Formation Flashcards
What is a counter-offer?
Restatement § 59
● A conditional or qualified acceptance is a counter-offer which rejects the original offer and no contract is made
● Modifications to the terms of a proposal is a counter-offer
How does the UCC differ from Restatement with the mirror image rule?
2-207: No mirror image rule: additional or different terms are an acceptance, not a counteroffer that rejects the initial offer. This must be between merchants and subject to 2-207’s limitations.
● UCC §2-207 only applies when there are 2 merchants
● Warranties ALWAYS “materially” alter the contract under §2-207(2)(b)
What does materially alter mean?
“Materially alters” means results in surprise or hardship if incorporated without express awareness of the other party
What is a patent ambiguity?
Ambiguity which is apparent on its face (a contract saying 4 people each get a car but later on it says there are only 3 cars)
The ambiguity is obvious from the text of the document itself - no need for outside evidence since the writing itself is ambiguous
What is latent ambiguity?
Ambiguity that is not apparent until outside evidence is presented… the writing itself is clear (Peerless ship example)
Why is the mirror image rule the same as the last shot rule?
Under the mirror image rule, the last party to send their form contract had the terms of the deal since their form was a counteroffer and performance by the other party would constitute acceptance of that counteroffer—The Last Shot
How does 2-207 work?
BETWEEN MERCHANTS
* Acceptance of a counteroffer operates as an acceptance even though it states terms additional to or different from those initially offered
* Doesn’t count if acceptance by the offeree is expressly made conditional on agreeing to the additional or different terms
* If the above isn’t applicable, and the goods have already been delivered, conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale even without writing.
Threshold negotiation and closure questions
- Are there missing terms that would provide a basis for determining the existence of a breach and giving an appropriate remedy? If there are, then you don’t have a contract. (Empro, Restatement 33, UCC 2-204)
- If no missing terms, was there an intent to be bound (Fuqua)
- If there are no missing terms and an intent to be bound, there is a contract.
How do you determine if you have a final agreement?
**Is the agreement in contention written or oral? **
1. If written and signed, then proceed.
2. If oral, is a writing required under the statute of frauds? (MYLEGS)
**
Did the agreement have terms to be decided later?
1. If not, and there is unequivocal acceptance, then you have a contract.
2. If there are major terms still undecided, then no contract.
**Does the agreement still say something else needs to happen? (e.g., board approval). **
1. If not, then you have a contract.
2. If yes, are those final steps a condition to the formulation of the agreement? (If yes, no K; If no, you have an agreement and the final step is just memorializing the terms, you have a K).
What is a preliminary oral agreement?
If everything is agreed to orally but a written contract is planned, the written contract is considered a memorial, and even if it has not yet been written and signed, the contract can still be enforceable. What’s important is a meeting of the minds.
What do courts look at to determine whether there was an oral agreement/meeting of the minds?
Oral agreements and the meeting of the minds may be proven by the parties’ acts, by the circumstances, or by the parties’ words
Courts will look at:
* All preliminary negotiations
* All offers/counter-offers
* Expressions of the parties
And ask: was there an expression of complete and definite terms?
What is mutual rescission?
Both parties stop performing the contract, and thus terminate it.
Parties can agree to stop performing or just agree through their actions (Sandoval).
Can letters/memos of intent be binding?
Restatement 27
Yes, if the final contract is just meant to memorialize the terms (nothing left to be done).
What are the questions to ask when evaluating the finality of letters/memos of intent?
- Did the parties intend to enter into a binding agreement when they signed the memo of intent? (look to document, reasonableness, and circumstances (all questions of fact - should go to a jury))
- Are the important terms included and sufficiently clear to create an enforceable and binding contract?
What are case illustrations of preliminary negotiations and whether they’re contracts?
- Sun Printing: Paper agreement where P and D agreed for P to buy paper from D, and that they would agree on the price and duration later on, but that the price later on could not exceed a certain amount based on a competitors market price. D backed out of K. Court said that to constitute a binding contract, the terms of each element of the contract must be sufficiently specific. An agreement to agree where the terms of the contract are not clear and not actually agreed upon is not sufficient to bind a party.
- Sandoval: Board and Sandoval exchanged drafts of a final agreement, but never reached agreement on the language. Sandoval later changed her mind. Court said based on the actions (discussions showing further negotiations, not in writing) there was not intent. Board further says even if there was a contract it was mutualy rescinded because Sandoval kept teaching.
- Fuqua: P asked D to merge. They negotiate and prepare memo to be sent to press stating they’ll make definitive agreements, and conditioned obligation on reaching definitive agreement. D declines to go forward w/ deal. Agreement to agree is upheld, even though it expressly indicated intent not to be contractually bound. Parole evidence is admissible in determining whether the parties had a meeting of the minds.
- Empro: P and D negotiated for goods. After initial negotiations, P sent D a LOI, with clear language that P was not bound by the letter. Parties couldn’t agree about part of the deal that related to security interest in the land. D backed out of deal. P sued for breach of contract and trial court dismissed, saying the LOI was not a binding agreement, just an agreement to agree. Distinct from Fuqua because there was a major term that was still being negotiated, no meeting of the minds on that. Court also doesn’t like that P covered themselves but then sued D for backing out.
- Butler: P and D created a LOI to negotiate that included a provision to negotiate in good faith. No subsequent agreement was reached and P alleged that D breached the LOI. Court held that an agreement to negotiate is a binding contract (it had 2 willing parties, manifestation of a mutual assent to be bound, and consideration re forgoing acting in bad faith).
