Contracts II - Contract Formation

Question 1

The law of contracts is designed to …

Answer 1

enforce obligations created by the consent of the parties.

Question 2

What is an offer?

Answer 2

An offer is an expression of a present intention to enter into a
contract needing only assent by the offeree

Question 3

Who controls the offer?

Answer 3

The offeror is the master of the offer

Question 4

What does an offer create?

Answer 4

An offer creates a “power of acceptance” for the period of time stated
in the offer or a reasonable time if no period is stated

Question 5

Under what circumstances are advertisements offers?

Answer 5

Advertisements are not offers unless they are clear, definite, and
explicit, and leave nothing further to negotiation
◼ Ads are addressed to an indeterminate group of people
◼ Generally, ads are held to amount only to a solicitation of offers

Question 5

Can offers be revoked?

Answer 5

Offers are always revocable before acceptance unless there is an option or a firm offer

Question 6

What happens if an offer is changed?

Answer 6

Any change in the offer, no matter how small as long as it is material, is a counteroffer/rejection

Question 7

What is an acceptance?

Answer 7

An acceptance is an unequivocal assent to the terms of the offer and completes the formation of the contract (the “moment of formation”)

Question 8

When are offers, counter-offers, rejections, revocations, and acceptances effective?

Answer 8

Offers, counter-offers, rejections, revocations, etc. are effective when received.

Generally, acceptances are effective when sent if sent through an authorized medium. The same or (today) an equivalent medium as used for the offer (UCC: any reasonable medium).

Otherwise, effective when received.

Question 9

When are exercises of an option effective?

Answer 9

When received.

Question 10

A counter-offer is also what?

Answer 10

An implied rejection. Unless the offeree clearly indicates that she is not rejecting the offer.

Question 11

For how long is an offer valid?

Answer 11

Either as stipulated in the offer, otherwise as by the passage of a reasonable time for acceptance.

Question 12

Which offers cannot be withdrawn?

Answer 12

Firm offers or options.

Question 13

What did we learn from the Dickinson case about the revocation of offers?

Answer 13

Even informal communications are sufficient to qualify as revocations.

Question 14

What happens if the offeror dies?

Answer 14

The offer dies with him.

Question 15

Why does the death of the offeror not fit the objective theory of meaning?

Answer 15

Because a reasonable person that does not know that the person has died would still think that the offer is open.

Question 16

What does §77 of Restatements say on alternative performance?

Answer 16

This principle deals with promises made in the alternative within a contract. It distinguishes between cases where each alternative performance is desired by the promisee and cases where the promisor reserves an alternative for their own advantage. In both situations, the promise is considered valid consideration if it involves some action or forbearance that would be considered consideration on its own.

However, if the promisor has an unrestricted choice of alternatives, and one of those alternatives would not be considered consideration if separately bargained for, then the promise in the alternative is not treated as valid consideration. Essentially, the key is whether each alternative involves an action or forbearance that would independently qualify as consideration.

Question 17

When is a promise considered consideration?

Answer 17

A promise is considered consideration if, and only if, the promised performance itself would be considered as valid consideration. Restatements §77.

Question 18

What may prevent a promise from being illusory?

Answer 18

Good faith or simple notice may prevent a promise from being considered illusory.

“Simple notice” typically refers to a situation where one party informs the other about a particular condition or requirement. It is a straightforward communication that puts the other party on notice of certain facts or expectations. When a promise is subject to simple notice, the notifying party is generally providing information or conditions that must be met for the promise to be valid or enforceable.

For example, if Party A promises to pay a bonus to Party B for exceptional performance, but Party A includes a simple notice stating that the bonus is contingent upon meeting specific performance targets, Party B is made aware of the conditions that must be fulfilled to receive the bonus. In this way, simple notice can prevent a promise from being considered illusory because it adds clarity and communicates the expectations associated with the promise.

Question 19

Are output contracts and requirements contracts illusory?

Answer 19

No, output contracts and requirements contracts are not considered illusory, as long as they are not unreasonably different from comparable prior output or requirements and contain an estimate.

Question 20

I sell you my house and I promise to agree with you on the price. Is this a contract?

Answer 20

Not a contract. There was nothing agreed to.
Could be a proposal (§26 Restatements).

Question 21

Is a “letter of intent” a contract?

