Case report

Q. 1. Was Lee entitled to a percentage of the videocassette sales or can Disney deny the payment under the contract’s provisions? Separately, discuss the two grounds of Lee’s suit:

a. Breach of contract: Specifically identify contractual language that supports each party’s argument. Discuss both sides of the issue of whether the distribution of the videocassette was authorized by the 1952 contract. Reach a conclusion based on your analysis.

b. Invasion of privacy: Specifically identify the form of invasion of privacy Lee is alleging along with any defense(s) Disney has. Debate both sides of the issue of whether Disney invaded Lee’s privacy. Reach a conclusion based on your analysis.

Notes:

Use business law concepts 1a and b and 2 (included in attachment)

-Present both sides (disney and peggy lee)

-pick who has the stronger argument

-you can site to witkin to support as well

-are there any ambiguous terms

FINDING HER VOICE
In 1952, singer Peggy Lee entered an agreement with Disney to work on the animated film Lady and the
Tramp. Peggy Lee wrote six songs, sang three, and was the voice for four characters in the 1955 film.
Lee was paid $3,500 for her participation. Disney retained all rights to revenues earned from distributing
the movie to theatres and television broadcasting companies in domestic and foreign markets. Lee
retained the right to residual payments at 12.5% for such items as phonographic recordings sold to the
public.
Specifically, the contract gave Disney the right to distribute the film including the rights to “any other
technology yet to be invented,” but § 12(b) of the agreement provided that
Anything herein to the contrary notwithstanding, it is agreed that nothing in this agreement
contained shall be construed as granting to us (Disney) the right to make phonograph recordings
and/or transcriptions for sale to the public, wherein results or proceeds of your services
hereunder are used.
In 1987 Disney began distributing videocassettes of the film. Lee sued in March 1988, claiming she was
entitled to $9 million. Specifically, she claimed that she was entitled to 12.5% of the profits Disney
generated from the sales of videocassettes of Lady and the Tramp on the basis that the distribution of the
videocassettes was not authorized by the 1952 contract. Disney countered that the distribution of the
videocassettes was authorized in the contract and that Lee was therefore entitled only to residual
payments for her songs and voice performances, which would be capped (under union rules) at
$381,000.
Disney introduced evidence that it was their “custom, practice and usage” not to allow profit participation
deals for voice performers in animated movies, a policy which “evolved,” according to the testimony of
Roy Disney, “from the notion of absolute ownership, no strings attached…It stems from bad experiences
Dad and Walt had in the ’20s.” Further, there was testimony from Jodi Benson, the voice of Ariel in The
Little Mermaid (released in 1989), and Cheech Marin, a voice in Oliver & Co. (released in 1988), who
each testified that Disney did not give voice actors profit participation deals. 1
Required
Assume that your consulting team has been hired to provide an unbiased report on the merits of this
litigation and the damage claims made by Ms. Lee. (Use the guidelines for writing a report found on the
course website.) The editors intend to use your report to write an informative article that will appear in an
issue of their journal.
In preparing your answer, be sure to review financial accounting concepts 2 and 7, management
accounting concepts 7 and 8, and business law concepts 1 and 2.
1 1“Breach
of Contract: Lee v. Walt Disney Productions,” The Entertainment Litigation Reporter, April 8, 1991.
Exhibit 1 Lady & the Tramp Project Income Statement *
For the year ended 12/31/87
Sales
Cost of Goods Sold
Marketing Expenses
General & Administrative
Profit before Tax
$
$
77,236,000
31,963,480
3,487,316
9,545,460
32,239,744
*These are fictitious statements and do not represent the actual results that Disney received from Lady and
the Tramp.
Notes:
• Cost of Goods Sold includes the costs to produce the videocassettes for sale to the public.
• Marketing Expenses include the direct expenses of marketing and distributing these videocassettes
to the public.
• General and Administrative expenses are the indirect costs of running Buena Vista Home Video.
They are allocated to each project of Buena Vista based on a formula. The formula is each project’s
sales revenue divided by total sales revenue generated by all projects multiplied by the total general
and administrative costs of Buena Vista.
• Individual projects of Buena Vista are not charged income tax expense since taxes are determined on
Disney’s worldwide operations.
