petterson v Pattberg
1.
2.
3.
C.
A unilateral contract is “a promise in exchange for the performance of an act.”
a) Promise = reduction of the mortgage debt
b) Act = payment in full by the agreed-upon date
“The offer of a reward in consideration of an act to be performed is revocable before the very act
requested has been done.”
“The offeror may see the approach of the offeree and know that an acceptance is contemplated.
If the offeror can say ‘I revoke’ before the offeree accepts, however brief the interval of time
between the two acts,…the offer is terminated.”
Modern Approach to Unilateral Contracts
1.
D.
E.
F.
XXIII.
Recall the walking across the bridge example at page 100. The offeror could revoke when the
person was half-way across because the promise was to pay when the person completed the
walk.
In the 20th century, contract law became more concerned with issues of fairness.
The Restatement revamped rules that govern offers to enter into unilateral contracts.
Tender means an offer to perform, but a tender of money, in strict legal terms, means much more than a
mere offer to pay. It must be accompanied by the current presentment of the exact amount due in official
currency. Checks and certified or cashier’s checks are not sufficient.
Lapse of Time
A.
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, a 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.
B.
Loring v. City of Boston (Reward for Info About Fires Set in City Case)
1.
2.
C.
Phillips v Moor (Burning Hay Case)
1.
2.
11
Rule: An offer is considered to expire after a reasonable time has passed and the offer has
not been accepted.
Is an offer considered to have expired after a reasonable time has passed and the offer has not
been accepted? Yes. A reward is considered an offer that can only be accepted by performance
of the terms contained in the reward. Once a person has performed the exact terms of the offer,
a valid contract is formed. Where no time limit is given to collect the reward, the offer is
considered a continuing offer. However, offers are generally not intended to be perpetual and a
reasonable time limit is imposed upon them. What is reasonable is a question of law determined
by the context in which the reward was offered. Here, the reward was offered in an emergency
context after a rash of fires were set probably in an effort to prevent offenders from setting fires.
Since that time the number of fires set in the city has greatly reduced. Therefore, the need for
the reward has passed. Additionally, since the city discontinued the ad after a week, it is
evidence that the city did not intend the reward to be a continuing offer. This court finds that
three years and eight months is not a reasonable time and that the offer had lapsed. As a result,
no contract was formed and the city is not required to pay the $1,000 reward.
Rule: If a sale of specific goods or chattel is completed except for the transfer of property
from the seller to the buyer, the buyer bears the risk of any loss to the property that
occurs before the transfer.
In general, if there is an agreement for the sale of goods or chattel, and the property is
destroyed by a casualty before the sale is completed, the seller bears the loss to the property
because the property is still vested in the seller. Once the sale is completed, however, the
property vests in the buyer, and the buyer bears any loss to the property. A sale of goods is not
generally considered complete until the goods have been delivered, because the specific goods
sold are not known until that time. However, this is not the rule if the seller has agreed to
provide the buyer with specific goods, and the buyer has agreed to accept those specific goods
for an agreed-upon price. In that situation, the seller's appropriation of specific goods for the
buyer is equivalent to delivery of the goods, and the buyer's agreement to accept the specific
goods and pay the purchase price is equivalent to the buyer's acceptance of possession. There is
nothing more for the seller to do, and the property thus vests in the buyer even though physical
delivery has not yet occurred.
XXIV.
Termination by Death or Incapacity of the Offeror or Offeree
A.
XXV.
Termination by Rejection
A.
XXVI.
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.
Restatement §38: Rejection
1. 1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror
has manifested a contrary intention.
2. 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.
Mailbox Rule
A.
B.
C.
D.
The issue is whether, when acceptance is made by mail, the contract is formed when the acceptance is
mailed or when it is received.
“[T]he general rule [is] that insofar as the mail is an acceptable medium of communication, a contract is
complete and binding upon posting of the letter of acceptance.
The offeree makes an “overt manifestation of assent to the proposal” at the time of mailing.
