Contracts II outline – Professor Maggs Contract Interpretation

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Partial delivery- the contract is not enforceable beyond amount of goods admitted. 2-201(3)(b); if seller only admits to part, that is all that is enforceable

  • Paid/Received. 2-201(3)(c)- if you’ve paid/accepted or received/accepted the goods, can’t assert SOF as a defense

  • Electronic transactions can substitute a signed writing; i.e. clicking ‘buy’ online

  • Is promissory estoppel an exception to the SOF?

    1. Non-UCC states Rest. 139, Monarco

      • Majority- yes, promissory estoppel may be used to overcome a lack of writing when a signed writing is required by the SOF

    2. UCC states

      • Majority- yes; most states have agreed promissory estoppel may be an exception to the SOF

        • Decatur (p. 8); 1-103

      • Minority- no

        • Union Oil v. Lige Dickson- Lige does paving contracting, buys asphalt from Union; Union promised not to raise prices for existing contracts Lige had, broke that promise and alleged they’d not made it; Held- promissory estoppel claim fails, 2-201(3) states all exceptions, need uniformity, don’t want an increase in litigation

  • Pattern of Argumentation

    1. Π’s Claim: Δ made a promise and didn’t keep it.

    2. Δ’s Defense: SOF

    3. Π’s Reply: promissory estoppel

  • Supplemental General Principles

    1. Rule- Unless displaced by particular provisions of the UCC, otherwise applicable principles of law and equity supplement the UCC’s provisions. UCC sits on top of the common law and other statutes, leaving them intact and applicable.

    2. Pattern of Argumentation

      1. Supplemental Claims

        1. Π’s Claim: In performing our contract for the sale of goods, Δ’s conduct gave me a claim under a state statute applicable as a supplemental general principle of law.

          • Zapatha v. Dairy Mart- see p. 7

      2. Supplemental Defenses

        1. Π’s Claim: Δ promised to buy or sell goods and did not do it.

        2. Δ’s Defense: Promise is not enforceable b/c it was induced by a statement constituting a misrepresentation under common law rules applicable as supplemental general principles.

  • Article 2 Offer and Acceptance

    1. Miscellaneous Rules

      1. Firm Offers § 2-205

        1. Option Contract = promise to keep offer open (exception to requirement of consideration)

          1. common law- basis for enforcement req’d; enforceable promise not to revoke a promise for a certain period requires consideration

            • Dickinson v. Dodds-; Dick found out informally the property was being sold to another; Held- no obligation to keep offer open b/c no consid.; before complete acceptance by Dick, Dodds could contract w/another

          2. Art. 2- exception for firm offers by merchants (if requirements met). § 2-205.

            • An option contract by a merchant is not revocable during the time stated if the following requirements are met: 1. offeror is a merchant and; 2. merchant promises in writing to keep the offer open.

            • If req’s met, offer must be kept open for the stated period but for no more than 3 mos.

            • If not in writing, requires consideration

          3. Friedman v. Sommer- Sommer, owner of NY apt. building decides to sell apt.s as co-ops; Sommer offers: purchase at current price for 30 days; Sommer then revokes, and Friedman attempts to accept; Held- Sommer may revoke the offer b/c the terms are non-exclusive; saying it’ll lapse after 30 days different from saying it will be open for 30 days

        2. Revocation

          1. prevented from revoking if:

            • binding option contract (promise to keep offer open)

            • exception for firm offers by merchants applies. § 2-205

            • party makes offer, other party relies on the offer, and no promise to keep the offer open

          2. Drennan v. Star Paving- Π, general contractor, relied on Δ Star Paving’s offer in submitting a large bid; Held- enforceable on promissory estoppel; Π’s reliance makes Δ’s offer irrevocable

          3. E.A. Coronis case- Gordon Construction, contractor, solicited bids for a bldg project; E.A. promised to sell Gordon steel structural gods and then revoked; Held- reliance could make an offer revocable, but Π must prove elements of promissory estoppel