FINDING HER VOICE LIBRARY©
Interpretation of contracts
General rules of construction
Courts look to contracts to determine the parties’ obligations. Most of this analysis is based on the
language of the agreement. However, sometimes there are issues not mentioned or ambiguously
addressed in the contract. What to do in such a case? Courts follow general rules in construing contracts
called “rules of construction.” Some of these rules are articulated in cases, some are intuitive but few are
codified in statute. It makes is difficult, sometimes, for businesspersons to make business decisions. The
more you understand how courts tend to approach contractual disputes, the more effective you will be at
managing resources. Here are a few rules of construction that may apply to this case. Think about how
they affect your analysis of the case. Use them (cite to specific sources) in your analysis of the case.
Courts seek to protect the reasonable expectations of the parties
Courts construe a contract’s meaning to be consistent with the parties’ intention
The central rule of contractual analysis is to interpret based upon the parties’ intent on entering the
agreement. It is central to legal analysis to recognize that courts do not enforce agreements based upon
what the judge thinks is fairest, “right” or best. The judge wasn’t a party to the agreement and his or her
opinion is irrelevant on this issue. Instead, interpret contracts to most consistently enforce the parties’
reasonable expectations. The judge’s job (and your job in this assignment) is to figure out what the
parties intended and to interpret the contract consistent with that intent.
Here is some authority for this proposition:
(The contractual meaning) is determined by objective manifestations of the parties’ intent, including the
words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding
circumstances under which the parties negotiated or entered into the contract, the object, nature and subject
matter of the contract, and the subsequent conduct of the parties. Morey v. Vannucci (1998) 64 Cal.App.4th
904, 912.)
The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. The
mutual intention to which the courts give effect is determined by objective manifestations of the parties’
intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as
the surrounding circumstances under which the parties negotiated or entered into the contract; the object,
nature and subject matter of the contract; and the subsequent acts and conduct of the parties. 1 Witkin
Summary of Cal. Law, Contracts (9th ed. 1987) § 684, pp. 617-618.
A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the
time of contracting, so far as the same is ascertainable and lawful. Cal. Civ. Code § 1636.
Missing or ambiguous terms
Contracts are interpreted as they were apparently intended by the parties at the time the contract was
created. If the parties’ intent can be determined, courts will supply missing terms or clarify ambiguities.
They will not, however, insert terms to create an agreement where none, really, exists.
Here are some relevant references:
A contract extends only to those things concerning which it appears the parties intended to contract. Our
function is to determine what, in terms and substance, is contained in the contract, not to insert what has
been omitted. We do not have the power to create for the parties a contract which they did not make and
cannot insert language which one party now wishes were there. Levi Strauss & Co. v. Aetna Casualty &
Surety Co. (1986) 184 Cal. App. 3d 1479, 1485-1486.
However broad may be the terms of a contract, it extends only to those things concerning which it appears
that the parties intended to contract. Cal. Civ. Code § 1648.
If parties had concluded (a) transaction in which it appears they intend to make contract, (the) court should
not frustrate their intention, if it is possible to reach fair and just result, though this requires choice among
conflicting meanings and filling of some gaps left by parties. Rivers v Beadle (1960) 183 Cal App 2d 691.
Invasion of privacy analysis
Invasion of privacy is actually a collection of four different types of wrongdoing, only one of which is
relevant here: the use of one’s name or likeness without consent. Despite the name, this tort has nothing
to do with privacy. It is more accurate to say that it relates to publicity – the right of those who have a
market for their name or likeness to sell it. If, for example, you took a picture of Tiger Woods and put it in
an ad for your product without his permission Tiger might complain (legitimately) that you were using his
likeness (i.e. a photo of him) without his permission. This results in a financial loss for Tiger Woods, since
there is a market for his “likeness” – advertisers are willing to pay significant amounts of money to use
Tiger Woods to endorse their products. Tiger Woods has a right to select those products he may want to
endorse and he has a right to make money from it. If you use his likeness without his permission, you’ve
effectively deprived him of his right to commercialize his image.
However, if one gives consent to the use, then there is no violation of one’s right to privacy. If, for
example, Tiger Woods agreed that you could use his picture on your product advertising, then he is
barred from suing for it later. Consent is agreement voluntarily made, and can be express (i.e. specifically
stated orally or in writing) or implied under the circumstances.
One problem with Lady and the Tramp is that Peggy Lee is claiming a violation of her right to privacy
(specifically, the use of her name or likeness without her consent.) Did Disney use Lee’s name or likeness
without her consent?
Here are some relevant sources for this analysis:
California Civil Code § 3344 provides in part:
Unauthorized commercial use of name, voice, signature, photograph or likeness
(a) Any person who knowingly uses another’s name, voice, signature, photograph, or likeness, in any
manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting
purchases of, products, merchandise, goods or services, without such person’s prior consent …shall be
liable for any damages sustained by the person or persons injured as a result thereof.