1. The court quotes two influential contracts treatises for the traditional rule and the idea that
modern postal regulations should not change it.
Mailbox rule and Option Contract
1.
E.
Email
1.
2.
3.
4.
5.
F.
Rule: A contract becomes binding when a notice of acceptance is put in the mail.
Analysis: A contract becomes binding when a notice of acceptance is deposited in the mail.
Although this is not a perfect rule, some point has to be chosen at which a mailed contract
becomes complete and enforceable, and upon being placed in the mail is the most just point
because at that time both parties have assented to the contract even though one party does not
know of the accepting party’s assent. Thus, in this case, as soon as the plaintiffs deposited their
execution of the contract in the mail, the contract became official and enforceable. As a result,
their repudiation was invalid and cannot be the basis for the trial court’s decision. The trial court
is reversed.
H. Termination by Counteroffer and the “Battle of the Forms”
A.
Restatement Section 39: Counteroffers
1.
2.
3.
B.
“A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the
original offer and proposing a substituted bargain differing from that proposed by the original
offer.
An offeree’s power of acceptance is terminated by his making of a counteroffer, unless the
offeror has manifested a contrary intention or unless the counteroffer manifests a contrary
intention of the offeree.”
This illustrates the common-law “mirror image rule.” If the offeree’s response attempts to add or
change the terms of the offer, even slightly, it is deemed a counteroffer and rejection.
Mirror Image Rule
1.
12
What if the acceptance is sent by email? Is the contract formed when the email is sent or
received? And what exactly does “received” mean?
“Acceptance given by telephone or other medium of substantially instantaneous two-way
communication is governed by the principles applicable to acceptances where the parties are in
the presence of each other.”
Restatement (Second) of Contracts § 64.
So is email is a “substantially instantaneous two-way communication?” Is sending an email more
like making a phone call or sending a letter?
There is a surprising dearth of case law on the subject, and arguments can be made either way.
Morrison v. Thoelke
1.
2.
XXVII.
When an option contract or a firm offer is involved, the mail box rule does not apply. The
acceptance must be received within the option period to be effective.
The traditional mirror image rule, while simple to apply, has been criticized as inflexible.
2.
3.
4.
5.
The rule was originally applied strictly, and some jurisdictions still do.
One approach is to interpret the offeree’s proposed variation as a mere suggestion, which the
offeror might accept or reject.
This would not destroy the original offer, but give the original offeror the opportunity to modify.
Ex.) The Greece/Turkey tour in Problem 27.
C. The Common Law
D. PRINCESS CRUISE LINES, INC. v. GENERAL ELECTRIC CO.
1.
2.
3.
E.
F.
The Uniform Commercial Code does not apply to maritime contracts that are
predominately for services.
The UCC is properly applied to maritime sales contracts of goods, but not to a service contract.
Where a contract is mixed, its predominant character controls and is determined on the facts
the same at sea as ashore, the wording, nature of the supplier's business and intrinsic worth of
materials are relevant.
Predominant Purpose Test
a) The court agreed with GE and determined that when the predominant purpose of a
contract is rendering services, not the furnishing of goods, the UCC is inapplicable, and
common-law principles apply. Considerations include:
(1) The language of the contract,
(2) The nature of the business of the supplier, and
(3) The intrinsic worth of the materials.
(4) The basis of the complaint (although not dispositive) (p. 129).
The Uniform Commercial Code
“Battle of the Forms” - UCC §2-207. Additional Terms in Acceptance or Confirmation
1.
G.
H.
I.
Summary of Battle of the Forms - go back and read starting at 131
J.
K.
U.C.C. § 2-207 was intended to usurp the mirror image rule for sales of goods.
It applies both when the parties seek to reach agreement with the forms and when they have first reached
an oral or informal written agreement and then followed up with written confirmation.
2-207(1): The acceptance may contain additional or different terms from those in the offer.
Express statement that acceptance is conditional on acceptance of offeree’s terms = counteroffer.
L.
