Reaching Agreement: The Process of Contract Formation

1
Reaching Agreement The Process of Contract
Formation

• C. LIMITING THE OFFERORS POWER TO REVOKE
• THE EFFECT OF PRE-ACCEPTANCE RELIANCE
• Under the common law, the offeror may revoke the
  offer anytime before acceptance by the offeree.
• Although this is the common law approach, this
  rule is not a universally accepted rule regarding
  the offerors power to revoke. Under Article 16
  of the Convention on Contracts for the
  International Sale of Goods
• Until a contract is concluded an offer may be
  revoked if the revocation reaches the offeree
  before he has dispatched an acceptance.
• However, an offer cannot be revoked
• If it indicates, whether by stating a fixed time
  for acceptance or otherwise, that it is
  irrevocable or
• 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.
• Under the common law, the offer is irrevocable
  only if consideration is given for the promise
  not to revoke.
• Is, reliance a basis for making the offer
  irrevocable?

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Reaching Agreement The Process of Contract
Formation

• C. LIMITING THE OFFERORS POWER TO REVOKE
• THE EFFECT OF PRE-ACCEPTANCE RELIANCE
• James Baird Co. Gimbel Bros., Inc..
• Drennan v. Star Paving Co.
• Berryman v. Kmoch
• Under the common law, is consideration necessary
  to the creation of an option contract?
• Is the Restatement (2nd) Contracts consistent
  with the common law rule regarding the need for
  consideration as condition to formation of an
  option contract?
• Pops Cones, Inc. Resorts International

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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.
• Restatement 2nd ' 87(1) provides additional ways
  in which an offer may be made irrevocable as an
  option contract.
• The offer may be made irrevocable by statute
• The public contracting process where state or
  federal statutes or regulations provide that the
  offer is irrevocable for some period.
• The UCC has two provisions making offers
  irrevocable
• 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.
• UCC 2-205 which outlines under what
  circumstances an offer is irrevocable.
• 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.

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Reaching Agreement The Process of Contract
Formation

• QUALIFIED ACCEPTANCE THE BATTLE OF FORMS
• Contacts are generally thought to be detailed
  documents containing the legalese "whereas and,
  "wherefores, which found in the recitals
  portions of a contract
• Generally a contract contains
• An accurate description of the exchange of
  performances to which the parties have agreed,
• Identification of the principal risk involved
  for one or both the parties, and
• The specification of each parties "rights in the
  event the risk-event occurs.
• For many businesses form or prototype contracts
  are used and are useful.
• Form contracts are generally used in a business
  or industry that engages in a large number of
  substantially similar transactions.
• The only difference between each transaction is
  the quantity of goods, price of the item sold,
  the name of the parties, and delivery
  requirements.
• Negotiations on and reaching agreement on other
  contract terms each time make these routine
  transaction too costly.

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Reaching Agreement The Process of Contract
Formation

• QUALIFIED ACCEPTANCE THE BATTLE OF FORMS
• To increase the efficiency of the contract
  formation process with respect to reoccurring
  transactions, "standard form", pre-printed
  contacts are utilized.
• These documents will have blanks where the name
  of the parties, quantity of goods sold, price,
  and deliver requirement will be entered.
• The balance of the agreement, often involving
  several pages, will contain default provisions,
  remedies, and other matters specific to the
  particular business or industry.
• We have stated over and over again in this course
• The rules of classical contract law were
  fashioned on the assumption that the contract
  formation process follow the conventional
  offer-acceptance model.
• Under this model, an offer is made, after which
  the offeree may accept or reject it.
• If rejected, the offeree may submit a
  counteroffer.
• 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.

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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?
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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?
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BATTLE OF THE FORMS CLASSICAL APPROACH
Company Purchase of 1000 Laptop Computers
Company Submits its Purchase Order
Acknowledgement Form.
CompUSA
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?
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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?
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• Reaching Agreement The Process of Contract
  Formation
• QUALIFIED ACCEPTANCE THE BATTLE OF FORMS

THE BATTLE OF FORMS CONTRACT FORMATION UNDER
UCC 2-207 WHEN ACCEPTANCE VARIES TERMS OF THE
OFFER
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• Reaching Agreement The Process of Contract
  Formation
• QUALIFIED ACCEPTANCE THE BATTLE OF FORMS

• Section 2-207(1) of the UCC
• ANSWERS THE FOLLOWING QUESTION
• IS A CONTRACT FORMED WHEN OFFEREES ACCEPTANCE
  CONTAINS TERMS THAT DIFFER FROM THE TERMS OF THE
  OFFER?
• That provision provides
• 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
• Unless acceptance is expressly made conditional
  on assent to the additional or different terms.

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• Reaching Agreement The Process of Contract
  Formation
• 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
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WHAT HAPPENDS TO ADDITIONAL OR DIFFERENT TERMS?
THE ANSWER MAY BE FOUND IN UCC 2-207(2)
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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.
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UNDER UCC 2-207(2) If the parties are
merchants, The Additional Terms becomes A
PART OF THE CONTRACT UNLESS CERTAIN
THINGS OCCUR
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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
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(2) THE ADDITIONAL TERMS MATERIALLY
ALTERS THE CONTRACT
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(3) NOTIFICATION OF OBJECTION
ALREADY GIVEN OR IS GIVEN WITHING REASONABLE TIME
AFTER NOTICE OF THEM RECIEVED
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HOW WOULD THE OFFEROR PREVENT DEFAULT ADDITION
OF NEW TERMS?

• 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 (OFFERORS)
ASSENT TO ADDITIONAL TERM. WHAT IS THE EFFECT OF
THIS LANGUAGE ON THE CONTRACT FORMATION PROCESS?
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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
• 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.
• 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.