From the case Lugosi, v. Universal Pictures, 25 Cal. 3d 813 (1979):
The so-called right of publicity means in essence that the reaction of the public to name and likeness, which
may be fortuitous or which may be managed or planned, endows the name and likeness of the person
involved with commercially exploitable opportunities. The protection of name and likeness from unwarranted
intrusion or exploitation is the heart of the law of privacy.
From the case Midler v. Ford Motor Co., 849 F. 2d 460, 463 (1988) (In which Bette Midler sued on the
basis that the defendant hired a “sound-alike” singer to imitate her voice):
A voice is as distinctive and personal as a face. The human voice is one of the most palpable ways identity
is manifested. ..A fortiori, these observations hold true of singing, especially singing by a singer of renown.
The singer manifests herself in the song. To impersonate her voice is to pirate her identity. (citations
omitted) We need not and do not go so far as to hold that every imitation of a voice to advertise
merchandise is actionable. We hold only that when a distinctive voice of a professional singer is widely
known and is deliberately imitated in order to sell a product, the sellers have appropriated what is not theirs
and have committed a tort in California. Midler has made a showing, sufficient to defeat summary judgment,
that the defendants here for their own profit in selling their product did appropriate part of her identity.
I. Understand the Roles of Offer and Acceptance in the Formation of a Contract*
I.
Basic Contract Concepts and Types
Contracts have traditionally been classified as bilateral or unilateral, depending on
whether on or both of the parties have made a promise. In unilateral contract, only one
party makes a promise. For example, Perks Café issues “frequent buyer” cards to its
customers, and stamps the cards each time a customer buys a cup of coffee. Perks
promises to give any customer a free cup of coffee if the customer buys 10 cups of coffee
and has his “frequent buyer” card stamped 10 times. In this case, Perks has made an offer
for a unilateral contract, a contract that will be created with a customer only if and when
the customer buys 10 cups of coffee and has his card stamped ten times. In a bilateral
contract, by contrast, both parties exchange promises and the contract is formed as soon
as the promises are exchanged. For example, if Perks Café promises to pay Willowtown
Mall $1,000 a month if Willowtown Mall will promise to lease a kiosk to Perks for the
holiday season, Perks has made an offer for a bilateral contract because it is offering a
promise in exchange for a promise. If Willowtown Mall makes the requested promise, a
bilateral contract is formed at that point- even before the parties begin performing any of
the acts that they have promised to do.
A valid contract is one that meets all of the legal requirements for a binding
contract. An unenforceable contract is one that meets the basic legal requirements for a
contract but may not be enforceable because of some other legal rule. If a contract is one
of those for which the statute of frauds requires a writing, but no writing is made, the
contract is said to be unenforceable. Another example of an unenforceable contract is an
otherwise valid contract whose enforcement is barred by the applicable contract statute of
limitation.
Voidable contracts are those in which one or more of the parties have the legal
right to cancel their obligations under the contract. For example, a contract that is induced
by fraud or duress is voidable (cancelable) at the election of the injured party. The
important feature of a voidable contract is that the injured party has the right to cancel the
contract if he chooses. That right belongs only to the injured party, and if he does not
cancel the contract, it can be enforced by either party.
Void contracts are agreements that create no legal obligations and for which no
remedy will be given. Contracts to commit crimes, such as “hit” contracts, are classic
examples of void contracts.
In an express contract, the parties have directly stated the terms of their contract
orally or in writing at the time the contract was formed. However, the mutual agreement
necessary to create a contract may also be demonstrated by the conduct of the parties.
When the surrounding facts and circumstances indicate that an agreement has in fact been
reached, an implied contract (also called a contract implied in fact) has been created.
When you go to the doctor for treatment, for example, you do not ordinarily state the
terms of your agreement in advance, although it is clear that you do, in fact, have an
agreement. A court would infer a promise by your doctor to use reasonable care and skill
in treating you and return promise on your part to pay a reasonable fee for her services.
*
Reprinted from Jane Mallor, Business Law in the Regulatory Environment (11th. ed. 2001).
II.
Sources of Law Governing Contracts
Two bodies of law- Article 2 of the Uniform Commercial Code and the common
law of contracts- govern contracts today. The Uniform Commercial Code, or UCC, is
statutory law in every state. The common law of contracts is court-made law that, like all
court made law, is in a constant state of evolution. Determining what body of law applies
to a contract problem is a very important first step in analyzing that problem.