M.
13
(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.
2. (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) (a) the offer expressly limits acceptance to the terms of the offer;
b) (b) they materially alter it; or
c) (c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.(
3. 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.
From CLASS: Battle of the Forms: Things to Note
1. For sales of goods
2. UCC 2-207 has supplanted the traditional mirror image rule
3. Forms used by many businesses to streamline transactions, and most are written with the
particular business in mind. Because of this, the typical contractual interaction is done through
forms that are not identical. → this causes the Battle of the Forms
Material alteration examples
1. Definition: Significant changes, as additions to and/or deletions from text in a legal sense or
effect to a legal instrument, such as a contract, deed, will, or the like. Such changes may
invalidate it.
2. Harsh or surprising, changing from something that is standard in industry,
3. Important: Messing with a Warranty would be substantially altering the contract.
N.
O.
P.
2-207(2): Sets forth the circumstances in which the additional terms will be part of the contract.
2-207(3): Sets forth the procedure when parties’ conduct indicates they thought there was a contract.
1. Look at Note at bottom of 138
Privso: If there’s a proviso, it’s a counter offer, not a contract.
Q. COMMERCE & INDUSTRY INSURANCE CO. v. BAYER CORP.
1.
2.
3.
4.
5.
R.
NORTHROP CORP. v. LITRONIC INDUSTRIES
1.
2.
3.
4.
14
Supreme Judicial Court of Massachusetts, 2001
Rule: Under UCC 2-207(3), where two merchants exchange conflicting forms and one merchant
expressly conditions acceptance on the other’s assent to his terms, a contract can still be formed
based on the parties’ subsequent conduct, but the parties will only be bound to the terms they
agreed upon.
Facts: Malden Mills and Bayer Corporation (Bayer) (defendant) entered into an agreement for
the sale of nylon tow. The Malden Mills purchase order sent to Bayer contained an arbitration
provision. The Bayer invoice sent to Malden Mills was silent regarding arbitration and expressly
conditioned Malden Mills’ acceptance of any order on their acceptance of any additional or
conflicting terms in the Bayer invoice. Following a fire destroying a Malden Mills building, the
company’s insurers, Commerce and Industry Insurance Company (Commerce & Industry)
(plaintiff) sued Bayer claiming that the nylon tow sold to Malden Mills by Bayer was the cause of
the fire. Bayer argued that the Malden Mills arbitration provision applied to the dispute and
additionally stated that Malden Mills should be equitably estopped from refusing to apply the
arbitration provision. The trial court held that the arbitration provision was unenforceable and
rejected Bayer’s argument that Malden Mills should be equitably estopped. Bayer appealed.
Issue: Under UCC 2-207(3), will two merchants who exchange conflicting forms where one
expressly conditions acceptance on the other’s assent to his terms be bound only to the terms
they agreed upon? (YES)
Analysis: UCC 2-207 was designed to deal with the “battle of the forms” issue where two
merchants exchange two differing boilerplate contracts. Under common law, no binding contract
would have formed because the differing contracts break the common law “mirror image” rule.
However, UCC 2-207 creates a contract and provides the procedure for determining the terms of
the contract. Under UCC 2-207(3), if two merchants exchange differing contracts and one
expressly conditions acceptance on agreement to his terms, a contract will still be formed if the
parties subsequently behave as if a binding contract was formed. In these cases the parties will
only be bound to the terms that they both agreed upon. Here, Bayer’s invoice was silent as to
arbitration and expressly conditioned Malden Mills’ acceptance on assent to any additional or
conflicting terms. Though the parties exchanged conflicting forms, they still behaved as if a
contract had formed because Bayer delivered the nylon tow and Malden Mills accepted it.
Because the parties did not agree to the arbitration provision, it is not part of the binding
contract and Malden Mills will not be bound by it. Additionally, it would not be inequitable for
Bayer to proceed to trial rather than arbitration. This court affirms the trial court’s decision.