          4. UCC sits on top of the common law, and if it’s not precluded by the UCC, UCC may be supplemented w/the common law

            • Response may argue something is precluded by the UCC (as in Lige Dickson, where promissory estoppel couldn’t overcome SOF b/c couldn’t creat add’l exceptions to those already listed in UCC)

      2. Form of Acceptance § 2-206(1)(a)

        1. Offeror is master of the bargain

        2. If offeror does not specify how to accept, any reasonable manner of acceptance is ok

        3. You can make a promise by beginning performance but doesn’t count as acceptance unless you provide notice

        4. Means of Acceptance:

          1. promise to ship

          2. shipment

            • policy- prevent unilateral trick; trickster may argue no acceptance b/c no complete performance; UCC- if you ship the goods, whether conforming or non-conforming, you are accepting the contract; if defective- you’ve breached

        5. Pittard (Π) v. Unique- Pittard helped Unique sell their lathe w/understanding Unique would buy a lathe from Pittard, they didn’t; Unique- contract too indefinite to enforce (2-204(3)) b/c not agreed upon and course of dealing shows no formation (1-205); Held- 2-305- price can be settled later, just must be reasonable; & 1 prior contract does not equate to a course of dealing

      3. Notice of Acceptance § 2-206(2)

        1. If you’re merely promising to perform, notice of acceptance is required (unless waived, as in Corlies & Tift)

      4. Characterization of Orders § 2-206(1)(b)


        2. important b/c at common-law, it was important to look carefully at the communication to determine whether it was an offer or just preliminary communications

      5. Conduct Showing Agreement § 2-204(1)

        1. courts do not need to determine precisely what was the offer and what was the acceptance; so long as the parties can be shown to make an agreement, it is enough (even w/o specific characterization of 1 offer and 1 acceptance)

      6. Definiteness § 2-204(3)

        1. promise is sufficiently definite to enforce so long as it can be shown the parties intended to enter an agreement and there is a reasonable basis for providing an appropriate basis

        2. open term (e.g. price), 2-303(1); even if there are open terms, enforceable if clear there was intent to form a contract; price must just be reasonable

    2. Patterns of Argumentation

      1. No Offer

        1. Π’s Claim: Breach of contract.

        2. Δ’s Defense: There was no offer.

        3. Π’s 1st Reply: An order for goods may be characterized as an offer under § 2-206(1)(b).

        4. Π’s 2nd Reply: No distinct offer is necessary if the conduct of the parties shows the existence of a contract. § 2-204(1).

      2. Offer Revoked Before Acceptance

        1. Π’s Claim: Breach of contract.

        2. Δ’s Defense: The offer was revoked before acceptance.

        3. Π’s Reply: Δ promised to keep the offer open.

        4. Δ’s Response: There was no consideration for the promise to keep the offer open.

        5. Π’s Reply: No consideration is needed under § 2-205 (option contract in writing by merchant must be kept open).

      3. No Acceptance

        1. Π’s Claim: Breach of contract.

        2. Δ’s Defense: There was no proper acceptance

        3. Π’s Reply: The attempted acceptance was made in manner and medium reasonable under the circumstances. § 2-206(1)(a).

        4. Δ’s Response: There was no consideration for the promise to keep the offer open.

        5. Π’s 2nd Reply: The acceptance was made by a promise to ship or a prompt or current shipment of conforming or nonconforming goods. § 2-206(1)(b).

        6. Π’s 3rd Reply: No distinct acceptance is necessary if the conduct of the parties shows the existence of a contract. § 2-204(1).

      4. No Notice of Acceptance

        1. Π’s claim: breach of contract.

        2. Δ’s defense: There is no contract b/c you did not provide notice of your acceptance of my offer before it lapsed. Notice was required b/c you attempted to accept by beginning performance. § 2-206(2).

      5. Agreement Too Indefinite to Enforce

        1. Π’s claim: Breach of contract.