Article 2 of the UCC expressly applies only to contracts for the sale of goods. The
essence of the definition of goods in the UCC is that goods are tangible, movable,
personal property. So, contracts for the sale of such items as motor vehicles, books,
appliances, and clothing are covered by Article 2.
Article 2 of the UCC applies to contracts for the sale of goods, but it does not
apply to contracts for the sale of real estate or intangibles such as stocks and bonds,
because those kinds of property do not constitute goods. Article 2 of the UCC also does
not apply to service contracts. Contracts for the sale of real estate, services, and
intangibles are governed by the common law of contracts.
Many contracts involve a hybrid of both goods and services. The test that the
courts most frequently use to determine whether Article 2 applies to such a contract is to
ask which element, goods or services, predominates in the contract. Is the major purpose
or thrust of the agreement the rendering of a service, or is it the sale of goods, with any
services involved being merely incidental to that sale? This means that contracts calling
for services that involve significant elements of personal skill or judgment in addition to
goods probably are not governed by Article 2 of the UCC. Construction contracts,
remodeling contracts, and auto repair contracts are all examples of mixed goods and
services contracts that may be considered outside the scope of the Code.
III.
Requirements for an Offer
An offer is the critically important first step in the contract formation process.
The person who makes an offer (the offeror) gives the person to whom she makes the
offer (the offeree) the power to bind her to a contract simply by accepting the offer.
Not every proposal qualifies as an offer. To distinguish an offer, courts look for three
requirements. First, they look for some objective indication of a present intent to contract
on the part of the offeror. Second, they look for specificity, or definiteness, in the terms
of the alleged offer. Third, they look to see whether the alleged offer has been
communicated to the offeree.
A.
Intent to Contract
B.
For a proposal to be considered an offer, the offeror must indicate present intent
to contract. Present intent means the intent to enter the contract upon acceptance. It
signifies that the offeror is not joking, haggling, or equivocating. It makes sense that
intent on the part of the offeror would be required for an offer-otherwise; an unwilling
person might wrongly be bound to a contract. The desire to meet the needs of the
marketplace by affording predictable and consistent results in contracts cases dictated a
shift toward an objective theory of contracts. Following the objective theory of contracts,
an offeror’s intent will be judged by an objective standard- that is, what his words, acts,
and the circumstances signify about his intent. If a reasonable person familiar with all the
circumstances would be justified in believing that the offeror intended to contract, a court
would find that the intent requirement of an offer was satisfied even if the offeror himself
says that he did not intend to contract.
B.
Definiteness of Terms:
A proposal that fails to state specifically what the offeror is willing to do and what
he asked in return for his performance is unlikely to be considered an offer. One reason
for the requirement of definiteness is that definiteness and specifically in an offer tends to
indicate an intent to contract, whereas indefiniteness and lack of specificity tend to
indicate that the parties are still negotiation and have not yet reached agreement.
1.
Definiteness Standard under the Common Law: Classical
contract law took the position that courts are contract enforcers, not
contract makers. Traditionally, contract law required a relatively high
standard of definiteness for offers, requiring that all the essential terms of
a proposed contract be stated in the offer. The definiteness standard, like
much of contract law, is constantly evolving. The trend of modern contract
law is to tolerance a lower degree of specificity in agreements than
classical contract law would have tolerated.
For example, in an offer for the sale of real property, the offer will lack the necessary
definiteness if the offer does not include price.
2.
Definiteness Standard under the UCC: Under Article 2 of the
Uniform Commercial Code a contract can be created “in any manner sufficient to
show agreement, including conduct, which recognizes the existence of a
contract”. So, if the parties are acting as though they have a contract by delivering
or accepting goods or payment, for example, this may be enough to create a
binding contract, even if it is impossible to point to a particular moment in time
when the contract was created. An important difference between the Uniform
Commercial Code (“Code”) and classical common law standard for definiteness is
that under the Code, the fact that the parties left open one or more terms of their
agreement is not too indefinite to enforce. A sale contract is created if the court
finds that the parties intended to make a contract and that their agreement is
complete enough to allow the court to reach a fair settlement of their dispute (“a
reasonably certain basis for giving an appropriate remedy”[2-204(3)]. Intention is
still at the heart of these modern contract rules; the difference is that courts
applying Code principles seek to further the parties’ underlying intent to contract
even though the parties have failed to express their intention about specific
aspects of their agreement.
3.
