UCC v. Common Law

Acceptance and the UCC

Communicating Acceptance Under Common Law

Offer and Acceptance Under Unilateral Contracts

Two general requirements to constitute effective acceptance:

Mirror image rule

Acceptance must be communicated to offeror

Communicating Acceptance:

• If offer stipulates specific means of communicating acceptance, then the offeree must utilize those means to constitute effective acceptance

• If offer silent, offeree free to use "reasonable means":
• Means used by offeror, means customarily used in similar transactions, or means of communication that is in equivalent in expeditiousness and reliability to the means used by the offeror.
• There are three instances where the requirement that acceptance be communicated to the offeror may not apply:
• Silence - generally no UNLESS
• Offeree takes the benefit of offeror's services w/ reasonable opportunity to reject them and w/ reason to know the offeror's intention
• Offeror has given the offeree reason to understand that acceptance may be communicated by silence, in which case the offeree's silence will operate as acceptance if he intends as such; and
• Where, because of previous dealings or other circumstances, it is reasonable that the offerree should notify the offeror if he does not intend to accept, in which case his silence will operate as acceptance.
• Performance - unilateral contract generally (although maker can make communication of acceptance a condition)
• Mail or Other Correspondence
• Mailbox Rule - acceptance by mail is effective upon dispatch so long as the acceptance is properly posted.
• Applies only to acceptances and not any other communication between the contracting parties
• Parties bound even if the acceptance is lost in trasmission and the offeror has no knowledge of that acceptance
• Default rule, meaning it can be changed by language of offer.
• Mailbox Rule does not apply when:
• Two situations under the mailbox rule involve an offeree who dispatches two responses to an offer: first a rejection and then second an acceptance. Mailbox rule does not apply. Obligations depend on which reaches offeror first, if the acceptance - valid contract. If the rejection, power of acceptance terminates and subsequent arrival of the acceptance constitutes a counteroffer that the recipient can either accept or reject.

Unless the contract language or other circumstances unambiguously indicate otherwise, acceptance may be made in any manner and by any medium reasonable under the circumstances.

UCC rejects mirror image rule and recognizes a binding contract despite the presence of nonconforming acceptance in two situations: shipment of nonconforming goods and battle of the forms

Seller's Shipment of Conforming and Nonconforming Goods:

Under UCC, seller can accept a buyer's offer to purchase good for prompt of current shipment in one of three ways: (1) promise to ship goods in conformity w/ terms of offer, such as acknowledgment of order form sent to the buyer; (2) prompt or current shipment of the goods in conformity w/ the terms of the offer; (3) seller can also accept the buyer's offer to ship nonconforming goods.

• Under UCC, shipment of nonconforming goods will not constitute acceptance if the the seller notifies the buyer that the goods were sent as an "accomodation," instead this will be treated as a counteroffer which the buyer is free to accept or reject.
• Absent accommodation, the shipment of nonconforming goods constitutes acceptance of the offer by the seller creating a binding contract - but it also constitutes a breach of the resulting contract under the perfect tender rule.

Battle of the Forms: occurs when a buyer places an order (offer) and the seller's acceptance form contains terms which differ from the the buyer's order or are not addressed in the order at all.

• Because the seller's acceptance contrains terms that vary from the buyer's offer, the seller's response constitutes a nonconforming acceptance, but unless the acceptance is made conditional on assent to additional or different terms, the nonconforming acceptance of the offer still counts, creating a binding and enforceable contract.
• The status of these terms will depend on two things: dickered vs. boilerplate terms and whether or not the transaction is w/ a consumer or w/ another merchant.
• If consumer: add'l or different terms are treated as proposals for addition to the contract, not part of the contract unless the offereor expressly agrees to the add'l terms.
• If merchant:
• Add'l terms become part of contract unless: (1) offer expressly limits acceptance to the terms of the offer; (2) offeror objects to the add'l terms w/n a reasonable time after receiving notice of them; or (3) the add'l terms would materially alter the contract. (In 2-207, "materially alter" are those that would result in surprise or hardship if incorporated w/o the express awareness of the other party - i.e. negating standard warranties, changing timelines for complaints, clauses that vary from normal trade/custom)
• Different terms: knockout rule - omit both the offeror's originial provision and offeree's differeing provision from resulting contract.
• Written Confirmations:
• Deal made face to face, then written confirmation follow-up with different or additional terms:
• If consumer: add'l or different terms are mere proposals
• If merchant:
• Add'l terms are automatically part of contract unless: (1) they would materially alter the contract; or (2) the receiving party objects w/n reasonable time.
• Different terms - proposals receiving party is free to accept or reject
• If both merchants send confirmations - knockout rule applies to different terms