        2. Δ’s defense: The agreement is too indefinite to enforce b/c obligations of parties are unclear.

        3. Π’s reply: The contract is sufficiently definite b/c the facts show the parties intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy, in particular ______. § 2-204(3).

    3. The Battle of the Forms

      1. Is there a contract?

        1. Rules

          1. mirror image rule Rest. § 59, 1-103

            • common law rule- a purported acceptance which contains different or add’l terms to the offer is not really an acceptance but a counteroffer, no contract

              • Columbus Rolling Mill- Π, Rwy., rejected by making new offer; Held- a proposal to accept on terms different from those offered = rejection of offer, ending the negotiation, unless other party accepts

          2. exception to mirror image rule § 2-207(1)’s 1st Clause

            • may form a contract even if there are different/ add’l terms in the purported acceptance, unless the offer says the offeree has to agree to the stated terms (proviso)

          3. proviso (exception to exception) § 2-207(1)’s 2nd Clause

            • exception subject to proviso- may form a contract even if add’l/different terms UNLESS acceptance is made expressly conditional on assent to the add’l terms

            • i.e. if purported acceptance contains add’l terms and if the acceptance requires assent to those terms to form a contract, there is no contract (mirror image rule applies)

          4. contract by conduct § 2-207(3)

            • conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract (even if the writings don’t acknowledge a contract)

            • i.e. buyer sends “want 200 cds”; acceptance- “will ship Tues. but only if you agree to this price”; buyer doesn’t agree to price but takes cds and sells them  binding contract

            • What are the terms of a contract formed by conduct but not by forms? 2-207(3)

              • terms on which the writings agree § 2-207(3)’s 2nd sent.;

                • the terms will consist only of those terms that are common to both forms; add’l terms cut out

              • AND any “gap fillers” supplied by UCC e.g., § 2-309(1)

                • must be reasonable

              • Pattern of Argumentation

                • Π’s Claim: Δ broke a promise to do X.

                • Δ’s Defense: Our contract was formed by conduct and X is not a term on which the writings agree.

                • Π’s Reply: The term X becomes part of the contract as a “gap filler” supplied by the UCC.

        2. Pattern of Argumentation

          1. Π’s Claim: Breach of contract.

          2. Δ’s Defense: No contract was formed b/c the purported acceptance was not a mirror image of the offer. Rest. § 59.

          3. Π’s 1st Reply: A contract may be formed even if the acceptance contains add’l or different terms under the exception in § 2-207(1)’s 1st clause.

          4. Δ’s Response: The exception does not apply b/c the acceptance in this case expressly required the offeror assent to the different or add’l terms. § 2-207(1)’s 2nd clause.

          5. Π’s 2nd Reply: A contract was formed by our conduct even if the forms do not create a contract. § 2-207(2).

      2. What are the terms of the contract formed by the exception to the mirror image rule?

        1. Rules

          1. Additional Terms

            • General Rule- A contract has been formed, but it doesn’t contain the add’l terms, which are just proposals for modifying the terms. § 2-207(2)’s 1st sent.

            • Merchant Rule- If btw merchants, the terms become part of the contract unless the offeror objects to them (in advance, or after seeing them, w/in reasonable time) or unless they materially alter the contract (where merchant rule won’t apply).

              • usually doesn’t apply, would just use general rule

          2. Different Terms; 3 different ways to deal w/them:

            • same as additional (minority)- treat them as proposals for modifying the contract; different terms become part of the contract if the two parties are merchants unless they would materially alter or buyer objects. § 2-207 cmt. 3

            • knock out” (majority)- if different terms btw offer and acceptance, knock-out the different terms, change the terms to what is reasonable (i.e. gap-filler). § 2-207 cmt. 6; Prof. White

            • offer controls- b/c 2-207 doesn’t say you must do anything, just ignore them and say the terms of the offer control (Prof. Summers)

          3. Gap Fillers”- i.e. default- reasonable price. e.g. § 2-305(1)

            • gap fillers specify a rule if the contract does not; i.e. if no specification of when it is to be performed, must be w/in a reasonable time

        2. Pattern of Argumentation

          1. Π’s Claim: Δ broke a promise to do X.