NOTE: Knockout Rule, Mirror Rule, and Additional Terms
As Northrop explains, there are three separate views on what to do with “different” terms under
§2-207.
a) The majority approach, known as the “knockout rule,” dictates that the different terms
cancel each other out. T
b) he leading minority view is that because the text of §2-207(2) never says that “different”
terms can become part of the contract, the offeror’s terms control.
c) Finally, other jurisdictions assume that the omission of the word “different” from
§2-207(2) was a drafting error, and treat “different” terms just like “additional terms.”
Rule: Under the knockout rule, if an acceptance contains terms that are additional to or different
from those in the offer, the conflicting terms in both the offer and acceptance are replaced with
neutral provisions from the Uniform Commercial Code.
Facts: Litronic Industries (Litronic) (defendant) sent a written offer to Northrop Corporation
(Northrop) (plaintiff) to sell Northrop printed wire boards. The offer contained a 90-day warranty
on the boards. Northrop informed Litronic by phone that it accepted the offer and would send
Litronic a formal purchase order. Based on previous business with Northrop, Litronic was
familiar with Northrop’s purchase order form, which provided for a warranty that contained no
time limit. Northrop received the boards but did not complete its testing of the boards until six
5.
6.
S.
months later. Northrop returned the boards to Litronic, claiming they were defective. Litronic
refused to accept the returned boards because its 90-day warranty had lapsed. Northrop
claimed it had an unlimited warranty under the terms of its purchase order. Northrop brought a
diversity suit against Litronic. The magistrate judge eliminated both Northrop and Litronic’s
warranty terms and applied Uniform Commercial Code (UCC) § 2-309, which provides that
nonconforming goods may be rejected within a reasonable time, and held that Northrop
rejected the boards within a reasonable time because of the complexity of Northrop’s testing.
Litronic appealed.
Issue :Under the knockout rule, if an acceptance contains terms that are additional to or
different from those in the offer, are the conflicting terms in both the offer and acceptance
replaced with neutral provisions from the Uniform Commercial Code? (YES)
Analysis: In Illinois, under the knockout rule, which will be adopted here, if an acceptance
contains terms that are additional to or different from those in the offer, the conflicting terms in
both the offer and acceptance are replaced with neutral UCC provisions. Under UCC § 2-207(1),
which has been adopted in Illinois, a definite expression of acceptance that is sent within a
reasonable time is an acceptance, even if it includes terms that are additional to or different
from those originally offered, unless the acceptance is conditioned on agreement to those
additional or different terms. Section 2-207(2) provides that if additional terms in an acceptance
are not materially different from those in the offer, the additional terms become part of the
contract. Conversely, if the additional terms are materially different, they are ineffective and the
terms of the contract are those included in the offer. However, § 2-207(2) only specifically
addresses additional terms, and not what happens if an acceptance contains different terms.
There are three competing views on how such a situation should be addressed: (1) the majority
view, adopted by the magistrate judge below, is that the differing terms in both the offer and the
acceptance are ignored and replaced with default UCC terms; (2) the leading minority view is
that the different terms included in the acceptance are ignored; and (3) under California’s
approach, UCC § 2-207(2) is interpreted to treat different terms the same way as additional
terms, with new terms in an acceptance becoming part of the contract if they are not materially
different from those included in the offer. Although California’s approach appears the most
sensible, this diversity suit is governed by the laws of Illinois, which has not yet chosen a
position. Illinois tends to adopt majority rules in UCC cases, and there is no reason not to do so
here. In this case, Northrop accepted Litronic’s offer without conditioning its acceptance on
Litronic’s agreeing to Northrop’s different warranty terms. Applying the majority position,
Northrop’s open-ended warranty and Litronic’s 90-day warranty must both be eliminated and
replaced with UCC § 2-309, which allows nonconforming goods to be rejected within a
reasonable amount of time. The magistrate judge’s judgment is affirmed.
KLOCEK v. GATEWAY, INC
1. MAIN POINT TO GET OUT OF THIS CASE
a)
2.