Answer 21

A “letter of intent” can be either an agreement to agree or a contract, depending on the intent and the certainty of its commitments. If the letter clearly expresses the parties’ intention to be bound by specific terms and contains sufficient certainty regarding the key terms of the agreement, it may be considered a binding contract. However, if the language is more indicative of an agreement to negotiate or set forth general principles without a commitment to definite and enforceable terms, it might be construed as an agreement to agree, which is generally not enforceable. The determination often relies on the parties’ expressed intent and the level of detail and commitment present in the document.

The reasonable person test could be adduced for determination.

Question 22

Is notice of acceptance generally required in contract law?

Answer 22

In general, notice of acceptance is not required unless it is clear that the offeror would not know of or discover the acceptance. This means that, unless there are specific circumstances suggesting that the offeror might not be aware of the acceptance, the offeree is not obligated to provide notice of acceptance.

Question 23

What special problems do acceptances of offers of unilateral contracts pose?

Answer 23

In principle, an offer is revocable until the act of acceptance is completed. Today, most courts will solve the problem with an implied option not to revoke the offer after performance begins, meaning the offer cannot be revoked until it is fully performed. If there is no deadline, the performance has to be completed within a reasonable time, providing a fair approach to the offeree but not necessarily to the offeror who can walk away with no consequences.

Question 24

Can someone accept an offer without knowing it?

Answer 24

No. Generally, one know of an offer in order to accept it.

Question 25

Can silence be acceptance?

Answer 25

No.

Question 26

Can an offeror impose a duty to speak onto the offeree?

Answer 26

No.

Question 27

A company sends you a book with the note that by not sending the book back, you accept the offer to buy this book for 500 USD. Is this permissive?

Answer 27

No. The company cannot force you to do anything.

Question 28

Under what kind of special circumstance might silence constitute acceptance?

Answer 28

A book club. By joining it, you accept to pay when you get a book, otherwise you have to return it.

Two companies have done business before. Have an establish pattern that silence is acceptance.

Question 29

Due to what provision in the UCC does the UCC differ radically from the restatements when it comes to offer and acceptance?

Answer 29

UCC §2-204

Question 30

Explain the scope of UCC §2-204(1)

Answer 30

(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

If we both act like we have a contract then we have one

Question 31

Explain the scope of UCC §2-204(2)

Answer 31

(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined

What is the moment the contract is made? Acceptance. In this case, even if you have no acceptance, you still have a contract. Basically says that you do not need offer and acceptance anymore.

Question 32

Explain the scope of UCC §2-204(3)

Answer 32

This is the battle of the forms buster.

(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

There is a contract if the parties think there is a contract and there is a reasonable basis for a remedy

Even if certain terms in a contract for sale are left open or not fully specified, the contract may still be valid and enforceable if the parties intended to enter into a contract and there is a reasonably clear basis for providing a suitable remedy. In essence, the courts may find the contract valid if there is evidence that the parties genuinely intended to create a contractual relationship, and any uncertainties or gaps in the terms can be addressed or filled in a way that is fair and reasonable.

Question 33

What are the key requirements under the UCC regarding contracts for the sale of goods, particularly when certain terms are left open or indefinite?

Answer 33

The key requirements under the UCC are the parties’ intent to create a contract and a reasonably certain basis for providing an appropriate remedy, even if some terms are not fully specified.

This flexible approach allows contracts to be valid, focusing on the parties’ actual intent and the practical ability to remedy breaches rather than strict formalities. The contract also can be absent from offer and acceptance.

Before the adoption of the UCC (Uniform Commercial Code), the common law required contracts to have definite and certain terms. If any major term was left open or indefinite, it would typically result in the failure of the contract. However, under the UCC, the rules are more flexible.

Question 34

What is the absurdity about UCC §2-206?

Answer 34

It still refers to offer and acceptance, although UCC §2-206 states that it’s no longer required.

Question 35

Are there bilateral offers?

Answer 35

No, offers are always unilateral.

Question 36

§2-206 concerns offer and acceptance. What three provisions are contained?

Answer 36

Under the UCC, unless otherwise clearly indicated, an offer to make a contract is interpreted as allowing acceptance through any reasonable means considering the circumstances.

In the context of an offer to buy goods for immediate shipment, it is seen as inviting acceptance either by a prompt promise to ship or by the actual prompt shipment of goods, whether conforming or non-conforming. However, if non-conforming goods are shipped, and the seller promptly notifies the buyer that this is done as an accommodation, it doesn’t constitute acceptance.