          2. Δ’s Defense: I did not promise to do X in my offer.

          3. Π’s 1st Reply: The term X was included in my acceptance and became part of the contract under the merchant rule in § 2-207(2)’s 2nd sent.

          4. Δ’s Response: The merchant rule in § 2-207(2)’s 2nd sent. does not apply b/c its elements are not satisfied. At most the term is a proposal for modifying the contract, which I did not accept. § 2-207(2)’s 1st sent.

          5. Π’s 2nd Reply: The term X is part of the contract as a gap filler supplied by the UCC b/c either our agreement does not address the issue or b/c the offer and acceptance have different terms on the issues; a court should apply the “knock-out” approach.

          6. Δ’s Response: The court should not apply the knock-out approach.

        3. C. Itoh & Co., Inc. v. Jordan Int’l Co.- Itoh sent purchase order for steel coils; Seller, Jordan, sent acknowledgement that contained add’l terms- express condition required arbitration if dispute arose; Held- falls under proviso; there is a contract b/c parties acted like there was, knock out add’l terms (arbitration clause)

          1. Hypo- what if no express condition? there would be a contract, under 2-207(1), but the arbitration clause would just be a proposal; merchant rule would apply- unless objected to, it would be part of the agreement; C. Itoh could argue it materially alters the agreement

        4. Hypo- Prob. 3, p. 77- offer for goods – ship Oct. 15, purported acceptance- ship Dec. 15; majority- “knock out” 2 dates and just requires shipment w/in reasonable time

  • Terms in the Box

    Is a buyer bound by terms in the box? Is the contract formed before or after the buyer saw the terms in the box? 2 Views:

        1. View #1: Hill v. Gateway- Hill orders/ pays for Gateway comp.; arrival- Hill finds terms in the box- if you keep the comp. past 30 days, agree disputes will be arbitrated; Hill - clause inconspicuous (rejected by court), and only bound by terms they knew about when contract made; Held- seller is master of the bargain and may specify how acceptance is formed

        2. View #2: Klocek v. Gateway- buyer orders goods, seller accepts by shipping; Held- terms in box are at most a proposal to modify/ amend the contract, 2-207; terms of the contract are whatever was agreed to when the computer was bought

    1. What Courts May Consider in Determining the Meaning of an Agreement

      1. § 1-205(4) Hierarchy: Express Terms  Course of Performance  Course of Dealing  Usage of Trade

        1. Express terms- first in the hierarchy

        2. Course of performance, 2-208(1)- a course of performance acquiesced to is evidence of the terms of the agreement

        3. Course of dealing, 1-205(1)- past transactions (previous contracts) have established a common basis of understanding for interpretation of the parties’ dealings

        4. Usage of trade, 1-205(2)- any practice/ method of dealing done regularly in a place/ trade as to justify an expectation that it will be observed w/respect to the transaction in question

      2. Nanakuli v. Shell- Shell promised to ‘protect’ price of asphalt for Nanakuli, asphalt paver, and breached; Held- upheld protection b/c price protection is regularly practiced for existing contracts in the asphaltic paving trade, 2 instances enough to establish course of perf., exception to express terms (paying posted terms at delivery), not a negation

        1. For Lige Dickson case, (holding oral agreement to protect price unenforceable b/c of SOF), could have used usage of trade arg. instead of relying on the oral agreement

    2. Art. 2 Receipt, Inspection, and Warranties

      1. Receipt and Inspection

        1. Rules

          1. Buyer’s Rights and Duties

            1. Duty to pay. § 2-301

              • if goods tendered. § 2-507(1)

              • after inspection. § 2-513(1), (2)

