Contract Law Learning Questions - Set 1 Flashcards
Under Article 2, when an offeree proposes additional or different terms during acceptance, the court will apply __________ to determine whether the additional or different terms become part of the contract.
A
gap fillers
B
the battle of the forms provision
C
the mirror image rule
D
the mailbox rule
B
The battle of the forms provision of Article 2 lists specific rules for determining what terms are included in a contract when the terms of acceptance do not match the terms of the offer.
Article 2 has abandoned the mirror image rule, which requires an absolute and unequivocal acceptance of each and every term of the offer.
Gap fillers are used when certain terms are not included in the contract; it does not apply to additional or different terms in the acceptance.
The mailbox rule is applied to determine the timing of acceptance of a contract.
Under Article 2, when an offeree proposes additional or different terms as part of an otherwise valid acceptance, the acceptance __________.
A
Fails under the mirror image rule
B
Is effective, unless the acceptance is expressly made conditional on assent to the additional or different terms
C
Is deemed a rejection and counteroffer
D
Fails under the battle of the forms
B
The Article 2 battle of the forms provision provides that the proposal of additional or different terms by the offeree in a definite and timely acceptance is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.
Article 2 has abandoned the mirror image rule, which insists on an absolute and unequivocal acceptance of each and every term of the offer. Under that rule, any different or additional terms in the acceptance make the response a rejection and counteroffer.
Under the Article 2 battle of the forms provision, whether additional or different terms proposed by the offeree during acceptance ultimately become part of a contract depends on whether or not __________.
A
The offeree is a merchant
B
Both parties are merchants
C
The offeror is a merchant
D
One of the parties is a merchant
B
Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants. If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract. They do not become part of the contract unless the offeror expressly agrees. If both parties are merchants, additional terms in the acceptance become part of the contract unless they materially alter the terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the terms (or objects within a reasonable time after notice of them is received). Between merchants, some courts treat different terms in an acceptance the same as additional terms; other courts apply the knockout rule (i.e., conflicting terms are knocked out and replaced by gap-filling terms under the UCC).
Which of the following best states the result when, in a contract between merchants for the sale of goods, the acceptance does not match the terms of the offer?
A
Additional terms may be knocked out of the contract, but different terms will be included unless the offeror has already objected to the particular terms.
B
Additional terms that do not materially alter the original terms of the offer will be included in the contract, but different terms may be knocked out of the contract.
C
Neither additional terms nor different terms are ever included in the contract.
D
Additional terms are never included in the contract, but different terms will be included unless the offer expressly limits acceptance to the terms of the offer.
B
Additional terms that do not materially alter the original terms of the offer will be included in the contract. In a contract between merchants for the sale of goods, additional terms in the acceptance will be included in the contract unless they materially alter the original terms, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the particular terms or objects within a reasonable time.
Different terms may be knocked out of the contract. There is a split of authority on different terms. Some states follow the same rules as for additional terms, but others employ the knockout rule. Under the knockout rule, conflicting terms are knocked out of the contract and gaps are filled by the UCC gap-filler provisions.
Conflicting terms are subject to the knockout rule; additional terms are never subject to the knockout rule.
On September 15, a highlighter manufacturer faxed a large office supply company offering to sell the supply company 50,000 highlighters for $25,000. The supply company faxed back the following communication: “We accept your offer. Please box 125 highlighters per case in post-consumer cardboard shipping boxes.”
Assuming the existence of a valid contract, what would its terms include?
A Only those terms set forth in the manufacturer’s fax of September 15, because the manufacturer did not assent to any enlargement of the shipping terms.
B All terms set forth in the manufacturer’s offer plus consistent additional terms proposed in the office supply company’s acceptance.
C All terms set forth in the manufacturer’s offer plus those in the office supply company’s attempted acceptance that did not amount to a material alteration of the manufacturer’s offer.
D All terms set forth in the manufacturer’s offer plus all those in the office supply company’s purported acceptance that did not amount to a material alteration of the manufacturer’s offer and to which the manufacturer did not object within a reasonable time.
D
The language in choice (D) properly states the UCC position regarding the terms of the contract. Under the UCC, if both parties to a contract are merchants, additional terms in an acceptance will be included in the contract unless (i) they materially alter the original contract; (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received. [UCC §2-207(2)] The manufacturer and office supply company are both merchants because they regularly deal in goods. [UCC §2-104(1)] Therefore, under Article 2 the contract will include the terms of the manufacturer’s offer plus those in the office supply company’s purported acceptance that did not amount to a material alteration of the offer or to which the manufacturer did not object within a reasonable time. Note that the manufacturer’s offer did not expressly limit acceptance of its terms. (A) is incorrect because this was a contract between two merchants. Contract formation under the UCC for contracts between merchants is governed by the rule stated above. If one of the parties were not a merchant, (A) would be correct—if one of the parties to a contract for sale of goods is not a merchant and the acceptance includes additional or different terms, such terms are considered to be mere proposals that do not become part of the contract unless the offeror accepts. [UCC §2-207(2)] However, because this is a contract between merchants, the office supply company’s terms regarding shipping will be included unless they materially alter the offer, as discussed above. (B) is incorrect because it does not fully state the Code’s “battle of the forms” provision. The choice fails to mention the manufacturer’s power to object within a reasonable time. (C) is incorrect because, like (B), it does not note the manufacturer’s power to object within a reasonable time.
On July 1, a cattle breeder, who was planning to retire soon, sent a note to his neighbor offering to sell his prize bull for $15,000. On July 10, the neighbor, who was also a cattle breeder, wrote the following note to the retiring breeder:
“I have decided to take the bull. I will give you a cashier’s check on delivery on Saturday, July 28.”