Conditional Acceptance: if acceptance made expressly conditional on assent to add'l or different terms, the nonconforming acceptance will not be effective to form contract

• Need explicit language to create conditional acceptance

An offer can require acceptance by performance or promise.

Bilateral contract - seeking promise/exchanging promises

Unilateral contract - seeking performance in return of promise

• Under Unilateral Contract:
• Offeror is only bound when the offeree completes performance in accordance w/ terms of offer; and
• Offeree is never bound to perform because he has never promised to perform
• Where an offer does not specify whether it must be accepted by promise or performance, the offeree is free to choose means of acceptance.
• Revocation of Offer in a Unilateral Contract:
• Under common law, offeror was free to revoke up until complete performance, but modernly some courts have applied a rule whereby a offeror cannot revoke once a offeree has begun performance (distinguish between mere preparations and performance)
• Offeree free to abandon performance at any time or not undertake performance at all.
• Mailbox rule doesn't apply to unilateral contracts - offeror free to revoke even if offeree puts acceptance in the mail.

Consideration and Promissory Estoppel

Option Contracts and Firm Offers

Consideration: promise unenforceable unless supported by consideration.

• Issue w/ gratuitous promises - you have to give something/get something to be enforceable.
• Bargain - indicates an exchange while could be beneficial or detrimental
• Distinguish between insufficient consideration and failure of consideration
• Not support by consideration/want of consideration/consideration is lacking/legally insufficient - means that it appears that there was a gratuitous promise - no contract
• Failure of consideration - means party has not performed in accordance w/ promise.
• Courts apply bargain for exchange inquiry in majority, minority benefit/detriment using the legal detriment test
• Inadequacy of Consideration:
• Modern rule is that courts do not police the equivalence of bargained-for exchange via consideration.
• Illusory Promises - A promise to perform that leaves performance to the discretion of promising party is an illusory promise and won't constitute consideration.
• Graitutous Promises:
• Executed Gifts - intent to bestow, delivery - legally binding gratuitous transfer.
• Recitals of Consideration
• False recitals do not satisfy requirement of consideration
• A condition on a gratuitous promise also does not satisfy the requirement of consideration. A condition is something a promissee must do to avail himself of the promisor's benevolence.
• Distinguishing consideration from a condition on a gratuitous promise can be accomplished using three factors: (1) language of the parties; (2) commercial v. charitable or familial context; (3) benefit to the promisor.
• Alternatives In Absence of Consideration
• Past or Moral Consideration - generally not enforceable
• Unless, written promise to pay a debt barred by the SOL, written promise to pay all or party of an indebtedness that has been discharged in bankruptcy
• AND a minority of jurisdictions will enforce a promise made in recognition of a past benefit conferred so long as: (1) promissee conferred the benefit on the promisor and not a third party, and the benefit is material
• Promissory Estoppel
• Allows for enforcement of certain promises evne whee there is no consideration in return
• Four requirements: (1) promise; (2) foreseeable reliance; (3) actual reliance; and (4) injustice w/o enforcement. Actual reliance must be induced by promise.

An offerer is generally free to revoke any time before acceptance. Offereor can revoke even if the has expressly promised the offeree that he would hold the offer open.

