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Deals and Basic Contract Concepts
1. COVENANT
o A promise to do/ not do something / CREATES A DUTY (obligation) that is triggered by something [ COVENANT = PROMISE OF ACTION OR NON- ACTION vs. WARRANTY = PROMISE OF A FACT] o Many of the times, will say “may” but if it follows a scheduling provision, inevitable and if u step back and think about it, many of the times it will be a duty even if not “shall” or “must” o EXAMPLES: “students must vacate”, “university shall offer comparable space”; “shall remove all valuable items and may be required to remove all property”; “must be used only as a private apartment” “only a party signing this lease may use the apt”, “tenant must take good care of apt”; “landlord shall permit the tenant to live “ ; “YOU AGREE THAT YOU WILL NOT USE… “ “NO PORTION OF THIS SERVICE MAY BE REPRODUCED”, “YOU SHALL NOT EXPLOIT” “THIS MEANS YOU CANNOT SUE OR RECOVER” , “you agree to indemnify, hold harmless…” “website will deliver to u” “website wnt charge credit card co. before received in good condition” o CONSEQUENCES: damages
2. DISCRETIONARY AUTHORITY o Power or permission to act, but no obligation to (opposite of covenant). Many times, condition what they want by imposing a condition on their DA b/c deprives some1 of something and is self-effectuating o EXAMPLES: “tenant may install any paneling”, “landlord may at reasonable times enter the apt” , “any merch may be treated as a gift who shall have the right to , or _” ; “you can cancel at anytime”; apple, at its sole discretion, without notice to you, may… terminate, preclude access..etc”; o CONSEQUENCES: nothing [can do or not do it] 3. DECLARATION o CREATES A LEGAL TRUTH / LEGAL STATUS, NOT A PHYSICAL FACT. A statement of facts that the parties agree is true / a joint creation!!!! o EXAMPLES: “for the purpose of this agreement..” , “arbitration and not litigation” “X constitutes a …”, “I AGREE TO THE TERMS AND CONDITIONS”; “the university assumes no responsibility”; “unordered merch means…”, “mailing unordered merch constitutes an unfair method of competition”; “this means that you cannot sue as a result of its decision or refuse to process any info” aka [you lack the power to sue us and we are not liable] “you accept this agreement by agreeing, opening or activating” “that means your accepting the change o CONSEQUENCES: nothing [share responsibility for statement and by agreeing make it true] 4. CONDITION =POWERFUL TOOLS FOR INCENTIVIZING PERFORMANCE !!!!!!!!!!!!!!!! May or may not be true: a fact. That if exists/true/satisfied, triggers either: Covenant: if condition isn’t satisfied , party with covenant doesn’t need to perform/ isn’t obligated to perform [ex: if the tenant fails to pay, the tenant shall pay penalty]
Discretionary authority: if not satisfied, party w/ discretionary authority isn’t allowed to exercise it [ex: if tenant fails to pay, landlord may…] Declaration: if not satisfied, declaration isn’t considered true [ex: if premises destroyed, this lease terminates] EXAMPLES: “in the event that”, “if the tenant has obtained the landlords consent” , “except for _ or _” “if you fail, or apple suspects” , “BY USING THE ITUNES SERVICE” CONSEQUENCES: isn’t obligated, isn’t allowed or isn’t true; “if you do accept”, “as long as you return”, “if you signed the _”, “unless u cancel within..”; “if you use service” “if we fail to negate changes”
5. WARRANTY: promise of fact in entire string of time A promise by one party of fact for past, present or future that a statement of fact is true to other party [if promising action (covenant) but if promising fact outside its control (warranty) // If doesn’t work (condition), we will fix (covenant) but promise it will work (warranty)] EXAMPLES: “this works and will continue to work” “seller owns laptop ur buying” “itll work for a year” and “manuf by Mac” “Mac owns it now” CONSEQUENCES: CONTRACT = damages [or if limited warranty, replace or repair] 6. REPRESENTATION: statement of fact ab past or present A statement of fact made by one party to induce other party to deal / agree to all or some of contract [SINCE NOT A PROMISE, CANT BE BREACHED] EXAMPLES: “I inspected the apartment” “when you accept, your representing that you are at least 18 years… if accepting for orgs, means you are authorized to bind”; “by accepting you are agreeing to every provision of this agreement whether u have read it” “manuf by Mac” “Mac owns it now” CONSEQUENCES: TORT = avoid contract, have court rescind it [recission]. If fraudulent misrep, can get damages
Sources of law: What law is governing that contract or not contract?