The retiring breeder did not respond. The retiring breeder did not want to deliver the bull on July 28 and did not think that the delivery day was agreed to. Instead, he delivered the bull on Monday, July 30. The neighbor refused the delivery and stated that he had found another bull he likes better. The retiring breeder sues the neighbor for breach of contract.
Is the retiring breeder likely to prevail?
A Yes, because his breach, if any, was minor.
B Yes, because the parties had not agreed on July 28 as the delivery date.
C No, because there was no contract.
D No, because he did not deliver the bull on July 28.
D
The retiring breeder will not prevail because he did not deliver the bull on July 28. This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party’s risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object. Therefore, the July 28 delivery date became part of the contract. By delivering the bull on July 30th, the retiring breeder breached the contract. (A) is incorrect because this is a contract for the sale of goods, which requires perfect tender. Whether the breach was material or minor has no effect. (B) is incorrect because under the UCC, the July 28 term became part of the contract when the breeder failed to object to it. (C) is incorrect because, under the UCC, an acceptance is effective even if it includes additional terms. Thus, the neighbor’s letter on July 10 was sufficient to create a contract.
On September 15, a manufacturer of office furniture received a purchase-order form from a retailer of office furniture, ordering 100 executive leather swivel chairs for delivery no later than November 1, at a total cost of $10,000, as quoted in the manufacturer’s current catalogue. Two days later, the manufacturer faxed its own purchase-order acceptance form to the retailer, who was a new customer and had never seen the form before. The purchase-order acceptance form stated that it was an acceptance of the specified order, was signed by the manufacturer’s sales manager, and contained all of the terms of the retailer’s form, but it also contained a clause providing for liquidated damages in the event of breach of contract.
Assuming that there were no further communications between the parties, what is the status of the relationship between the parties?
A There is an enforceable contract between the parties, the terms of which include the liquidated damages clause in the manufacturer’s form.
B There is an enforceable contract between the parties, the terms of which do not include the liquidated damages clause in the manufacturer’s form.
C There is no enforceable contract between the parties because the manufacturer’s form constituted a rejection of the retailer’s offer and a counteroffer by the manufacturer.
D There is no enforceable contract between the parties because the manufacturer’s form added an additional term that materially altered the terms of the retailer’s offer.
B
The manufacturer and the retailer have a contract without the liquidated damages clause. In contracts for the sale of goods, a definite expression of acceptance operates as an acceptance even if it states additional terms. Between merchants, additional terms proposed by the offeree in an acceptance automatically become part of the contract unless (i) they materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available); (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror had already objected to the additional terms or objects within a reasonable time. Here, a clause was added by the manufacturer (the offeree) providing for liquidated damages in the event of a breach. This additional term significantly changed the remedies available, and thus materially altered the original terms of the offer. Therefore, the liquidated damages clause would not become part of the contract. (A) is therefore incorrect. (C) is incorrect because it reflects the common law “mirror image” rule, which the UCC has rejected in sale of goods cases. (D) is incorrect because under the UCC, the inclusion of a material additional term does not prevent formation of a contract; instead, a contract is formed without the inclusion of that additional term.
A wholesale seller of widgets telephoned a retail seller of widgets and told him that he had 5,000 pounds of widgets ready for delivery at $5,000. The retailer agreed to purchase the widgets, but stated that he wanted the wholesaler to deliver 2,000 pounds now and 3,000 pounds next month. There were no further communications between the parties.
What is the most likely result of the conversation between the wholesaler and the retailer?
A A contract was formed to deliver 2,000 pounds now and 3,000 pounds next month.
B A contract was formed to deliver 5,000 pounds now.
C No contract was formed, because the retailer’s response was merely a counteroffer and a rejection.
D No contract was formed, unless the wholesaler notified the retailer within a reasonable time of his assent to the proposed schedule of delivery.
A
The conversation created a contract for 2,000 pounds of widgets now and 3,000 pounds next month. Because the contract is for the sale of goods, the UCC governs. Under the UCC, a contract is formed whenever it appears from the parties’ communications that they intended to enter into a contract. Here, it is clear that the parties intended to enter into a contract, but the acceptance contained terms additional to the offer terms. When this occurs, the UCC provides for which terms govern: If the contract is between merchants, the additional terms in the acceptance are included in the contract, unless (i) the additional terms materially alter the contract, (ii) the offer expressly limits acceptance to the terms of the offer, or (iii) the offeror objects within a reasonable time. Here, both parties are merchants, and it does not appear that the delivery terms materially alter the contract. There is no indication that the offer limited acceptance to the terms of the offer or that the wholesaler objected to the terms; thus, there is a contract containing the additional terms. (B) would be correct if one of the parties were not a merchant, because under the UCC, when an acceptance proposes additional terms, a contract would be formed under the terms of the offer unless both parties are merchants. (C) would be correct if the UCC did not apply, because under the common law, an acceptance must mirror the offer (the “mirror image” rule); if new terms are added in the acceptance, it is treated as a counteroffer. (D) is incorrect because, under the UCC, no notice was necessary to form the contract. Notice would be required, however, if the wholesaler did not want to be bound by the additional terms. Note that the fact that this was an oral conversation does not prevent formation of the contract. To be enforceable, any contract for the sale of goods priced at $500 or more must be evidenced by a writing signed by the party to be charged. This affects enforceablility, not formation. For this contract to be enforceable, some form of signed writing (e.g., a merchant’s confirmatory memo) would be necessary.