3.
4.
5.
6.
15
Between Merchants is what’s governed by the UCC 2-207 and Klocek was not a
merchant.
United States District Court, Kansas, 2000
Rule: Additional or different terms provided in the acceptance do not become terms of the
contract unless acceptance is made expressly conditional upon acceptance of the additional
terms or the non-merchant offeror expressly agrees to the additional terms.
Issue: The issue is whether the contract for sale of the computer included the Standard Terms,
which in turn included the arbitration clause.
Issue #2: Is the purchaser of a good required to comply with terms that are added to the
agreement through a form memorializing the agreement, where the form states that failure to
return the goods constitutes acceptance? (NO)
Applying UCC 2-207 in Klocek
a) It would only be a counteroffer if Gateway expressly made its acceptance conditional
on Klocek’s assent to the additional or different terms in the Standard Terms (the
proviso).
b) Gateway did not do this at all; instead, it simply shipped with the Standard Terms
without expressing any unwillingness to proceed if the consumer did not assent to
them.
c)
7.
8.
XXVIII.
This, the shipment with the Standard Terms constituted Gateway’s acceptance of the
offer.
Analysis:
a)
​“Because plaintiff is not a merchant, additional or different terms contained in the
Standard Terms did not become part of the…agreement unless plaintiff expressly
agreed to them.”
b) Section 2-207(2) says “between merchants” the terms in an acceptance become part of
a contract.
c) Gateway presented no evidence the plaintiff expressly agreed to the Standard Terms.
d) Moreover, “the act of keeping the computer past five days was not sufficient to
demonstrate that plaintiff expressly agreed to the Standard Terms,” including the
arbitration provision.
Additional info: Arbitration clauses are favored, but an arbitration clause must be valid in order
for it to be enforced. Section 2-207 of the Uniform Commercial Code (UCC) is often said to apply
when there is a “battle of the forms,” but will also apply to cases involving only one form. The
official comment thereto states that this section will apply where an oral agreement is reached
and one or both of the parties sends a form memorializing the agreement and adds additional
or different terms. The buyer is typically the offeror in a sales transaction. An acceptance will be
deemed a counter-offer only when the acceptance is made conditional upon the offeror’s
consent to the additional or different terms. When the offeror is not a merchant, section 2-207
provides that additional terms in the acceptance do not become part of the agreement unless
the offeror expressly agrees to them. In the current matter, section 2-207 applies even though
Standard Terms included in the package was the only form involved in the transaction. The
Standard Terms constitute Gateway’s acceptance of the offer. It is not a counter-offer because
Gateway’s acceptance was not made conditional upon Klocek’s consent to the additional terms.
Moreover, the additional terms in the Standard Terms are not enforceable because Klocek did
not expressly agree to them. Klocek’s keeping the computer beyond five days was not sufficient
to constitute express agreement to the additional terms. Accordingly, Gateway’s motion to
dismiss is overruled.
V. INDEFINITENESS
A.
As a general rule, no mutual assent exists and thus no contract is formed unless the agreement of the
parties is sufficiently certain. Certain as to what? All terms? What degree of certainty must be shown? Must
certainty be established only by the terms of the offer? Are terms in the acceptance relevant? Is evidence
other than the language of the offer and acceptance to be considered?
B.
From Slides:
1.
2.
3.
4.
C.
Under the common law, the terms of the contract must be reasonably certain – that is, provide a
basis for determining the existence of a breach and giving a remedy.
Under U.C.C. § 2-204(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.”
Thanks to the gap-fillers, the U.C.C. is quite flexible on providing missing and vague provisions
for everything except quantity.
Restatement §33: Certainty
1.
2.
3.
Even though a manifestation of intention is intended to be understood as an offer, it cannot be
accepted so as to form a contract unless the terms of the contract are reasonably certain.
The terms of a contract are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy.
The fact that one or more terms of a proposed bargain are left open or uncertain may show that
a manifestation of intention is not intended to be understood as an offer or as an acceptance.