                • if defective, seller has to pay cost of inspection (otherwise, they are buyer’s cost)

            2. Right to reject § 2-601(a)

              • perfect tender required- if they fail to conform to contract, buyer has right to reject

              • good faith § 1-203; buyer has general duty of good faith, must act honestly and abide by reasonable standards of commercial dealing in the trade (i.e. trade might not permit rejection if only slight defect)

            3. Methods of acceptance. § 2-606(1)

              • signifying acceptance, 2-606(1)(a)

              • failing to reject, 2-606(1)(b)

              • acting inconsistently, 2-606(1)(c): i.e. buyer rejects but continues to use, sells, or leases the good

            4. Right to revoke acceptance. § 2-608(1) & (3); i.e. if buyer discovers after acceptance the goods have a defect, which substantially impairs the value of the goods to the buyer, and buyer was unable to discover defects prior to paying (b/c latent b/c or seller had assured no defect), then buyer may revoke

          2. Seller

            1. Duty to deliver. § 2-301.

              • if price tendered by buyer. § 2-511(1)

            2. Right to cure (mitigates perfect tender rule)

              • “early tender”. § 2-508(1); seller may try again to deliver perfect goods

              • “surprise reject”. § 2-508(2); i.e. if seller thought the goods would be acceptable to the buyer; may cure by making conforming tender w/in reasonable time (and will get purchase price; however, seller must still pay damages, since they weren’t conforming, i.e. if late)

            3. Effect of cure

              • seller gets price. § 2-607(1)

              • seller pays damages. § 2-714(1)

        2. Pattern of Argumentation

          1. Seller’s Claim and Buyer’s Defenses

            1. S’s Claim: B did not pay for the goods. § 2-301

            2. B’s 1st Defense: S did not tender the goods. § 2-507(1).

            3. B’s 2nd Defense: S did not let me inspect the goods. § 2-513(1).

            4. B’s 3rd Defense: I rejected the goods b/c they were not perfect. § 2-601(1).

            5. S’s 1st Reply: You in fact accepted the goods b/c you did an act consistent w/my ownership of them, etc. § 2-606(1)(c).

            6. S’s 2nd Reply: Although you rejected, I subsequently cured the defect. I had a right to cure b/c I tendered early or b/c I had reasonable grounds for thinking the goods would be accepted. § 2-508(1) & (2).

              • (If seller cures, buyer must accept and pay for goods, but may have a claim for damages caused by the non-conformity)

            7. B’s 4th Defense: I revoked acceptance. I had a right to revoke acceptance b/c (1) the goods were non-conforming; (2) the non-conformity substantially impaired their value to me; and 3(a) I reasonably assumed the non-conformity would be cured or (3)(b) I did not discover the non-conformity during inspection b/c of the difficulty of discovery or b/c of your assurances. § 2-608(1) & (3).

          2. Buyer’s Claim and Seller’s Defenses

            1. B’s Claim: S failed to deliver the goods. § 2-301.

            2. S’s Defense: B failed to tender payment for the goods. § 2-511(1).

      1. Warranties

        1. Rules

          1. Types of Warranties

            1. Express Warranty § 2-313(1)(a) & cmt. 3; any assertion of fact seller might make about the good; doesn’t necessarily have to be case that buyer relies on the statement

              • Common arguments by sellers in express warranty cases:

                • no intent to make warranty

                  • always invalid- intent unnecessary; goods must be described in some way; if seller makes an affirmation about product, it creates an express warranty

                • no reliance by buyer

                  • always invalid; there is no requirement of reliance; if description is made, that warranty is enforceable b/c it’s part of the bargain

                • seller disclaimed warranty (contract says there is no express warranty)

                  • always invalid; may not disclaim express warranties; will look at disclaimer and description to try to make them consistent

                • buyer waived warranty violation (by not objecting though buyer knew the description was false)