Communication of an Offer:
When an offeror communicates the terms of an offer to an offeree, he objectively
indicates intent to be bound by those terms. The fact that an offer has not been
communicated, on the other hand, may be evidence that the offeror has not yet decided to
enter into biding agreement. For example, assume that Sevens and Meyer have been
negotiating over the sale of Meyer’s restaurant. Stevens confides in his friend, Reilly, that
he plans to offer Meyer $150,000 for the restaurant. Reilly goes to Meyer and tells Meyer
that Stevens has decided to offer him $150,000 for the restaurant and has drawn up a
written offer to that effect. After learning the details of the offer from Reilly, Meyer
telephones Stevens and says, “I accept your offer.” Is Stevens now contractually
obligated to buy the restaurant? No. Since Stevens did not communicate the proposal to
Meyer, there was no offer for Meyer to accept.
II.
Special Offer Problem Areas
A.
Advertisement:
Generally speaking, advertisements for the sale of goods at specified prices are
not considered to be offers. Rather, they are treated as being invitations to offer or
negotiate. The same rule is generally applied to signs, handbills, catalogs, price lists, and
price quotations. This rule is based on the presumed intent of the sellers involved. It is not
reasonable to conclude that a seller who has a limited number of items to sell intends to
give every person who sees her ad, sign, or catalog the power to bind her to contract.
Thus, if Customer sees Retailer’s advertisement of Wizbang XL laptop computers for
$2,000 and goes to Retailer’s store indicating his intent to buy the computer, Customer is
making an offer, which Retailer is free to accept or reject. This is so because Customer is
manifesting a present intent to contract on the definite terms of the ad.
In some cases, however, particular ads have been held to amount to offers. Such ads are
usually highly specific about the nature and number of items offered for sale and what is
requested in return. This specificity precludes the possibility that the offeror could
become contractually bound to an infinite number of offerees.
B.
Rewards
Advertisements offering rewards for lost property, for information, or for the
capture of criminals are generally treated as offers for unilateral contracts. To accept the
offer and be entitled to the stated reward, offerees must perform the requested act- return
the lost property, supply the requested information, or capture the wanted criminal.
III.
Termination of Offers
A.
Lapse of Time
Offers that fail to provide a specific time for acceptance are valid for a reasonable
time. What constitutes a reasonable time depends on the circumstances surrounding the
offer. Offers involving things subject to rapid fluctuation in value, such as stocks, bonds,
or commodity futures, have a very brief duration. The same is true for offers involving
goods that may spoil, such as produce. The context of the parties’ negotiations is another
factor relevant to determine the duration of an offer. For example, most courts hold that
when parties bargain face-to-face or over the telephone, the normal time for acceptance
does not extend past the conclusion of their conversation unless the offeror indicates a
contrary intention. Where negotiations are carried out by mail, the time for acceptance
would ordinarily include at least the normal time for communicating the offer and prompt
response by the offeree. Finally, in cases where the parties have dealt with each other on
a regular basis in the past, the timing of their prior transactions would be highly relevant
in measuring the reasonable time for acceptance.
B.
Revocation:
1.
General Rule: As the master of their offers, offeror can give the
offeree the power to bind them to contracts by making offers. They can
also terminate that power by revoking their offers. The general common
law rule on revocations is that offerors may revoke their offers at any time
prior to acceptance, even if they have promised to hold the offer open for a
stated period of time.
2.
Exceptions to the General Rule: In the following situations,
however, offerors are not free to revoke their offers:
a. Options: An option is a separate contract in which an offeror
agrees not to revoke her offer for a stated time in exchange for some
valuable consideration. You can think of it as a contract in which an
offeror sells her right to revoke her offer.
For example, assume that Ray offers to sell his house to Edna for $200,000 and promises
to hold the offer open for ten days if Edna pays Ray $100 in exchange for that promise.
Ray may not revoke the offer to sell his house for ten days, assuming that Edna has paid
Ray the $100 for the option to accept the contract within ten days.
b. Offers for unilateral contract: Some courts have held that once
the offeree has begun to perform under a unilateral contract, the offeror’s
power’s to revoke is suspended for the amount of time reasonably
necessary for the offeree to complete performance. Another approach to
the unilateral contract dilemma is to hold that a bilateral contract is created
once the offeree begins performance.
c. Promissory estoppel: In some cases in which the offeree relies
on the offer being kept open, the doctrine of promissory estoppel can
operate to prevent offerors from revoking their offers prior to acceptance.
Section 87(2) of the Restatement (second) says: An offer which the offeror
should reasonably expect to induce action or forbearance of a substantial
character on the part of the offeree before acceptance and does induce
such action or forbearance is binding as an option contract to the extent
necessary to avoid injustice.
