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Contract Law—The Agreement-Making Process

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  1. Contract Law—The Agreement-Making Process • Note that contract law mainly consists of “default” rules—e.g., “this is what the rule is unless the parties clearly agree otherwise.” • Offer • Intent to make an offer (what kinds of evidence are important?) • Richards v. Flowers, p. 282 • What were the key communications? • What were the key factors in finding that the property owner’s response was not an offer to sell? • What about the trial court’s ruling on the so-called “Statute of Frauds”? • A little courtesy by the owner might have gone a long way.

  2. Agreement—Offer, cont. • Leonard v. Pepsico, p. 284 • Facts • Court’s conclusion & rationale • Advertisements usually aren’t offers. Why? • However, it is possible to make an offer in the form of a mass-distributed ad. How?

  3. Leonard v. Pepsico, cont. • Was this the type of ad that could have been an offer—if not for the obvious hyperbole and jest? • If the court had not concluded that a reasonable person would have seen the obvious jest in the ad, what kind of offer would this be? • Without the obvious jest, this is analogous to an offer for a reward.

  4. Offer, cont. • Communication of the offer • Not usually an issue, but can be occasionally, e.g. … • What if you sign without reading? • What kind of effort does the offeror have make to communicate? • Newman v. Schiff, p. 290 • Facts • Court’s conclusion & rationale • Can analyze this case in more than one way & reach the same result

  5. Agreement—Reasonably Definite Terms • Reasonably definite terms • The reading speaks of this as a requirement of the offer, but . . . • A narrower form of question about the parties’ intent • Intent to contract and the requirement of reasonably definite terms are distinct requirements but can be very closely related in several ways

  6. Agreement—terms, cont. • Pyeatte v. Pyeatte, p. 286 • Facts • Was the basic intent requirement fulfilled—from the perspective of a reasonable person, did they apparently intend to be committed to a contract? • What caused the agreement to not be an enforceable contract? • Note that she still had the alternative of a quasi-contract claim? Why? Is this always an alternative when there’s a failed attempt to make a contract? • Think about the $$ damages in this case—this case is a bit unusual regarding the $$.

  7. Agreement—terms, cont. • Example: Rooney v. Tyson, Ct. of App., NY, 1998 Gus D’Amato, owner of a boxing training gym, became Mike Tyson’s manager. At age 14, Gus became Tyson’s legal guardian, and took care of him. Gus, as legal guardian, hired Rooney as a trainer for Tyson. Rooney agreed with Gus to train Tyson for free until Tyson turned pro. While Tyson was still a minor, Gus and Rooney agreed that Rooney would be Tyson’s trainer for “as long as Tyson boxed professionally” and that Rooney would receive 10% of Tyson’s revenues. When Tyson turned 18 (and thus had the legal ability to make a contract on his own) and became a professional, he reaffirmed the contract w/Rooney on those exact terms. There was ample evidence of this. A few years later, Tyson fired Rooney after Rooney made some statement about Robin Givens to a news reporter (she was Tyson’s gorgeous first wife, whom he apparently used as a punching bag). Rooney sued Tyson for breach of contract, & Tyson claimed that the terms of the agreement were too indefinite to be a legally enforceable contract. Result?

  8. Agreement—terms, cont. • Example: Rivers v. Beadle, Ct. of App., CA, 1960 • Written agreement between Philander B. Beadle and his wife Eva May Beadle, on one hand, and Vera Rivers (a realtor), on the other, that, if Vera would find 3 unimproved lots for the Beadles, they would buy them and she would charge no fee, but the Beadles would build 3 “speculative homes” on the lots, Vera would be their exclusive agent in selling the 3 lots (with houses on them), and receive a 3% commission on those sales. Vera found the lots & the Beadles bought them, but the Beadles never built homes on the lots, so Vera had nothing on which she could earn her commission. She sued the Beadles, and they defended by claiming that the terms were too indefinite. What types & price ranges of homes? 4 room bungalows, or 25 room mansions? Conclusion & rationale?

  9. Agreement—terms, cont. • Regarding definiteness of terms, study the text material on “gap fillers” (filling in open price terms, & other terms) in the UCC (Uniform Commercial Code), but we won’t discuss this in class. These apply to transactions for the “sale of goods.” Article 2 of the UCC applies to sale of goods transactions. “Goods” are items of tangible personal property. In other words, NOT real estate, NOT services (employment, construction, etc.), NOT intangibles (goodwill, patents, etc). Goods include your car, clothes, books, a business’s equipment & inventory, airplanes, boats, my socks and shoes, alien space craft, shuttle buses, etc. This is just a branch of contract law. Most of the rules are the same as for other types of contracts, but Article 2 of the UCC does change a few of the rules for this type of transaction.

  10. Termination of Offers • Termination “by operation of law”—read, but we won’t discuss • Revocation by offeror—can be express or implied • Ex. of implied rev.: Offer to sell, offeror then sells to somebody else, offeree learns about this. He can’t accept—there’s been an implied revocation. • Effective to kill offer when received by offeree, OR when offeree learns of facts showing that the offeror no long intends that the offer be available.