COMMON LAW: service Most contract law found in cases [primarily state law] and 2 nd^ restatement shows what majority of states use No implied warranty anytime u sell a service [favors sellers but there can be express warranties if state them] SALE OF LAND, INTELLECTUAL PROPERTY, LOANS !!!!!!! STATUTES UCC [UNIFORM COMMERCIAL CODE]: goods Article 2 governs sale of goods : §2-102 / §1-105(1)): EVENS UP ANTIES BY GIVING IMPLIED WARRANTIES OF QUALITY INSIDE A CONTRACT (consumer/buyer protections but sellers can protect by adding risk into price or through express limitations or disclaimers on implied warranties ) Tangible, moveable property [INCLUDING CROPS, UNBORN YOUNG ANIMALS]. NOT realty. Not investment securities. Not $ in price to be paid MIX OF GOODS AND SERVICES:
services predominated , and P admitted it arose out of GE’s furnishing of deficit services, not deficient parts.]. KNOWN THAT A PHONE CALL IS A MM / ENOUGH FOR A CONTRACT AT COMMON LAW. [orally, by writing and by subsequent conduct: showing up and doing work - §19]. AND THT PRINCESS ACCEPTED FPQ WHEN DIRECTED GE TO PERFORM AND DIDN’T OBJECT. Showed PCL affirmatively dissented / objected somehow [proviso in PO is best] During phone call, ensure know every detail of GE’s FPQ. Or after phone call , 1) sent own form after gets GE’s initial PQ [ AGREE TO GE’S BUSINESS TERMS BUT use own boilerplate – so ur form is a counter-offer to GE’s counter-offer. Include in boilerplate same warranty in PO, statement tht no limitations on liability or damages, and a statement tht says GE accepts by beginning to do work.] or 2) don’t allow GE to do the work / perform Case on CISG CHOICE OF LAW: Forestal Guarani: both CISG countries [both ratified UN treaty] CISG law applies. Article 11 [no SOF] exempted by Argentina’s 96 declaration [aka writing required/SOF]. Usually, this means 11/29 [writing requirement] up in air. But NJ has a SOF. So the writing requirement is not an issue – both laws require [EASY BC EACH COUNTRY/STATES LAW IS THE SAME AS THE OTHER COUNTRY /STATE LAWS]. Wld be hard if one country/state required writing and other didn’t. *** **if they exempt an article, and u don’t, will need to do a choice of law analysis**** If you choose the UCC, you’ll get all of it, not just the objective standard of measuring a meeting of the minds. Every aspect of a deal would be governed by the UCC (plus its common law gap- fillers), or none of it would be. The same is true of the common law. To choose the common law is to choose all of the common law. And if you reject CISG because the subjective standard went badly in one case, you have rejected every other article in CISG as well. You didn’t need to compare all of the UCC to all of the common law and all of CISG. You couldn’t possibly do that in an exam. But what we’ve studied in the course should have caused you to worry about a few things:
- There is no one common law. There are at least 52 different versions of it — 50 states, the District of Columbia, and the Restatement. (You knew this about the common before we even started in January.) If you choose the common law, you must choose one of the versions. Otherwise, how will a later court know which one to apply?
- The common law wasn’t designed for goods sales. That’s why UCC article 2 exists. It’s unlikely that the common law would offer any real advantage over the UCC. Have we studied any goods sale case or problem in which the common law would have produced a wiser outcome than the UCC did?
- UCC article 2 wasn’t designed for cross-border goods sales. It was designed for goods sales in one country in the context of that country’s common law tradition. This is why CISG exists.
- In cross-border goods sales that don’t involve American customers, it would be impractical for your client to use the common law or the UCC. Would it be acceptable for American law to govern your client’s transactions with French or German customers? Would those customers tolerate that?
- Would it be practical for your client’s employees to follow two sets of practices so your client can comply with two bodies of law — one when dealing with Americans and another when dealing with other customers? This is another reason why CISG exists.
- The UCC has many protections for buyers — such as implied warranties. You don’t know whether CISG is more seller-friendly than the UCC, and it would take some research to find out. But you already know enough about the UCC to be cautious about this. Remember: your client is a seller. If you choose the UCC, you’ll need to track down its buyer-friendly provisions and find ways of limiting their effect. You can exclude the implied warranties, using 2-316. But you should be concerned about whether there are other types of provisions scattered through article 2 that you might not know about.
- If you choose the UCC or the common law, you’re pretty much locked into using American courts or American arbitrators in a forum selection clause. You can’t count on judges and arbitrators in other legal systems to apply American law exactly as we understand it. This is another reason why CISG exists. It’s the law in the U.S., in Italy, and in most of the rest of the world.
- If you specify American courts or American arbitrators in a forum selection clause, you’ll be obligating your client to litigate or arbitrate on this side of the Atlantic every dispute with an American customer. What problems would that create for your client? Would the client be better off with a forum selection clause specifying a courthouse near its headquarters in Italy?