For example, assume that X offers to pay $250,000 to the first person who flies across the
English Channel in a human-powered aircraft before a December 31, 2002. Several
interested parties, including Y spend substantial time and money on research,
development and training for the attempt. X revokes the offer and thereafter Y performs
the act prior to December 31, 2001. Y probably has no rights under the unilateral
contract exception to the general rule of revocation because Y had not begun to perform
the requested act prior to revocation by X. Hence, Y would have no right to the prize
money. However, Y might prevail under the promissory estoppel exception.
d. Firm offers for the sale of goods: [Note: this applies to offers for
the sale goods by merchants ONLY!]. The Code makes a major change in
the common law rules governing the revocability of offers by recognizing
the concept of a firm offer [2-205]. Like an option, a firm offer is
irrevocable for a period of time. In contrast to an option, however, a firm
offer does not require consideration to keep the offer open. Not all offers
to buy or sell goods qualify as firm offers, however. To be a firm offer, an
offer must:
Be made by an offeror who is merchant
Be contained in a signed writing
Give assurances that the offer will be kept open.
An offer to buy or sell goods that fails to satisfy these three requirements
is governed by the general common law rule and is revocable at any time
prior to acceptance. If an offer does meet the requirements of a firm offer,
however, it will be irrevocable for the time stated in the offer. If no
specific time is stated in the offer, it will be irrevocable for a reasonable
time. Regardless of the terms of the offer, the outer limit on a firm offer’s
irrevocability is three months. For example, if Worldwide Widget makes
an offer in a signed writing in which it proposes to sell a quantity of its XL
Turbo Widget to Howell Hardware and gives assurances that the offer will
be kept open for a year, the offer is a firm offer, but it can be revoked after
three months if Howell Hardware has not yet accepted it.
3.
Time of Effectiveness of Revocations
The question of when a revocation is effective to terminate an offer is
often a critical issue in the contract formation process. For example, Davis
offers to landscape Winter’s property for $1,500. Two days after making
the offer, Davis changes his mind and mails Winter a letter revoking the
offer. The next day, Winter, who has not received Davis’s letter,
telephones Davis and attempts to accept. Contract? Yes. The general rule
on this point is that revocations are effective only when they are actually
received by the offeree.
C.
Rejection:
1.
General rule: An offeree may expressly reject an offer by
indicating that he is unwilling to accept it. He may also impliedly reject it by
making a counteroffer, an offer to contract on terms materially different from the
terms of the offer. As a general rule, either form of rejection by the offeree
terminates his power to accept the offer.
2.
Time of Effectiveness of Rejections: As a general rule, rejections,
like revocations, are effective only when actually received by the offeror.
Therefore, an offeree who has mailed a rejection could still change her mind and
accept if she communicates the acceptance before the offeror receives the
rejection.
D.
Death or Insanity of Either Party
The death or insanity of either party to an offer automatically terminates the offer
without notice.
For example, Arnie offer you a job as an assistant in his hot-air balloon business. Before
you can even accept, Arnie falls out of a balloon at 3,000 feet. The offer terminates along
with Arnie.
E.
Destruction of Subject Matter
If, prior to an acceptance of an offer, the subject matter of a proposed contract is
destroyed without the knowledge or fault of either party, the offer is terminated. So, if
Marks offers to sell Wiggins his lakeside cottage and the cottage is destroyed by fire
before Wiggins accepts, the offer was terminated on the destruction of the collage.
Subsequent acceptance by Wiggins would not create a contract.
F.
Intervening Illegality
An offer is terminated if the performance of the contract it proposes becomes illegal
before the offer is accepted. So, if a computer manufacturer offered to sell sophisticated
computer equipment to another country, but two days later, before the offer was accepted,
Congress places an embargo on all sales to this country, the offer was terminated by the
embargo.
Key Concept 2: Understanding the Differences Between 1) Intentional Tort Liability
(2) Negligence Liability, and 3) Strict Liability. 1
I.
Torts in General:
A.
Definition: A tort is a civil wrong that is not a breach (breaking) of a
contract. Tort cases and books on tort law identify different kinds of wrongfulness,
culpability, or fault and define them differently. We use the following four kinds of
wrongfulness.
B.
Intent. We define intent as the desire to cause certain consequences or
substantial certainty that those consequences will result from one’s behavior.
A.
Recklessness. Recklessness arises when one’s behavior demonstrates
conscious indifference to a known high risk of harm created by one’s
behavior.
B.