                  • sometimes valid; q: whether buyer waived or not

                • mutual mistake

                  • Rest. § 152, 154(1); sometimes valid; 154(1)- usually seller should bear the risk that they are mistaken when making a warranty (b/c they are the expert)

                • just puffing/ opinion

                  • 2-313(2), Tyson; sometimes valid

              • Doug Connor, Inc. v. Proto-Grind, Inc.- Doug buys wood-grinding machine from P-G, who said it would grind up Palmettos; it didn’t; Doug asserts breach of express warranty; P-G: oral affirmations were puffing/ opinion and buyer didn’t rely (b/c he knew a competitor who the machine didn’t work for); Held: finder of fact could reas. conclude the promise were more than just puffing

            2. Implied Warranties

              • F.F.P.P., § 2-315

                • Fitness For a Particular Purpose- the goods will be useful for whatever you bought them for (i.e. seller recommends a particular item for a certain use)

                  • opinions may create it, merchantability doesn’t matter, seller doesn’t have to be a merchant, not typically disclaimed

                • Tyson v. Ciba-Geigy Corp.- farmer, Tyson, planting no-till soybeans needed pesticide; seller recommended Dual 8E, but it didn’t kill Tyson’s crabgrass; Held- no express warranty (just puffing) but there was breach of FFPP

              • Merchantability § 2-314(1) & (2)

                • if the seller is a merchant, unless there is a disclaimer, there is an implied warranty that the goods will be merchantable: fit for their ordinary use (ordinary purposes for which such goods are used) [2-314(2)(c)] and properly packaged and labeled

                • Ambassador Steel Co. v. Ewald Steel Co.- Ambassador sold Ewald steel, which Ewald sold to another co.; steel cracked when used on RR tracks, co. didn’t pay Ewald, who wouldn’t pay total $ to Ambassador; Held- the steel wasn’t merchantable, not fit for ordinary purposes b/c it wasn’t w/in the commercial range

              • Morrow v. New Moon Homes- Marrows buy a mobile home from Golden Heart (immediate retailer), manufactured by New Moon Homes; many defects; Held- Πs may recover from GH under FFPP and warrant of merchantability for difference btw what home is worth and would have been worth if warranted, as well as for consequential damages (i.e. to property);

                • tho § 2-318 doesn’t address vertical privity: Held: Morrows may also recover from NMH; Rule: consumer may bring a warranty action against the manufacturer even tho consumer has no privity w/manufacturer

                • policy reasons: consumer inability to protect himself; manufacturer more able to handle risk, has more info; promotes circularity of litigation

              • Title § 2-312(1); seller warrants that seller has good title when selling the goods

              • Other § 2-314(3) -that arise from facts of the cases (new, when you buy from store)

          2. Warranty Issues

            1. 3rd-Party Beneficiaries § 2-319, esp. alt. C

              • Alternative C (Majority)- the warranty extends to anyone who could be reasonably be expected to use or be affected by the goods

            2. Damages

              • loss in value of the product itself § 2-714(2) –i.e. you get the difference in value btw what you were promised and what you got (difference btw value of goods as they are and what value they would have had if as warranted)

              • consequential damages § 2-714(3), § 2-715(2)(a)

                • economic loss- recoverable, provided it was foreseeable

                • personal injury § 2-715(2)(b); foreseeability not required; so long as injury was proximately caused by breach of warranty, buyer/ injured party may recover

                • may recover for property if damages were foreseeable

              • Morrow v. New Moon Homes

            3. Privity

              • connectedness btw the parties/ who can bring suit

              • Vertical Privity (can buyer recover from remote seller (vs. immediate seller)?)

                • UCC doesn’t address vertical privity

              • Horizontal Privity (can injured non-buyer recover from a seller?)

              • Hypo- Maggs’ car accelerates due to defect and he and passengers (family and guests) crash into his garage)

                • warranty theory- good claim car is not merchantable, buyer can recover from immediate seller

                • Can buyer, non-buyer, and intended 3rd party occupants recover?

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