- In one transaction — the MCC Marble case — the objective standard of a meeting of the minds would have been better for the client. But will that always be true, even when dealing with Americans? Are there situations where the subjective standard would actually help the client? After all, the subjective standard reflects the legal culture in which the client and its employees operate every day. An Italian lawyer told you that. The client and its employees don’t make contracts our way on a daily basis. They do it the subjective way because that’s the system they live in. Wisdom should cause you to reject the common law out of hand. Although the UCC might seem attractive, there are real problems that you should worry about. After weighing everything above, a good lawyer in your situation would be reluctant to choose the UCC over CISG. You could still write a good answer choosing the UCC. But if you chose it without worrying about at least some of the problems, you missed the big picture. Nobody noticed all the problems, but you should have seen some of them. The question’s second sentence tells you that the client wants your advice. If you took a narrow view of this, ignoring the problems, it would be hard to get more than three or four of the six points. A merger clause would be a good idea, but it won’t solve the problem. A merger clause excludes prior and contemporaneous agreements and promises made by the other party. It doesn’t exclude subjective thinking — a thought like “I don’t really agree with section 4 on this form.” You might be able to draft a clause that inserts something objective into a form governed
- NOT ADVERTISEMENTS OR
CATALOGUES, unless could be accepted w/o negotiation or limited to specific # of ppl [UNLESS x, OR: clearly indicate intent by circs, OR invites whom addressed to take specific action w/o further communication OR over-acceptance unlikely]
- §24 = an offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will complete it.”
- An advertisement usually does not justify such an understanding unless it is “clear, definite and explicit and leaves nothing open to negotiation.” - “terms…. Wld u agree to this price” = if essential terms in it, its an offer because ALL U **NEED TO DO IS SAY YES TO ACCEPT
- SIMILARLY, “do XYZ [definite] and if its to** my personal satisfaction, ill pay this amt.” though further “assent” needed by offeror, its an offer bc assent is objectively measured, in good faith, so cant just later decide not to assent. - Bids [response to request 4 bids]= offers. Acceptance = in auction, hammered down / in construction, when tell subcontractor? ya Vs. invitation to deal §26: preliminary negotiations / price quotes made by companies, for instance, are not offers. [person buying has reason to know tht other person making manifestation of willingness to bargain requires a further manifestation to conclude the bargain] o ESTIMATE = NOT AN OFFER. So if estimate , I say ok go ahead [ok go ahead = offer that estimator can choose to reject or accept] o Offer vs. invitation to deal: offers have INTENT to bargain and DEFINITENESS of terms: “I will sell/buy” or “I offer” o Invitations: “are u interested” “wld u give” “I quote” [unless response to an inquiry where says for immediate acceptance, cld be offer] “I wld consider” §33: must be sufficiently definite to be enforceable. Not enforceable / fails for indefiniteness if it does not “provide a basis for determining the existence of breach and for giving an appropriate remedy.” [ will never gap fill subject matter or quantity // must be certain and final: NO FURTHER NEGOTIATIONS OR EXPRESSION OF ASSENT BY OFFEROR IS NECESSARY TO CONCLUDE DEFINITE BARGAIN… If too indefinite, an invitation to deal – see §26] o Can gap fill [reasonable] price if say nothing on price but NOT ABLE TO IF agree to agree = “at a price to be agreed upon” under §204 AND NEVER DO. [vs. UCC 2-305 will gap fill agree to agree clause]
o IF friends / domestic settings and oral, BE VERY CAREFUL. Any indefiniteness cld be fatal and show lack of real intention to deal – see § o GENERAL RULE = if an omitted term is material, no contract. EXCEPTIONS : i. Power to alter/modify term in one party if OBLIGATION TO PERFORM [alter/modify] IN GOOD FAITH
- If unilateral contract where can only accept by performing, preventing performance is bad faith ii. Even power to set a term by one party is not illusory if the term is objectively se t/complies w/ objective measures: if price term, for ex., and either (i) same price wld be charged by seller to all other buyers or (ii) price is only 4cents below mkt pri ce [[NOT SAME W/ UCC: 2-305 says contracts giving party power to set price term are enforceable if parties intend them to be, so party w/ power to set price has duty to do so in good faith but das it]] iii. If expression otherwise constitutes intent to conclude bargain, omission doesn’t indicate lack of such intent and ct can fill in omitted term by implication IF NOTHING APPLIES TO BE AN OFFER, Ask if offer/contract is implied from acts, conduct or words: implied in fact [§4 – does work after asked to, implied will be paid reas price / auction, for ex .] or implied in law [ require u to compensate another for a benefit conferred in order to avoid UNJUST ENRICHMENT: i.e. helping dying person on street]