Negligence. We define negligence as conduct that falls below the level
necessary to protect others against unreasonable risks of harm.
C.
Strict liability. Strict liability is liability without fault, or liability
irrespective of fault. In a strict liability case, the plaintiff need not prove
intent, recklessness, negligence, or any other kind of wrongfulness on the
defendant’s part. However, strict liability is not automatic liability. A
plaintiff must prove certain things in any strict liability case, but fault is
not one of them.
II.
Battery:
Battery is the intentional, harmful or offensive, touching of another without his
consent. A contact is harmful if it produces bodily injury. However, battery also includes
non-harmful contacts that are offensive-calculated to offend a reasonable sense of
personal dignity. The intent required for battery is either: (1) the intent to cause a harmful
or offensive contact, or (2) the intent to cause apprehension that such a contact is
imminent. If, in order to scare Pine, Delano threatens to shoot Pine with a gun he
mistakenly believes is unloaded, and ends up shooting Pine, Delano would be liable for
battery.
For battery to occur, moreover, the person who suffers the harmful or offensive
contact does not have to be the person whom the wrongdoer intended to injure. Under a
general intentional tort concept called transferred intent, a defendant who intends to
injure one person but actually injures another is liable to the person injured, despite the
absence of any specific desire to injure him. So, if Delano throws a rock at Thomas and
hits Pike instead, Delano would be liable to Pike for battery.
As the previous examples suggest, the touching necessary for the battery does not
require direct contract between the defendant’s body and the plaintiff’s body. Thus,
Delano would also be liable if he successfully laid a trap for Pike or poisoned him.
Furthermore, there is a touching if the defendant causes contact with anything that is
attached to the plaintiff’s body. Finally, the plaintiff need not be conscious of the battery
at the time it occurs. However, there is no liability for battery if the plaintiff consented to
the touching. As a general rule, consent must be freely and intelligently given to be a
defense to battery. Consent also may be inferred from a person’s voluntary participation
1 Excerpts taken from Jane Mallor, Business Law and the Regulatory Environment (11th ed. 2001).
Page 1
in an activity, but it is ordinarily limited to contacts that are a normal consequence of the
activity, but it is ordinarily limited to contacts that are a normal consequence of the
activity. Thus, Joe Frazier would not win a battery suit against Muhammad Ali for
injuries he suffered during one of their title fights, but a quarter back who is knifed by a
blitzing linebacker has a valid battery claim. Finally, the law infers consent to many
touching that are customary in normal social life or are reasonably necessary to it.
III.
Assault
Assault [is] defined as an intentional attempt or offer to cause a harmful or
offensive contact with another, where the attempt or offer causes a reasonable
apprehension of imminent battery in the other person’s mind. The necessary intent is the
same as the intent required for battery. In an assault case, however, it is irrelevant
whether the threatened contact, actually occurs. Instead, the key thing is the plaintiff’s
apprehension of a harmful or offensive contact. Apprehension is not the same thing as
fear; it might be described as a mental state like: “Uh, oh, here comes a battery!”
Thus, even the bravest people can be apprehensive and can recover for assault.
This apprehension must concern an imminent or immediate battery. Thus, threats of a
future battery do not create liability for assault. In addition, the plaintiff must experience
apprehension at the time the threatened battery occurs.
Finally, the plaintiff’s apprehension must be reasonable. As a result, threatening
words normally are not an assault unless they are accompanied by acts or circumstances
indicating the defendant’s intent to carry out the threat.
IV.
False Imprisonment
False imprisonment is the intentional confinement of another person for an
appreciable time (a few minutes is enough) without his consent. The confinement
element essentially involves the defendant’s keeping the plaintiff within a circle that the
defendant has created.
It may result from physical barriers to the plaintiff’s freedom of movement, such
as locking a person in a room with no other doors or windows, or from physical force or
the threat of physical force against the plaintiff. Confinement also may result from the
assertion of legal authority to detain the plaintiff, or from the detention of the plaintiff’s
property. Likewise, a threat to harm another, such as the plaintiff’s spouse or child, can
also be confinement if it prevents the plaintiff from moving.
The confinement must be complete. Partial confinement of another by blocking
her path or by depriving her of one means of escape where several exist, such as locking
one door of a building having several unlocked doors, is not false imprisonment. The fact
that a means of escape exists, however, does not relieve the defendant of liability where
the plaintiff cannot reasonably be expected to know of its existence. The same is true if
the escape route involves some unreasonable risk of harm to the plaintiff, such as walking
a tightrope or climbing out of a second story window. The confinement also may be
complete where using the escape route would involve some affront to the plaintiff’s sense
of personal dignity; for example, imagine that D steals P’s cloths while P is swimming in
the nude.