Additionally, if the requested performance involves a reasonable mode of acceptance, the offeror, who is not notified of acceptance within a reasonable time, may consider the offer as having lapsed before acceptance. This provision gives flexibility to the parties in determining acceptable modes of acceptance and sets expectations for timely responses in various situations.

Question 37

If under the UCC, I order something from the seller, the seller ships non-conforming goods but does not notify me. Is that allowed?

Answer 37

It is a breach.

Question 38

UCC §2-206(3): Additionally, if the requested performance involves a reasonable mode of acceptance, the offeror, who is not notified of acceptance within a reasonable time, may consider the offer as having lapsed before acceptance. - Does delivery (arrival) constitute notification?

Answer 38

Yes.

Question 39

Where in the UCC do we find the price-fixing provisions?

Answer 39

UCC § 2-305.

Question 40

Under what circumstances does the UCC dictate a “reasonable price” at the time of delivery?

Answer 40

UCC § 2-305 addresses the situation where the parties to a contract for the sale of goods have not settled on a specific price. In such cases, the UCC provides guidelines to determine the price:

No Specified Price:

If nothing is mentioned regarding the price, or if the price is left to be agreed upon by the parties and they fail to reach an agreement, the UCC implies that the price should be a reasonable one at the time of delivery.
Price to Be Fixed by Third Party:

If the price is supposed to be determined based on an agreed market or some other standard set or recorded by a third person or agency, and if that determination is not made, the UCC considers the price to be a reasonable one at the time of delivery.

Question 41

Under the UCC, if a buyer or seller fixes the price, what is the requirement?

Answer 41

It has to be done in good faith.

Question 42

Under the UCC, if the price fails to be fixed due to the fault of one party, what can the other party do?

Answer 42

Set the price themselves (in good faith).

Question 43

In what cases does the UCC not provide a default or reasonable price under Section 2-305?

Answer 43

The UCC does not provide a default or reasonable price when the parties expressly indicate that they do not intend to be bound by the contract unless a specific price is fixed or agreed upon, and if they fail to reach an agreement on the price. In such cases, there is no contract, and the consequences involve the return of goods by the buyer and the return of any received portion of the price by the seller.

Question 44

What was the origin of the “Classic Battle of the Forms” in contract law?

Answer 44

In the late nineteenth century, buyers started using “purchase orders,” while sellers responded with “acknowledgement” or similar forms. These forms, containing terms advantageous to the issuer, often resulted in conflicting boilerplate terms. According to the “mirror image” rule, technically, the answering form was a counter-offer. However, the forms rarely created a contract as they never matched.

Question 45

What did the forms in the “Classic Battle of the Forms” typically include?

Answer 45

The forms in the “Classic Battle of the Forms” typically included quantity and price, which were negotiated terms, as well as boilerplate terms that favored the issuer legally.

Question 46

What was the issue with the “mirror image” rule in the “Classic Battle of the Forms”?

Answer 46

The “mirror image” rule stipulated that the answering form was a counter-offer even if it said “acceptance.” However, due to the conflicting boilerplate terms, the forms rarely matched.

Question 47

How did courts address the conflicting forms in the “Classic Battle of the Forms”?

Answer 47

Courts began to consider performance as an indication of acceptance. The “last-shot” rule emerged, stating that beginning performance accepted the last form from the other side.

Question 48

What tactic did parties adopt in response to the “Classic Battle of the Forms”?

Answer 48

Parties or their lawyers began to multiply forms in an attempt to gain a legal advantage in the “Classic Battle of the Forms.”

Question 49

Which UCC provision was introduced to address the “battle of the forms”?

Answer 49

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.

Question 50

What does “seasonable” mean in the UCC?

Answer 50

Timely.

Question 51

When someone sends an acceptance but with different boilerplate terms. How are these considered under the UCC? Under which circumstances do they become binding?

Answer 51

They are considered proposals for addition to the contract under UCC §2-207(2).
Between merchants, they automatically become part of the contract unless
1) the offer expressly limits acceptance to the terms of the offer
2) they materially alter it (the bar there is very low, almost always fulfilled)
3) notification of objection to them has already been given or is given within a reasonable time after notice of them is received

Question 52

UCC §2-207(3)

Answer 52

This is the Venn diagram article.

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.

Question 53

The first form controls what the contract is. That relates to what UCC provision?