ACCEPTANCE
If objective manifestation of assent (reasonable person would think u are agreeing), then u are agreeing ( NOT SUBJECTIVE: WHAT U ARE THINKING) = 1) manifestation of assent to terms of offer – not conditional and not varied 2) acceptance in a manner invited or required & 3) acceptance must occur while offer is still open [i.e. not revoked] Manifestation of assent to terms: SUFFICIENT whenever a party uses an expression that he KNOWS OR HAS REASON TO KNOW that the other party wld reasonably interpret it as an offer or acceptance and the other party does so interpret it that way [not entirely objective because we look at parties’ intents in the meaning of words they use] Case 1: Carnival Cruise on NO AFFIRMATIVE ASSENT / ACCEPTANCE VIA FORUM SELECTION CLAUSE = facts: D thru travel agent purchased cruise ticket: paid and agent sent tickets, FSC inside tickets. COURT SAYS = was FSC made in bad faith? NO. CCL has PPOB in FL, cruises depart from there, no fraud, AND RESPONDENTS CONCEDED GIVEN NOTICE OF PROVISION. AKA CLDA REJECTED IT BUT DIDN’T. o Lawyer did: assumed no affirmative assent / affirmative requirement of rejection meant no acceptance [didn’t think that courts are likely to enforce forum selection clauses] o Lawyer shlda did: objected to clause when notified of it [conceded given notice of it] // LAWYER SHLDA KNOWN THAT WHILE CONTRACT USUALLY DISPALCES LAW, THERE IS AN EXCEPTION W/ CHOIE OF FORUM CLAUSES = declaration, can't be disclaimed, contract doesn’t displace law // show it was made by fraud or overreaching
offeror, SO ONLY KNEW OF OFFER AFTER BEGAN PERFORMING , may accept by completing performance or indicating intention to accept - §51,53 [no knowledge of offer/reward ok if part performance] iv. Even if not principal motive for performing act, but know act gives reward, its ok and can still get reward Third party’s cannot accept [§29] // “general offers” or special kinds called “reward offers” = only the first person who performs the acts called for in the offer can accept it [unless ad makes it clear that the offer to any and all ppl who __]: THE FIRST PERSON WHO ACCEPTS TERMINATES THE POWER OF ACCEPTANCE FOR ALL // §53(3): a valid acceptance of a reward offer = offeree must manifest an intention to accept it at the time the acts called for in the offer are completed When an advertisement / general offer / reward offer requires acceptance by performance and that performance requires subs expense , free revocation leads to forfeiture and thus a binding option contract may be formed when offeree commences performance ( §45 ) Also can be irrevocable because of estoppel (§ 87(2)), where offer reasonably expects to induce action/forbearance of a subs character on offeree b4 acceptance and it does induce such, it is a binding option contract to the extent necessary to avoid injustice Even if seller does not acceptance performance [ rejects it after completed], so don’t actually “complete performance,” if the performer/offeree tendered complete performance, this satisfies the manifestation of intention to accept (§50).
DEFAULT RULE = Silence is NOT ACCEPTANCE [UNILATERAL MODS OR
SHRINKWRAP = IN BOX AFTER U GOT THE GOODS/ AFTER OFFER MADE
AND ACCEPTANCE].
Exceptions [SILENCE IS ACCEPTANCE IF]: [§64]
1. Had a duty to respond but didn’t (prior/pre-existing relationship, pattern of dealing would call for silence or inaction: but cannot impose a duty by making failure to act an acceptance )
_- Course of dealings
- GIVES OFFEROR REASON TO BELIEVE_ SILENCE IS ACCEPTANCE 2. If a party (offeree) retains benefit [or unjustly enriched by retaining benefit w/o paying value] OF OFFER or offered (contained in offer or accompanied by offer) without responding: § - And **offeree has reason to know offered
- And offeree knows [** UE : or has reason to know **] offeror will expect compensation
- And had time to reject [** if no opportunity to reject, silence is not acceptance] - Kind of like implied-in-fact contract 3. Offeree exercises dominion over goods or - Accepts them. AND THEN DOES SOMETHING LIKE SELLS THEM // uses software w/ right to return software if don’t like terms later inserted // EVEN IF DOESN’T INTEND TO ACCEPT - Doesn’t include mere inspection or mailing of unordered merchandise, in many states 4. Offer states offer may be accepted by silence and offeree remains silent w/ INTENTION of accepting Similarly, silence may count as acceptance when (i) the offeree has solicited the offer and drafted its terms; (ii) the offer, as drafted by the offeree, is so worded that a reasonable person in the offeror’s position would believe that the offer was to be deemed accepted unless the offeree notifies the offeror that the offer is rejected; and (iii) the offeror relies or is likely to have relied on the reasonable belief that lack of a prompt rejection constituted an acceptance. This pattern commonly arises in two situations:
- solicitation of “orders” 4 goods -applying for insurance and insurer holds application [on own form] for an unreasonably long time w/o make a decision VS.