  11. Termination, revocation, cont. • Revocation—General Rule: Offeror can revoke anytime before . . . . • Exceptions to this general rule • Option (a little contract itself) • Offer, plus promise to keep offer open, plus . . . . • UCC 2-205 (only for sale of goods) • Written, signed offer to sell or buy goods, made BY a MERCHANT • [Merchant is someone who (or a company that) . . .] • The written, signed offer by a merchant gives assurance that the offer will be held open • Will be an irrevocable offer despite the absence of . . . . • Is irrevocable for how long . . .?

  12. Termination--Rejection • Express (but don’t have to use the word “reject,” just as you don’t have to use magic words in any other part of contract law) • Example: • Definite counteroffer—courts usually treat as an implied rejection • Example: • Conditional acceptance, or adding to or changing terms of offer—another type of implied rejection • Example:

  13. Termination—Lapse of Time • Termination of the offer by the lapse of time • What in the world does this mean? • Time stated • Reasonable time • What’s a reasonable time depends on a number of factors . . . .

  14. Agreement--Acceptance • Assume offer for bilateral contract, because most are bilateral, & when in doubt, law presumes so. • Thus, the question is: What does it take for an offeree to definitely indicate an intent to accept the offer on the terms that were proposed? • In trying to answer this question, always remember that the offeror is the “master of the offer”. . . .

  15. Acceptance, cont. • Thus, offeror can include any specifications, conditions, etc., and the offeree can either take it or leave it. Can accept it, tell offeror to shove it, ignore it, but can’t change it and then take it. • Offer can, among many other things: • Specify exactly what offeree has to do to accept. Take it or leave it. • Specify exactly what type of communication the offeree must use to accept. Take it or leave it. • Specify exactly when the acceptance will take effect, and so on. • Or, of course, the language of either party might be vague (and there often is at least some vagueness). • Ex: Indication that offeree may accept my mail—is this intended to mean that the offeree can accept only by mail?

  16. Acceptance, cont. • Definite (unequivocal) expression of intent to accept • Specht v. Netscape Communications, p. 302 • Facts • Conclusion & rationale • Be sure you study the 3 scenarios the court discusses—shrink-wrap, click-wrap, browse-wrap • Courts struggle with question of whether end-users are legally bound by all of the terms in a software © license, and their decisions are in conflict—slight majority say yes. • Most of the conflict results from difference in who they treat as being the offeror, but doesn’t matter in this case.

  17. Acceptance, cont. • Unconditional and no additional or different terms in accept that significantly affects offeror. • Lucier v. Town of Norfolk, p. 295 • Facts • What was the offer? • What was the attempted acceptance? • Conclusion & rationale? • Note that a body like a school board, board of directors, board of trustees, etc., can only act as a body (by vote). • No single member has power to act, but the body can appoint a single member to act as its agent (like any other agent), which is what happened here. • But what authority did the board give to that single board member acting as its agent?

  18. Acceptance, cont. • Lucier case illustrated the common-law “mirror image rule,” but UCC 2-207 has modified that somewhat for a sale of goods transaction. • This is explained very, very thoroughly in the reading, and I expect you to study it carefully. • Klocek case illustrates an application of UCC 2-207. • Conceptually, it may be a stretch to think of software as “goods” (the main thing you’re buying isn’t a physical medium, but something intangible). • However, with respect to many issues in contract law, courts treat software transactions as sale of goods transactions, and thus governed by Article 2 of the UCC. • Remember that the rules are usually the same as for other contracts, but there are several important differences.

  19. Acceptance, cont. • Klocek v. Gateway, Inc., p. 299 (I changed this slide quite a bit) • Facts • Conclusion & rationale? • Key thing in this case is that it used the traditional & most sensible approach to determining who is the offeror & who is the offeree when a merchant makes goods or services available for sale—merchant is inviting offers & consumers are the offerors. When the situation involves a merchant making software available for licensing, a number of courts have twisted it around. The Klocek court used the traditional (and better) approach. Unfortunately, the trend is contrary to the Klocek approach. • Can you see how it made a difference in this case?

  20. Acceptance, cont. • When does acceptance take effect to form a contract? • If offeror says that acceptance is effective only when offeror gets it, that’s it (master of the offer) • If not . . . • Old “mailbox rule” just stated that, if offeree used U.S. mail to accept, or the same method of communication offeror had used, the offeree’s acceptance is effective when sent (i.e., when control of the acceptance is turned over to an independent intermediary (post office, mail clerk, official post office receptacle, courier service). • Today, the rule in almost all states is that acceptance is effective when “sent” as long as offeree uses any means of communication that is commercially reasonable—mail, courier, any means commonly used to conduct business, unless there are unusual circumstances indicating that greater safety, greater speed, or something else is needed. • Cushing v. Thompson case just deals with proving WHEN an acceptance was “sent.”