Answer 53

Courts can determine the outcome by deciding who is the offeror under
UCC § 2-207. Battle of the forms provision.

Question 54

Who is a merchant under the UCC?

Answer 54

◼ A person who “deals in goods of the kind,” or
◼ A person who “by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction”

Question 55

A person who “by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction” - who might fall under that?

Answer 55

Broker might fall under that. Does not buy or sell anything.
He connects buyers and sellers. Does not fall under first
definition. But they hold themselves out as having skill peculiar.

Question 56

For the sales of goods, there are several warranties unless successfully disclaimed. Which? There are five.

Answer 56

◼ Warranty of title (§ 2-312): I guarantee that I either own it or I have the authority to sell it.
◼ Express warranties (§ 2-313): Anything that serves as a description of a good. Words, picture, model.
◼ Implied warranty of merchantability (§ 2-314): if merchant sells a good, he warrants that it’s a good average quality and would be accepted as such by other merchants in the trade.
◼ Implied warranty of fitness for a particular purpose (§ 2-315): I need something for a particular purpose, describe the purpose, seller says he knows the right thing. And it does not work for that purpose. Special need is what?
◼ Warranties to third parties (§ 2-318): Who can sue for damages? Family members? Other people who uses the good with the owner’s permission? Varies from state to state!

Question 57

What are the three forms of contracts in the software industry where customers “buy” (license or lease) before seeing the contract terms?

Answer 57

Shrinkwrap Contracts:

Physical disks are tightly wrapped in cellophane inside a box.
Contract terms are on a document inside the box, visible only after the buyer opens it.

Clickwrap Contracts:

Buyers order online and must click a “button” indicating acceptance during the order process.
Long, complex terms are presented during the online order, often without thorough reading.

Browsewrap Contracts:

Contract terms are available on the website through an obscure link at the bottom of each page or at the end of the website.
No express agreement is required, and users may not be explicitly prompted to accept the terms.

Question 58

Is the example of hiring a painter, agreeing to pay $10,000, and then deciding not to pay if unsatisfied considered an illusory promise?

Answer 58

No, it’s not an illusory promise. Courts typically require judgment in good faith. If the counterparty can demonstrate that the decision not to pay was not made in good faith, payment may be required.

Question 59

In employment contracts where the employer reserves the right to terminate the employment at any time but promises to provide a 30-day notice, is the promise of notice considered binding?

Answer 59

Yes, the promise of notice in such employment contracts is binding and constitutes consideration. Despite the employer’s ability to terminate at any time, the specific promise of providing a 30-day notice creates a definite requirement and is legally enforceable.

Question 60

How does the UCC address the establishment of a contract for sale when the writings of the parties do not explicitly establish a contract?

Answer 60

According to the UCC (Uniform Commercial Code), conduct by both parties that recognizes the existence of a contract is sufficient to establish a contract for sale, even if the written forms do not explicitly create one. In such cases, the terms of the contract consist of those on which the writings of the parties agree, along with any supplementary terms incorporated under other provisions of the UCC. This recognizes the significance of conduct in indicating the parties’ intention to form a contract, especially when the written forms might not align.

The emphasis is on the practical conduct of the parties, such as performance, which demonstrates their belief in the existence of a contract. Even if the written forms may suggest a lack of agreement, the UCC allows for the consideration of conduct as evidence of a contractual relationship. Additionally, the UCC provides gap fillers for terms where the parties’ boilerplate language differs, ensuring that reasonable and decent terms are implied to facilitate a fair contract.

Question 61

UCC 2-204 and 2-207 have a special relationship. Explain.

Answer 61

2-204(1) states that offers can be accepted in any reasonable manner. It’s not relevant to 207.

2-204(2) states that you can have a contract even if you cannot find acceptance.
2-207(3) is about the same. You can still have a contract due to parties’ conduct. Parties can have a contract if they act like they have a contract.

Question 62

When is the moment the contract is formed? (under common law)

Answer 62

When offer is accepted.

Question 63

Explain what is so radical about UCC § 2-204(2)

Answer 63

It throws the offer and acceptance model out of the window as the UCC states that a contract is formed even if the moment of making cannot be determined

Question 64

For a sales of goods contract, we have never agreed to something before we started trading, what UCC provision do we look at?

Answer 64

UCC § 2-204(1)

2-204(1): Formation of contract in any way manner sufficient to show agreement