UCC ON ACCEPTANCE IS SIMILAR:
§2-204 [formation] says can accept in any manner sufficient to show agreement UNLESS UNAMBIGUOUSLY SHOWS SPECIFIC MANNER/MODE of acceptance – i.e. I offer to buy ur X if u deliver X to me by nov 12th^ = can only be accepted by delivering before nov 12th and not accepted just by promise to do so o True even if parties fail to include terms tht would result in a failure at common law // don’t fail for indefiniteness if parties intend to make a contract and a “reasonable basis” [look at commercial context. But more missing terms, more likely didn’t intend to make contract] = difference 1 2-204(3), but see 2d 33(2) Only if not in writing, no oral testimony [or only oral if agreement in writing and PER bars], and no COD/usage: Gap fillas : 2-305 [open price term: reasonable price @ time delivery], 2- 511 [tender of payment ], 2-310 [open time for payment : due at receipt of product/upon delivery in cash], 2-308 [absence of specified place 4 delivery: at sellers place of business or residence if no business unless know place where goods r ], 2.301 [ seller obligated to transfer/deliver
C. if beginning of performance is reasonable mode of acceptance , offeror can treat offer as being lapsed if not notified of performance in a reasonable time [IRREVOCABLE WHEN BEGIN PERFORMANCE, CONDITIONAL ON FACT THT PERFORMER / OFFEREE TELLS OFFEROR IN REASONABLE TIME !!!! if don’t tell offeror in reasonable time, though beginning of performance = valid acceptance, offeror does not need to accept/can treat offer as lapsed]
ANY AMENDMENTS : ACCEPTANCE MUST MATCH OFFER EXACTLY
COMMON LAW: MIRROR IMAGE RULE: MUST BE
ACCOMPANIED BY ANOTHER MEETING OF THE MINDS [cannot change and offeree has power to create contract] // offeror confers power on offeree] = MIRROR IMAGE RULE o Any additional terms is a counter-offer (acceptance must mirror terms of offer exactly) in common law ACCEPTANCE MUCH MATCH OFFER, EXACTLY!!!!!! Must be able to say “yes” or no and be done!!!!!!!!!!!!!!!!!!!!!!!! ALSO: last-shot rule : last form is accepted and not objected to: similar to 2-207(3), but common law is less realistic because it allows the last forms terms to entirely apply as “impliedly the terms agreed” to since performed after/ “accepted” sellers std terms, even tho counter-offer under common law, via buyer paying price/performing after receival, for example…
- BOILERPLATE SENT B4 PERFORMANCE = TERMS THAT CONTROL [SENDS PAYMENT, AKA ACCEPTS IF DOESN’T OBJECT] Case: Princess Cruise Lines v GE: FACTS = PCL sends PO [T&C, 260k] to GE. GE sends fixed, then final price quotation [rejecting PCL’s T&C, diff price]. Phone call = PRINCESS AGREES TO GE’S PRICE = MM. GE’s final price quotation is sent immediately after phone call, confirming orig letter. GE shows up and does work & princess allows. COURT HELD = GE’s letter wlda been a counter offer and rejection BUT when GE performed and PCL did not object, either to performance or to letter, = PCL’s actions and inactions gave GE every reason to believe PCL assented to final price quotation o Lawyer did: assumed it was UCC and knock out rule wld show GE’s don’t apply. o Shlda done: known primarily service contract [nature of what was done, FPQ from GE’s service dpt and blended cost of materials/services confirming services predominated , and P admitted it arose out of GE’s furnishing of deficit services, not deficient parts.]. KNOWN THAT A PHONE CALL IS A MM / ENOUGH FOR A CONTRACT AT COMMON LAW. [orally, by writing and by subsequent conduct: showing up and doing work - §19]. AND THT PRINCESS ACCEPTED FPQ WHEN DIRECTED GE TO PERFORM AND DIDN’T OBJECT. Showed PCL affirmatively dissented / objected somehow [proviso in PO is best] During phone call, ensure know every detail of GE’s FPQ. Or after phone call , 1) sent own form after gets GE’s initial PQ [ AGREE TO GE’S BUSINESS TERMS BUT use own boilerplate – so ur form is a counter-offer to GE’s counter-offer. Include in
boilerplate same warranty in PO, statement tht no limitations on liability or damages, and a statement tht says GE accepts by beginning to do work.] or 2) don’t allow GE to do the work / perform
UCC: BATTLE OF FORMS : seasonable expression of acceptance w/
additional terms is okay as long as not expressly conditional. Whether or not additional terms becomes mandatory[part of contract] depends on §2-207(2 ): “BATTLE OF THE FORMS” (but doesn’t need to be 2 forms. Can be a battle between 1 form and one phone call [only response needs to be a form ] – have the forms created a contract?