D. Indefiniteness under the UCC
1.
2.
16
Under the UCC, the courts to look to the following as aids to construction of a contract: usage of
trade, course of dealing, and course of performance. The UCC § 1-303 has definitions of these
terms.
The UCC also has specific gap filling provisions.
a) UCC § 2-305 – Open price term
3.
E.
Common Situations in which Indefiniteness Arises as an Issue
1.
2.
3.
4.
F.
b) UCC § 2-306 – Output, requirements, and exclusive dealings
c) UCC § 307 – Delivery in single or several lots
d) UCC § 308 – Absence of specified place for delivery
e) UCC §309 – Absence of specific time provisions
Of course, the more terms the parties have left open, the less likely they intended to be bound.
This is a big question.
The parties have a preliminary agreement in place, but there is an uncertain commitment.
Some of the terms are left vague, either on purpose (the parties want to do business together
but are having trouble bridging the gap on those terms) or unintentionally.
Some of the terms are missing, again either on purpose (the parties couldn’t come to an
agreement) or because the parties were hasty in drafting or didn’t foresee an issue.
Terms are left for future resolution by one or both parties, but they are so essential that lack of
assent to them threatens the whole deal.
Indefinite Terms Often Result in a Balancing Act by the Courts
1.
2.
3.
4.
As the Alaska Supreme Court stated in Rego, courts must walk a fine line when there are vague,
indefinite, uncertain, or missing terms in a contract.
“On the one hand, courts should fill in gaps in contracts to ensure fairness where the reasonable
expectations of the parties are fairly clear.”
a) If there was intent to contract, courts want to honor it.
“On the other hand, the courts should not impose on a party any performance to which he did
not and probably would not have agreed.”
This balancing act is exemplified by the disparate results of the Walker and Rego courts.
G. CORBIN ON CONTRACTS §29
1.
The UCC requires the courts to look to the following matters as aids for construction of the
contract: usage of trade, meaning the custom within any given industry; course of dealing,
meaning the parties’ past interactions with each other; and course of performance, meaning
what the parties do while performing this one contract (what the common law called practical
construction). Read §1-303 of the UCC.
H. Walker v. Keith (Vague Rental Renewal Issue Case)
1.
2.
3.
4.
5.
I.
Rego v. Decker (Supreme Court of Alaska)
1.
2.
17
Rule: A contract must be sufficiently definite in order to be binding on the parties. The amount
of rent does not need to be fixed, but there must be “a definite objective standard by which the
rent could with certainty be computed.” “[A]n agreement to agree cannot constitute a The basic
question is whether there is sufficient mutual agreement.
Here, they did not agree upon a specific method of determining the rent, but just left it to the
future.
“It should be obvious that an agreement to agree cannot constitute a binding contract.”
“We think the basic principle of contract law that requires substantial certainty as to the material
terms upon which the minds of the parties have met is a sound one and should be adhered to.
A renewal option stands on the same footing as any other contract right. Rent is a material term
of a lease. If the parties do not fix it with reasonable certainty, it is not the business of courts to
do so.” p. 158
Hypothetical application of the UCC (which does not apply) to the issue here:
a) First of all, the U.C.C. does not apply here. This is a realty lease, and no goods are
involved whatsoever.
b) If this were a sale of goods, however:
c) U.C.C. § 2-204 suggests that there can be a binding contract even though one or more
terms of the agreement are left open.
d) U.C.C. § 2-305(1)(b) states that a contract may be enforceable even though the parties
have left the price to be agreed upon and they fail to agree. (But the parties need to
have intended to contract.)
Rule: To the extent possible, where a contract contains uncertain terms, the court should fill in
the gaps in the contract to ensure the reasonable expectations of the parties have been met.
Issue: Should the court fill in the gaps where a contract contains uncertain terms to ensure the
reasonable expectations of the parties have been met to the extent this is possible? (yes)
3.
4.
5.
6.
7.
