Transcript Document

Reaching Agreement: The Process of Contract Formation
C. LIMITING THE OFFEROR’S POWER TO REVOKE:
THE EFFECT OF PRE-ACCEPTANCE RELIANCE
1. Under the common law, the offeror may revoke the offer anytime
before acceptance by the offeree.
2. Although this is the common law approach, this rule is not a
universally accepted rule regarding the offeror’s power to revoke.
Under Article 16 of the Convention on Contracts for the International
Sale of Goods:
a. Until a contract is concluded an offer may be revoked if the
revocation reaches the offeree before he has dispatched an
acceptance.
b. However, an offer cannot be revoked:
1. If it indicates, whether by stating a fixed time for acceptance
or otherwise, that it is irrevocable; or
2. If it was reasonable for the offeree to rely on the offer as
being irrevocable and the offeree has acted in reliance on the
offer.
2. Under the common law, the offer is irrevocable only if consideration
is given for the promise not to revoke.
3. Is, reliance a basis for making the offer irrevocable?
Reaching Agreement: The Process of Contract Formation
C. LIMITING THE OFFEROR’S POWER TO REVOKE:
THE EFFECT OF PRE-ACCEPTANCE RELIANCE
4. James Baird Co. Gimbel Bros., Inc..
5. Drennan v. Star Paving Co.
6. Berryman v. Kmoch
1. Under the common law, is consideration necessary to the
creation of an option contract?
2. Is the Restatement (2nd) Contracts consistent with the common
law rule regarding the need for consideration as condition to
formation of an option contract?
7. Pop’s Cones, Inc. Resorts International
Reaching Agreement: The Process of Contract Formation
D. IRREVOCABILITY BY STATUTE: THE “FIRM OFFER”
An offer may be irrevocable if the offeror receives consideration from the
offeree.
1. Restatement 2nd ' 87(1) provides additional ways in which an offer
may be made irrevocable as an option contract.
a. The offer may be made irrevocable by statute
1. The public contracting process where state or federal
statutes or regulations provide that the offer is irrevocable
for some period.
2. The UCC has two provisions making offers irrevocable
a. Under § 2-328(3), once the auctioneer calls for bids on
an article and the goods are sold without reserve, the
seller may not withdraw the item unless no bids are
made with a reasonable time after bids are called.
b. UCC § 2-205 which outlines under what circumstances
an offer is irrevocable.
2. An offer by a merchant to buy or sell goods in a signed writing which
by its terms gives assurance that it will be held open is nor
revocable, for lack of consideration, during the time stated of if no
time is stated for a reasonable time, but in no event may such period
of irrevocability exceed three months; but any such term of
assurance on a form supplied by the offeree must be separately
signed by the offeror.
Reaching Agreement: The Process of Contract Formation
E. QUALIFIED ACCEPTANCE: “THE BATTLE OF FORMS”
1. Contacts are generally thought to be detailed documents containing
the legalese "whereas“ and, "wherefores,“ which found in the
recitals portions of a contract
a. Generally a contract contains
1. An accurate description of the exchange of performances to
which the parties have agreed,
2. Identification of the principal risk involved for one or both
the parties, and
3. The specification of each parties "rights in the event the riskevent occurs.“
2. For many businesses form or prototype contracts are used and are
useful.
a. Form contracts are generally used in a business or industry that
engages in a large number of substantially similar transactions.
1. The only difference between each transaction is the quantity
of goods, price of the item sold, the name of the parties, and
delivery requirements.
2. Negotiations on and reaching agreement on other contract
terms each time make these routine transaction too costly.
Reaching Agreement: The Process of Contract Formation
E. QUALIFIED ACCEPTANCE: “THE BATTLE OF FORMS”
3. To increase the efficiency of the contract formation process with
respect to reoccurring transactions, "standard form", pre-printed
contacts are utilized.
a. These documents will have blanks where the name of the
parties, quantity of goods sold, price, and deliver requirement
will be entered.
b. The balance of the agreement, often involving several pages, will
contain default provisions, remedies, and other matters specific
to the particular business or industry.
4. We have stated over and over again in this course
a. The rules of classical contract law were fashioned on the
assumption that the contract formation process follow the
conventional offer-acceptance model.
b. Under this model, an offer is made, after which the offeree may
accept or reject it.
c. If rejected, the offeree may submit a counteroffer.
d. The counteroffer will itself be an offer which may be accepted or
rejected by the original offeror. This may no be what generally
occurs in business toady.
BATTLE OF THE FORMS: CLASSICAL APPROACH
Company Purchase of 1000 Laptop Computers
Company Submits its Purchase Order Form For Purchase of
1000 Laptop Computers at a Total Price of $400,000 CompUSA
Purchase Order Form Includes Consequential
Damages Clause, Making Seller Liable for
Damages Proximately Caused by Failure to
Timely Deliver Goods.
Tellex, Inc.
Sends Acceptance Form With No
Additional Clauses. Is Contract Formed?
BATTLE OF THE FORMS: CLASSICAL APPROACH
Company Purchase of 1000 Laptop Computers
Company Submits its Purchase Order Form For Purchase of
1000 Laptop Computers at a Total Price of $400,000 CompUSA
Purchase Order Form Includes Consequential
Damages Clause, Making Seller Liable for
Damages Proximately Caused by Failure to
Timely Deliver Goods.