- A WEBSITE IS NOT A FORM. IT’S A **CONTRACT.
- FORM IS NOT COMMUNICATION. ****Only way don’t is IF ACCEPTANCE HAS A PROVISO [even “nonwithstanding” can be interpreted as a proviso in acceptance, also “even if” or “unless”]. All else is a Q of what terms are in the contract )*********: if its A WRITTEN CONFIRMATION OF ORAL DEAL. Offer can be oral = if so, additional/diff terms in confirmation only part of contract if all 2-207(2) elements satisfied] (1): the forms create a contract b/c they don’t disagree with each other (2): the forms create a contract BUT there’s something discrepant btwn 2:** 2a. there is an additional term in acceptance (2) to see if in contract: ADDITIONAL TERMS BTWN MERCHANTS [ 2-104: very broad, comment shows 2 definition explains that a merchant for confirmatory memoranda purposes under 2-207 is that “almost every person in business” is deemed a merchant] IN LATEST DOC BECOME PART OF CONTRACT UNLESS 1 ) 1st^ doc proviso
- materially alters offer: surprise or hardship? [YES MATERIAL = NOT ADDED/incorporated UNLESS EXPRESSLY AGREED TO]: negating std warranties [implied or pp], requiring guaranty of 90% or 100% deliveries when usage of trade allows greater quantity leeways, a clause reserving seller power to cancel upon buyers failure to meet invoice when due [one-invoice default clause], clause requiring tht complaints be made in a time materially shorter than customary or reasonable] vs. [NOT MATERIAL = ADDED UNLESS OTHER PARTY OBJECTS in reasonable time]: clause setting forth/enlarging sellers exemption due to supervening causes beyond his control, clause fixing reasonable time for complaints inspection by sub-purchaser in sub-sale/clause fixing in advance any reasonable formula of proration under such circs, clause providing for interest on overdue invoices or fixing the seller’s std credit terms where they are within the range of trade practice and don’t limit any credit bargained for [clause for interest on overdue invoices], clause limiting right of rejection for defects which fall within the customary trade tolerances for
o Usage practice/method/custom (1), having such regularity (2) as to justify an expectation that parties will observe/assume it applies to their transaction (3) unless agreed otherwise, court [and parties] expect them to do things the way its normally done. need to disclaim it if intend not to be bound by it 1-303c: if trade code, Q of law for judge Case ON (3) = CONDUCT AS CONTRACT: Commerce & Industry Co. v Bayer: FACTS = MM/C&I sends PO with arb agreement. Bayer sends invoice back w/ product that is silent on arbitration but expressly conditions MM acceptance. Performed. Bayer now wants arb – wtf , MM/C&I now wants jury. COURT HELD = U GET A JURY!! Bayer’s invoice = rejection under 2-207(1). Thus (2) is irrelevant and go str8 to (3). NOW, there’s a contract bc parties BEHAVED as if there was one. A) terms which parties agree = so no arb. And B) gap fillas – D failed to show any evidence of industry custom and usage for arbitration, SINCE IN GENERAL U GET A RIGHT TO A JURY!!!! Commerce & Industry v. Bayer – UCC 2-207(3) decision FACTS: Malden Mills purchases raw materials, manufactures products and then sells them to wholesalers; MM original lawyer included an arbitration clause in their form to limit litigation costs; Bayer’s invoice did not include an arbitration clause; Bayer’s product from MM catches fire and destroys property creating multiplier effect of harm on economy where everyone gets hurt; The arbitration clause against future harm almost ended up hurting Malden Mills since Bayer’s argument was to implement MM own arbitration clause in this dispute showing attorney foresight can never be perfect and is limited by playing the risk percentages at the time of drafting Bayer’s contract attempted to insert direct Proviso language from 2-207; ie: there form was a rejection and counteroffer Subrogation: Insurance company assume an insured party’s MM rights in the suit UCC 2-207 Analysis à not a contract from the parties writings go to subsection (3) (conduct) o When the product was shipped and accepted by Bayer magic moment occurred and the contract is binding where the terms agree: price/product o Forms did not agree on arbitration ( issue at dispute ) o Thus the court went through on page 138. Whether the plaintiffs were obligated to arbitrate. The court went through the 1-303 gap-filling devices and decided the following: There was no course of performance evidence because there had been no prior disputes in the current contract. There was no course of dealing evidence because there had been no prior disputes in earlier contracts between the same parties. No trade usage evidence showed that in that market and industry parties customarily arbitrated rather than suing each other. o Therefore the current contract did not include a requirement that these parties arbitrate this dispute. o Lawyer did: hung his hat on 2-207(2) for why contract not formed o Shlda done: (1) told Bayer not to put proviso [which has no arbitration, but he wants it now], so no need to agree to arb/itll be in. IF WANTED ARB, thts it. Or put arb in ur
