Negotiation and Closure

Question 1

SMS v. Malouf

Answer 1

Malouf buys Kasten under impression that SMS would enter long-term deal to supply product necessary to continue business operations following purchase of Kasten. SMS didn’t sign a long-term deal (they played hardball and negotiations fell through).

i) Court presumes that there was a bargained-for exchange here (Malouf buys Kasten in exchange for SMS’ long-term deal). Could be two independent events though.
ii) This is a relational contract—long-term and they can come to assume the terms of renewed contracts (sense of trust). Long-term contracts, towards the end, will encourage opportunistic behavior

Question 2

Contract to negotiate

Answer 2

Promise to negotiate in good faith. Cannot negotiate with multiple parties

Question 3

Agreement to agree

Answer 3

No good faith requirement. There must be a promise to get reliance damages. Agreement to agree doesn’t create an enforceable contract.

Question 4

Preliminary Agreements

Answer 4

(Letters of intent, memos of understanding):

(1) Type 1: Fully reflects the terms of the parties’ agreement, simply awaits the written contract. Intent to be bound, these will be enforceable
(2) Type II: Open terms, some important features are included but many are left open. You will be bound to negotiate in good faith the terms that are left open.

Question 5

Arnold Palmer

Arnold Palmer Golf Co. v. Fuqua Industries, Inc.

Answer 5

(Signed Memo of intent)
AP wanted to merge with manufacturing company. Signed memo of intent to acquire Fuqua’s manufacturing facilities. Public announcement of deal, then chairman of Fuqua backs out. Judgement for AP.
i) Section 27, Restatement. Manifestations of assent that are sufficient to conclude a contract will not be prevented when the parties also show an intent to memorialize the agreement in writing
ii) Fuqua press release show intent to be bound by memo of intent
iii) The issue of intent by Arnold Palmer and Fuqua to be bound in contract should be submitted to a trier of fact. Remanded.

Question 6

Restatement Section 27

Answer 6

Manifestations of assent that are sufficient to conclude a contract will not be prevented when the parties also show an intent to memorialize the agreement in writing.
(Germans started to assent to rise of fascism in 1927–> show intent to contract with evil)

Question 7

Empro

Empro Manufacturing Co. v. Ball-Co Manufacturing, Inc.

Answer 7

Empro negotiates with Ball-Co to buy plant and eventually sends a letter of intent. Clear language that Empro wasn’t bound by letter (subject to approval of board, etc.). They couldn’t reach a final agreement because Ball-Co wanted to retain security interest in land. Ball-Co negotiated with other parties and Empro sued for breach.

i) Key issue in the deal couldn’t be agreed on (underlying security).
ii) Court finds that there was no intent to enter into a binding agreement.

Question 8

Baskin Robbins

Copeland v. Baskin Robbins U.S.A.

Answer 8

(Breach of Contract to Negotiate)
Copeland buying equipment to make ice cream from Baskin Robbins subject to a co-packing agreement. Co-packing had important terms left out (flavor distribution, spoilage, etc).
i) Agreement to negotiation in good faith—in a contract to negotiate this is valid.
ii) Copeland gets reliance damages based on this theory (there were no reliance damages alleged, though).

Question 9

Racine

Racine & Laramie, Ltd., Inc. v. Department of Parks and Recreation

Answer 9

(Culpa in Contrahendo and Renegotiations)

i) Racine operates concessions in CA park. Started negotiating with state to expand the concession stand. Sued for breach of implied covenant of good faith when negotiations terminated. Original contract was more limited and Racine wanted to expand it.
ii) There was no good faith duty here, there was just a provision for renegotiations if both parties wanted. There is not duty to renegotiate, if there was it would bring in good faith.
iii) If good faith were brought in, this would be Culpa in Contrahendo. Culpa in contrahendo exposes both parties to each other’s risks; from an economic point of view this type of agreement doesn’t make any sense—provides the wrong incentives

Judgement for Parks and Rec.

Question 10

UCC 2-207

Answer 10

Acceptance through expression or writing, sent in reasonable time, operates as acceptance even if it states “additional” or “different” terms, unless acceptance is made conditional on assent to those “additional/different” terms

Question 11

(UCC 2-207)

Comment 6:

Answer 11

Comment 6: if you don’t object in a reasonable time, we assume assent. If two written forms have contradictory terms, we assume both parties object to the other’s term. The contract will then consist of terms:
(1) originally expressly agree to (2) terms on which confirmations agree (3) default terms in article 2 of UCC.

Question 12

UCC 2-204

Answer 12

Contract Formation

Question 13

(UCC 2-207)

Different terms

Answer 13

Must make it unequivocally known that you won’t go forward unless those terms are accepted. If that’s the case—counteroffer

Question 14

(UCC 2-207)

Additional terms

Answer 14

Proposals for addition to the contract. Between merchants, they become part of the contract unless the offer limits acceptance to original (mirror image) OR the terms materially alter (warranties, etc), OR if the offer objects to terms in a reasonable amount of time.

Question 15

Gardner Zemke v. Dunham Bush

Answer 15

(Additional vs. Different terms)

GZ general contractor, used DB as supplier for chillers. GZ sent order with warranties listed, DB responded with document containing warranty disclaimers and clause that allowed for silence of acceptance of those terms. Chillers weren’t right, GZ sues. Judgement for Gardner on appeal.

i) The party requiring assent to their new terms must make it clear and certain that they aren’t going to continue without such assent.
ii) 2-207(2) doesn’t discuss “different” terms, only additional. When dealing with different, you can do one of three things:
(1) Go ahead and apply 2-207(2) anyway
(2) Use the mirror image rule from common law
(3) Use the knockout rule—different terms get knocked out and the UCC fills in the gaps with default terms
iii) This court adopts the third approach, so all warranty language is knocked out and UCC brings in its own warranty language (which was identical to what GZ had in their order). PROF agrees with third approach.
iv) This means that ‘different’ terms can never become part of the contract

Question 16

Step-Saver

Step-Saver Data Systems, Inc. v. Wyse Technology

Answer 16

(Battle of the forms and terms submitted after contract formation)

SS buys software from TSL. Software had box-top license that said opening the package amounted to accepting terms. License disclaimed all warranties.

Was there a contract before the box-top license was opened? The court says yes (2-208 guides). This was an agreement sufficient to constitute a contract for sale.

ii) Conflict of 2-209 (allow modifications without consideration) and 2-207 (express terms haven’t been adopted in writing).
iii) TSL’s repeated inclusion of the box top license in the parties’ transactions was unilateral conduct insufficient to establish mutual assent to the additional terms in the box top license.
iv) Since this was post-contract-formation, we’re dealing with modifications (2-209). 2-207 no longer applies. Takeaway: Figure out when the contract was formed.
v) PROF: This should have been a 2-209 modifications case

Question 17

Hill v. Gateway

Answer 17

(Oral agreements counting as “Form” for 2-207)

Hills bought computer from Gateway over phone. No discussion of terms other than price. Computer came with a box-top license with an arbitration clause.

i) When was the contract formed? Judge says when the 30-day refund period expires. Normal view: at the time of the phone call. Under phone call view, Gateway must tell customer about all these terms on the phone. If Judge’s opinion is right, then Gateway has to tell customer that there’s no sale contract until delivery and acceptance.
ii) 2-207 effectively lets the buyer’s form dominate

Question 18

Merchants/Oral Agreements 2-207

Answer 18

Seller’s additional terms are proposals. If they materially alter, they are excluded unless expressly assented to by the buyer. When the buyer is an individual consumer, the important question is whether the unread conditions imposed are fair.