Tellex, Inc.
Sends Acceptance Form With Additional Clauses, Limiting Liability for
Late Delivery. Is Contract Formed? Is this a counteroffer? If Tellex, Inc.
accepts delivery, what are the contract terms?
BATTLE OF THE FORMS: CLASSICAL APPROACH
Company Purchase of 1000 Laptop Computers
Company Submits its Purchase Order Acknowledgement
CompUSA
Form.
Purchase Order Acknowledgement Form Includes
Consequential Damages Clause, Making Seller
Liable for Damages Proximately Caused by
Failure to Timely Deliver Goods. If CompUSA
accepts delivery, what are the contract terms?
Tellex, Inc.
Sends Acceptance Form With Additional Clauses, Limiting Liability for
Late Delivery. Is Contract Formed? Is this a counteroffer? If Tellex, Inc.
accepts delivery, what are the contract terms?
BATTLE OF THE FORMS: UCC 2-207
Company Purchase of 1000 Laptop Computers
Company Submits its Purchase Order Form For Purchase of
1000 Laptop Computers at a Total Price of $400,000 CompUSA
Purchase Order Form Includes Consequential
Damages Clause, Making Seller Liable for
Damages Proximately Caused by Failure to
Timely Deliver Goods.
Tellex, Inc.
Sends Acceptance Form With New Delivery Term.
No Delivery Term in offer. Is Contract Formed?
Reaching Agreement: The Process of Contract Formation
E. QUALIFIED ACCEPTANCE: “THE BATTLE OF FORMS”
THE BATTLE OF FORMS
CONTRACT FORMATION UNDER UCC 2-207
WHEN ACCEPTANCE VARIES TERMS OF THE OFFER
Reaching Agreement: The Process of Contract Formation
E. QUALIFIED ACCEPTANCE: “THE BATTLE OF FORMS”
Section 2-207(1) of the UCC
1. ANSWERS THE FOLLOWING QUESTION:
2. IS A CONTRACT FORMED WHEN OFFEREE’S
ACCEPTANCE CONTAINS TERMS THAT DIFFER FROM
THE TERMS OF THE OFFER?
3. That provision provides
a. A definite and seasonal 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;
b. Unless acceptance is expressly made conditional
on assent to the additional or different terms.
Reaching Agreement: The Process of Contract Formation
E. QUALIFIED ACCEPTANCE: “THE BATTLE OF FORMS”
BUYER FORWARDS
ORDER FORM W
CONSEQUENTIAL DAMAGES
PROVISION
SELLER SENDS
ACCEPTANCE FORM
W/ NEW DELIVERY
PROVISION
YOU HAVE A CONTACT
WHAT HAPPENDS TO ADDITIONAL OR DIFFERENT TERMS?
THE ANSWER MAY BE FOUND
IN UCC 2-207(2)
UNDER UCC 2-207(2)
If the parties are not merchants,
The Additional Terms are construed as
PROPOSALS
FOR ADDITIONS TO THE CONTRACT.
The offerror may agree to modify the contract by
accepting the new terms.
UNDER UCC 2-207(2)
If the parties are merchants,
The Additional Terms becomes
A PART OF THE
CONTRACT
UNLESS CERTAIN THINGS OCCUR
IF ANY THE FOLLOWING EVENTS OCCUR,
THE ADDITIONAL TERM
WILL NOT BECOME A PART OF THE CONTRACT
(1)
THE OFFER
EXPRESSLY LIMITS
ACCEPTANCE
TO THE TERMS
OF THE OFFER
(2)
THE ADDITIONAL TERMS
MATERIALLY ALTERS
THE CONTRACT
(3)
NOTIFICATION OF
OBJECTION ALREADY GIVEN
OR IS GIVEN WITHING REASONABLE
TIME AFTER NOTICE OF THEM RECIEVED
HOW WOULD THE OFFEROR PREVENT
DEFAULT ADDITION OF NEW TERMS?
a. According to the second part of 2-207(1), the offeree
must make acceptance is expressly made conditional on
assent to the additional or different terms.
BUYER FORWARDS
ORDER FORM W
CONSEQUENTIAL DAMAGES
PROVISION
SELLER SENDS
ACCEPTANCE FORM
W/ NEW DELIVERY
PROVISION
IN ADDITION, OFFEREE IN AFFECT SAYS THAT MY
ACCEPTANCE IS CONDITIONAL ON YOUR (OFFEROR’S)
ASSENT TO ADDITIONAL TERM. WHAT IS THE EFFECT OF
THIS LANGUAGE ON THE CONTRACT FORMATION
PROCESS?
BATTLE OF THE FORMS: UCC 2-207
WHAT IF OFFEREE MAKES ACCEPTANCE CONDITIONAL
ON OFFEROR ASSENTING TO THE ADDITIONAL TERM
AND THE PARTIES PERFORM IN SPITE OF THIS
PROVISION?
Section 2-207(3) of the UCC THEN CONTROLS
That provision provides
1. 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.
2. In such case the terms of the particular contract consists of those
terms on which the writings agree, together with any
supplementary terms incorporated under any other provision of
this Act.