own form. [[Or IF DIDN’T WANT ARB - object and say “no arb” = aka knockout rule aka litigation.]] o NORMALLY – U WANT WHATS IN UR FORMS : (1) proviso – IF OFFEROR, but not offeree [unless u put it in, no contract, and get other side to send u goods so (3) applies and ur terms will apply IF COMMON LAW, …… but IF UCC WILL APPLY IF GAP FILLED OR IF AGREED TO and the proviso will protect.u from inadvertenly agreeing to any of offeror’s boilerplate terms – BUT NOT A GREAT RULE. ALSO ENSURES NONE OF UR BOILERPLATE WILL BE IN IT.... SO PROVISO IS KINDA SHIT EVEN HERE !] (2) then show materially alters/not merchants/ OR OBJECT TO IT WITHIN A REASONABLE TIME, but don’t say “no arb” cuz knockout rule aka litigation, just object. OOOOOR show (1) gap fillers show expected arbitration: 2-309 if objected to it much later, i.e. this was a reasonable time // 1-303 if the lawyer showed custom tht contract formed btwn them many times before w/o express acceptance??? W/ arb. Case on (2) = DIFFERENT TERMS: Northrop v Litronic: FACTS = D [LITRONIC- supplier] mailed offer to sell 4 boards , 19,000 per, 90-day warranty delivery in 6 weeks. “terms take precedence over any terms proposed by buyer” = [RPO/RB because such a complicated thing buying: request for bids: send us an offer, basically]. phone call. P[buyer] sent order form providing a warranty with no time limit. [“turn on” letter followed, then PO. PO required D to send written acknowledgment to P, but D never did.] D didn’t deliver 3 of 4 boards until 1 year. 5-6 months post delivery, P returned 3 boards claiming defective. D refused to accept due to 90-day warranty, P believed it was unlimite d. COURT = PO sent by P + convo = acceptance under 2-207(1). Since (2) doesn’t say diff, apply majority knock-out rule. Known (2) is additional, not diff and knockout rule applies. o Lawyer did: allowed for battle of forms to occur, put in own language thinking it would trump Litronic’s offered terms [cuz merchants, not materially alter, no object]. o Lawyer shlda done [litronic]: ARGUED THAT 90-DAY WARRANTY WAS MORE REASONABLE for time to reject nonconforming goods under 2-309, since did not, judge held that 6 months was reasonable since Northrop argued complexity of the required testing….. include merger clause so clients’ employees cldnt testify to negotiating: they said tht northrops employee shlda known that litronic always includes a 90 day warranty in their acceptance bc of their COD…. or give employees a script and restrict what they say during this … - BAD. SHLD NEVER TELL EMPLOYEES TO LIE….. o ***** BEST BET:** INSTEAD OF “TERMS TAKE PRECEDENCE OVER BUYERS”, TO PROTECT SELF IF RLLY WANT OWN TERMS = PUT A PROVISO..... OR OBJECT IN ADVANCE TO ANY TERMS. ... .LITRONIC DID NOT DO THIS [DIDN’T ENSURE HIS WARRANTY TERM WOULD APPLY) to prevent a contract in (1), (3) through conduct and gap fillers show warranties have time limits.- COURT DID USE GAP FILLERS CUZ KNOCKOUT RULE [JUST DIFF TERMS NO PROVISO OR OBJECTION] AND CONDUCT AND FOUND SAID 6 MONTHS WAS REASONABLE: o SO WOULDN’T RLLY WORK HERE [BOTH PROVISO + OBJECTING IN ADVANCE CONDUCT KNOCK OUT RULE/ GAP FILLERS
arbitration w/ Samsung. LATER SECTION EXPLAINED PURCHASERS COULD OPT OUT by providing notice within 30 days. NORCIA DIDN’T SIGN THIS. COURT = reject silence= acceptance, even if exception, since NORCIA DIDN’T REASONABLY KNOW OFFER HAD BEEN MADE W/ SAMSUNG. HE DIDN’T SIGN IT. o Lawyers did: assumed signature w/ Verizon enough, additional arb agreement w/ Samsung in brochure box also good enough since retained benefit of offer. o Lawyer shlda did : KNEW THAT THE BENEFIT WAS NOT RETAINED FROM CONTRACT W/ SAMSUNG [NO ADDITIONAL BENEFIT], ALREADY HAD BENEFIT FROM VERIZON. Thus, need to show o 1) duty to sign [previous course of dealings; or imposed a duty to act and silent/failing to dissent = act], o 2) HAD A SPOT FOR NORICA TO SIGN THE BROCHURE. Norcia only had a contract w/ Verizon [only signed w/ them], not Samsung, so didn’t reasonably know had an offer from Samsung. o 3) Samsung shlda included reps/warranties in contract so they agreed to both terms instead of only verizons = AKA MAKE NOTICA ASSUME RISK OF NOT READING CONTRACT ACTUALLY SIGNED. o 4) shlda made a deal w/ Verizon that anytime some1 buys one of their products, that samsungs name will be on it o 5) or require that retain benefit – if u agree to settle all disputes by arbitration, u will receive a free pair of headphones o 6) GIVE HIM THE BROCHURE BOX BEFORE HE SIGNS THE BROCHURE W/ VERIZON
CLICKWRAP TERMS = yes/no: as long as its clear yes/no is with reference
to those terms, then its ok!!!!!! must be conspicuous, espec if additional, BUT
DUTY TO READ!!!!!!!!!