Under contemporary law, there are two ways to prevent revocation:

• Common Law Option Contract
• Offer, subsidiary promise to keep offer open, valid mechanism for securing performance of subsidiary promise (generally consideration)
• Construction Contracts - special rule for general contractors who use the offers/bids of subcontractors when submitting a proposal - an implied option contract presumed - preventing subcontractor from revoking bid.
• UCC Firm Offer Rule
• Under the UCC, a MERCHANT can make a firm offer (an irrevocable offer) to either buy or sell goods w/o consideration so long as: offer is made by a merchant, offer is made in a signed writing, offer expressly states by its terms that it will be held open.
• Merchant - UCC defines based on his special knowledge or skill regarding the goods or practices involved in the transaction
• Irrevocable for time specified or "reasonable time" if none specified
• BUT, under the UCC a firm offer can only be held open for 3 mo. Any firm offers that state a time longer than 3mo. will only be irrevocable for the first 3mo. and then revocable after that time, but still enforceable.

UCC v. Common Law

Contract Formation: Offer and Acceptance

Offer: party's communication of offer must be (1) an outward manifestation; and (2) that signals acceptance of offer will conclude the deal. (Objective inquiry)

• Multiple offerees:
• Commercial Advertisements - generally treated as invitations for offers, but if "first come, first served" language - may be considered an offer.
• Auctions
• Reward Offers

UCC governs any sale of goods (movable property), while common law governs contracts that are not predominately regarding the sale of goods, like a service contract or the sale of real property.

In a contract that there is a question as to whether it is a sale of goods or service/common law contract, one needs to evaluate the predominant purpose of the contract, looking at the language of the contract, nature of the supplier's business, relative value of goods vs. services.

UCC governs th sale of all goods, not just the sale of goods priced at $500 or more - but at $500 or more the contract will be subject to the Statute of Frauds

Legal Effect of an Offer

Statute of Frauds

Offer creates the power of acceptance in an eligible offeree.

Four Ways to Terminate the Power of Acceptance

• Lapse of Time - either stated in offer, or if not, "reasonable time." Face/Face Conversation Rule
• Death/Incapacity
• Revocation - must occur prior to acceptance; and be effectively communicated
• Direct/Indirect
• Revocation of Offer Made to Multiple Offerees -functional equivalents rule
• Rejection - outright, counteroffer, nonconforming acceptance. Be wary of "mere inquires"
• At common law, the mirror image rule requies that acceptance must mirror the terms of the offer and any variation results in a counteroffer and rejection of the initial offer.
• UCC rejects the mirror image rule and recognizes a binding contract despite the presnece of a nonconforming acceptance in two circumstances:
• Shipment of nonconforming goods
• Battle of the forms

General rule in contract law is that contract need not be in writing.

Statute of Frauds important exception - applies to MYLEGS - marriage, contract that will not be completed in one year (measured at time of formation), land-sale/real property contracts (future sale/not present conveyance), executor, guarantor, sale of goods over $500

• Contract w/n SOF is not enforceable absent a writing signed by the party against whom enforcement sought.
• Key question: is the writing requirement met? Can be prepared before, during, or after formation and doesn't need to be actual agreement but may be memorandum
• Under CL - following terms required: (1) identify parties to transaction; (2) nature and subject matter of the contract; (3) essetnail terms of the unperformed promises in the agreement
• Signature - actual signature not required - symbol, initials, letterhead, sufficient if used with the intention to authenticate writing. Most states allow electronic signatures
• Tacking - if all documents signed can be tacked, or if a signed document references/incorporates unsigned documents.

Performance - SOF may be satisfied w/ respect to some of the categories of governed contracts via part performance.

• Land Contracts: part performance will make an oral contract for sale of land enforceable in two situations: (1) action by buyer against seller, and in an action for specific performance when there is a showing of a combination of the following: (1) payment of all or part of purchase price; (2) taking possession; and/or (3) making substantial improvements to the property
• One Year - full performance of an oral contract for services by the party performing the services will make the contract enforceable agaisnt the paying party. Part performance is not compensable on contract (although may be able to recover reasonable value of services under quantum meruit.

Enforcement where CL SOF is not satisfied: recovery for benefits conferred (restitution/quantum meruit), promissory estoppel

Revival of the offer:

• Maker is the master of the offer, offeror has the power to revive an offer that offeree has rejected.