18
Facts: Joseph Rego and his wife (plaintiffs) leased land to Robert Decker (defendant) in 1966. The
lease contained an option to purchase provision. In 1967, Decker notified the Regos that he was
exercising the option to purchase provision. The Regos refused to convey the land and instead
sold it to another purchaser. Decker sued for specific performance. The trial court entered
judgment in favor of Decker ordering the Regos to convey the land. The Regos appealed arguing
that the terms of the contract were too uncertain because the option to purchase provision did
not contain any language regarding security to guarantee Decker’s payment after the land was
delivered. In the alternative, they argued that if specific performance is ordered then a security
provision should be included to protect their interests.
Analysis and Holding: In general, for a contract to be specifically enforceable the terms of the
contract must be reasonably certain. At the same time, the court must ensure that the
reasonable expectations the parties had when entering into the contract are met. This can be
accomplished by filling gaps where uncertainties exist in the contract. However, a court will not
fill in gaps where the contract manifests a failure to reach an agreement, only where they can be
sure of the parties’ intent in making the contract. Here, the contract was not fatally uncertain
because the silence surrounding the security provision simply means the parties never intended
to include one. On the other hand, if the parties had intended to include a security provision, but
failed to specify the details in the contract then the contract would be fatally uncertain. That is
not the case here. This court affirms the trial court’s decision regarding specific performance, but
remands for further proceedings regarding the addition of some security to protect the Regos’
interests.
Term to note: ut res magis valeat quam pereat (“let it be saved rather than destroyed”)
From Class: Facts
a) The Regos leased land with a service station on it to Decker for a year, with rent of
$65/mo., plus 2¢/gal. on all gas sold in excess of $4,000 gallons/mo., and a “sum equal
to the net profit realized from the sale of diesel fuel.”
b) The Regos agreed to pave by a date certain.
c) There was an option to renew the lease for four years with an increase in rent; there
was also an option to purchase for $81,000.
d) The Regos never paved, Decker renewed the lease, then tried to exercise option to
purchase.
e) The Regos refused, and Decker sued for specific performance; he prevailed in the trial
court.
Analysis
a) The Regos claimed that the terms of the purchase option were too uncertain to be
enforced.
b) In regard to the “net profits” on diesel fuel issue, Decker argued that no diesel fuel had
been or was likely to be sold in the future.
c) “To be specifically enforceable, a contract must be reasonably definite and certain as to
its terms.” p. 160.
d) “On the one hand, courts should fill gaps in contracts to ensure fairness where the
reasonable expectations of the parties are fairly clear.”
e) “On the other hand, the courts should not impose on a party any performance to
which he did not and probably would not have agreed.” p. 161.
f)
“Where the character of a gap in an agreement manifests failure to reach an
agreement rather than a sketchy agreement, or where gaps cannot be filled with
confidence that the reasonable expectations of the parties are being fulfilled, then
specific enforcement should be denied for lack of reasonable certainty.” p. 161.
g) “While option contracts for the sale of land such as the one at issue are not technically
within the scope of the Uniform Commercial Code, we consider relevant here the
recent legislative decision to provide in contracts for sale of goods that ‘even though
one or more terms are left open, a contract for sale does not fail for indefiniteness if
the parties intended to make a contract and there is a reasonably certain basis for
giving an appropriate remedy.’”
h) The issue is whether the option to purchase was unenforceable because terms were
uncertain:
(1) The amount of monthly payments.
i)
j)
k)
l)
m)
n)
o)
p)
XXIX.
UCC Gap Filling Provisions
A.
B.
C.
XXX.
As discussed above, the U.C.C. provides several gap-filling provisions to assist in effectuating an
agreement even where there is uncertainty present.
For example, these will allow courts to determine terms as to price (2-305), place of delivery (2-308), and
time for shipment or delivery (2-309).
The U.C.C. does not, however, contain a gap-filler for quantity. Under the U.C.C., the quantity must be
sufficiently certain in the contract, as the U.C.C. will not supply it later on.