Spechts / Netscape hypo: signs up for website/software and agrees to all those terms for site in general = DUTY TO READ HERE. Same company, diff product [plug-in download on website] = adds another term below download button. Had to scroll down and didn’t see the terms. Since not conspicuous, a reas person wldnt see this = TREAT AS 2 CONTRACTS.
- Consid: gets software, gives up ability to Clickwrap terms Party is called on to indicate assent to terms by clicking Analogous to a buyer signing the written standard form contract Things to note: Buyer has the duty to read o Cant later claim she didn't understand or know what she was clicking; buyer, through clicking, manifests intent to be bound Terms must be available at the time of contracting o If the terms are embedded in software so it wasn't available to the buyer before purchase, it is more analogous to shrinkwrap
- if terms not expressly conditional, its an amendment and must
be agreed to. [ reasonable person would not see terms/conditions as apparent / WLD
OR WLD NOT SEE THIS AS AN ADDITIONAL AGREEMENT]
Rolling contract
Final assent deferred until the non drafting party has an opportunity to read the terms, os the contract was made at point of purchase Buyer accepts offer if she hasn't rejected it within a reasonable time Duty to read at time of delivery Gives buyer opportunity to refuse to contract on the offeror’s standard terms clickwrap terms (online: click “I agree”: iLAN) reasonably expected to read , or should read, so terms apply [ OR TERMS ENCOUNTER WHEN DOWNLOADING SOFTWARE] o I.LAN CASE SHOWS THAT COURTS ARE INFLUENCED BY ARTICLE 2 WHEN DECIDING SOFTWARE LICENSE SALES UNDER THE COMMON LAW [ BC PARTIES EXPECTATIONS ARE SIMILAR TO EXPECTATIONS OF PARTIES IN GOODS TRANSACTIONS] o As above, ok to affirmatively require rejection. BUT CANT UNILATERALLY MOD [ LICENSING / SOFTWARE AGREEMENTS] OR ADD TERMS AFTER, WHILE CAN IF SHRINKWRAP:
Vs.
SHRINKWRAP / BOXTOP TERMS:
- BUT IF NOT A MODIFICATION, BUT MERELY EXPRESSES WHAT WAS
IMPLIEDLY AGREED WHEN CONTRACTED (OR REASONABLY
EXPECTED), ITS OK =
SHRINKWRAP // BOXTOP TERMS: AFFIRMATIVE REQUIREMENT OF REJECTION
OK [when exchange $ frequently precedes communication of detailed terms] !!!!!!!!!!!!!!!!!!! Ucc = allows u to SEND BACK GOODS BEFORE ACCEPT / GIVES U TIME TO INSPECT SO THAT’S WHY ITS OK TO SEND TERMS AFTER BUYER HAS GOOD!!!!!!!!!!!!!!! Shrinkwrap terms ■ Standard terms enclosed within the item’s packaging, so the term is NOT known to the buyer at the time of contracting ■ Why is this valid? Usually with a contract, one party cannot unilaterally add terms or change terms of the contract ● Here, the buyer (1) knows the contract was standard to be subject to such a term; or (2) should have reasonably expected the contract to be subject to such a term Box-Top terms or invoice, Boxtop terms Standard terms placed on packaging by the seller, so they are discernable to the buyer Contract is formed at the point of sale Buyer, by taking the item to the cashier, manifests intent to contract subject to whatever policy is on the box Why is it valid? Buyer saw or reasonably should have seen the term (e.g. return policy) shrinkwrap / boxtops terms / rolling contracts are usually ok to send terms after receive TANGIBLE goods [not software, and not unilateral / additional mods AFTER ORIG TERMS/orig manifestation of assent] because u can send back goods under UCC before law will deem u to have accepted them [inspect] ProCD: software terms in box says “if you don’t like it, return it within X days.” This line of cases says an affirmative requirement of rejection = enough for acceptance … argue against by unconscionablility, public policy AND virtually an illusory promise / contract. Clause gives the