1. This makes sense: how exactly would a court determine a “reasonable quantity”?
UCC 2-311
A.
(3)Where such specification would materially affect the other party's performance but is not seasonably
made or where one party's cooperation is necessary to the agreed performance of the other but is not
seasonably forthcoming, the other party in addition to all other remedies
1. (a) is excused for any resulting delay in his own performance; and
2. (b) may also either proceed to perform in any reasonable manner or after the time for a material
part of his own performance treat the failure to specify or to cooperate as a breach by failure to
deliver or accept the goods.
B.
Higgins v. Oil, Chemical & Atomic Workers Int’l Union, Local #3-677
1.
2.
3.
19
(2) Undefined phrase “net profit” on diesel fuel sales.
(3) No provision for interest or time for its payment.
(4) No mention of security for Decker’s performance.
The contract must be “reasonably definite and certain as to its terms,” and the
standard is higher where specific performance is sought.
(1) “[T]he primary underlying purpose of the law of contracts is the attempted
‘realization of reasonable expectations that have been induced by the making
of a promise.’”
The Regos argued that normal business practice would require here security.
Decker argued that the parties intended that there should be no security agreement,
so the contract was not uncertain.
The trial court did not address whether security was intended.
The trial court’s final decision required security regardless of whether it was intended
based on Decker’s suit for specific performance as a remedy.
“Thus, although we believe the trial court was correct in granting Decker specific
performance of the purchase option agreement, we further hold that the court's
decree should have been made conditional upon Decker’s either paying the purchase
price in full or furnishing adequate security embodying such terms as the court
considered appropriate.”
From the full case:
(1) “The risk of Decker's nonperformance of his side of the purchase option
agreement is most likely greater now that controversy and litigation have
arisen, so reduction of that risk may justly be required as a condition of
obtaining specific performance.”
“Thus, although we believe the trial court was correct in granting Decker specific
performance of the purchase option agreement, we further hold that the court's
decree should have been made conditional upon Decker's either paying the purchase
price in full or furnishing adequate security embodying such terms as the court
considered appropriate. We therefore affirm the decree insofar as it awards Decker
specific performance and the case is remanded for such further proceedings as are
deemed necessary to condition the grant of specific performance upon the giving of
appropriate security.”
COMMON LAW, WRITTEN OR ORAL CONTRACT WOULD BE FINE, NEED MUTUAL ASSENT,
AND WOULD BE JUDGED ON OBJECTIVE STANDARD
The court first holds that there was a lack of mutual assent between the parties.
“While a contract may be either expressed or implied, or written or oral, it must result from a
meeting of the minds of the parties in mutual assent to the terms, must be based upon a
sufficient consideration, free from fraud or undue influence, not against public policy and
sufficiently definite to be enforced.”
4.
5.
6.
7.
8.
20
“It follows that payments made as a result of the union’s commitment to support the discharged
workers, based on the action of the membership…were merely a gratuity.”
The court then holds that, even if there was mutual assent, the agreement to “take care” of the
employees through payments funded by a dues check-off was too indefinite to enforce.
a) “It is fundamental that for a contract to be enforceable, it must be of sufficient
explicitness so that a court can perceive what are the respective obligations of the
parties.”
b) Even “assuming the existence of a valid consideration for this benefit, there is no way
for [the Court] to determine the essential details of that commitment.”
c)
The Court is highly critical of the COA opinion and views it as “clearly not reasonable.”
The court cites the Restatement at section 33 as follows:
a)
Terms cannot be deemed “reasonably certain” unless they “provide a basis for
determining the existence of a breach and for giving an appropriate remedy.”
b) Here, even with “taken care of” language, how long were the payments to continue?
Were they to increase as wages of other workers increased? When and under what
circumstances might they be terminated?
BASICALLY, the payments made for the two years were just “gratuity” aka GIFTS and could be
stopped.
There was no way for the court to determine the essential details of the “agreement”
⭐️