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Although there is some disagreement on the subject, courts usually hold that the
plaintiff must have knowledge of his confinement before liability for false imprisonment
arises. In addition, there is no liability where the plaintiff has consented to his
confinement. Such consent, however, must be freely given; consent in the face of an
implied or actual threat of force or an assertion of legal authority by the confiner is not
freely given.
Today, many false imprisonment cases involve a store’s detention of people
suspected of shoplifting. In an attempt to accommodate the legitimate interests of
storeowners, most states have passed statutes giving them a conditional privilege to stop
suspected shoplifters. To obtain this defense, the owner usually must act with reasonable
cause, act in a reasonable manner, and detain the suspect for only a reasonable length of
time.
For example, suppose K-Mart’s Loss Prevention Manager personally observes a
customer places an item in his pocket and then hastily heads to the door. The Loss
Prevention Manager then stops the customer, asks him to empty his pockets at the Loss
Prevention Room, and after discovering that no items have been stolen let him go. The
entire incident lasted for five minutes. K-Mart would not be held liable for false
imprisonment under the conditional privilege of a merchant’s defense because it had
reasonably cause to believe that a theft had taken place, it conducted the investigation in
a reasonable manner and for a reasonable length of time.
V.
Negligence;
A.
In general:
The elements of a negligence case- the things the plaintiff must prove to recoverare: (1) a breach of duty by the defendant, (2) actual injury suffered by the plaintiff, and
(3) actual and proximate causation between the breach and the injury. To win, a plaintiff
must also overcome any defenses to negligence liability raised by the defendant. The two
traditional negligence defenses are contributory negligence and assumption of risk.
B.
Breach of Duty:
1.
The Reasonable Person Standard: The basic idea behind
negligence law is that each member of society has a duty to behave so as to avoid
unreasonable risks of harm to others. This means that each of us must act like a
reasonable person of ordinary prudence in similar circumstances. If a person’s conduct
falls below this standard, he has breached a duty. This “reasonable person ” standard is
objective in two senses of the term. First, the reasonable person is a hypothetical person
with some ideal attributes- not a real human being. Second, the reasonable person
standard focuses on behavior rather than on the defendant’s subjective mental state.
Finally, the standard is flexible because it lets courts tailor their decisions to the facts of
the case.
The most important such factor is the reasonable foreseeability of harm. The idea
is that the reasonable person acts so as to avoid reasonably foreseeable risks of harm to
others. Suppose that Donald gets into an automobile accident with Peter after Donald
falls asleep at the wheel. Because falling asleep at the wheel involves a foreseeable risk
Key Concept #2
Page 3
of harm to others, a reasonable person would not behave that way. And because Donald’s
conduct fell short of this behavioral standard, he has breached a duty to Peter. However,
this probably would not be true if Donald’s falling asleep at the wheel was due to a
sudden, severe, and unforeseeable blackout. On the other hand, there probably would be a
breach of duty if Donald drove the car after being warned by a doctor that he was subject
to sudden blackouts.
To a limited extent, negligence law also considers the personal characteristics of
the defendant. For example, children are generally required to act, as would a reasonable
person of similar age, intelligence, and experience under similar circumstances. People
with physical disabilities must act, as would a reasonable person with the same disability.
Mental deficiencies, however, ordinarily do not relieve a person from the duty to conform
to the normal reasonable person standard. The same is true of voluntary and negligent
intoxication.
Finally, negligence law is sensitive to the context in which the defendant acted.
For example, someone confronted with an emergency requiring rapid decisions and
action need not employ the same level of caution and deliberation as someone in
circumstances allowing for calm reflection and deliberate action.
2.
Special Duties:
In some situations, courts have fashioned particular negligence duties rather that
applying the general reasonable person standard. When performing their professional
duties, for example, professionals such as doctors, lawyers, and accountants generally
must exercise the knowledge, skill, and care ordinarily possessed and employees by
members of the profession. Also, common carriers and (sometimes) innkeepers are held
to an extremely high duty of care approaching strict liability when they are sued for
damaging or losing their customer’s property. Many courts say that they also must
exercise great caution to protect their passengers and lodgers against personal injuryespecially against the foreseeable wrongful acts of third person.
C.
Injury:
A plaintiff in a negligence case must prove not only that the defendant breached a
duty owed to the plaintiff, but also that the plaintiff suffered actual injury. Ordinarily,
personal injury to the plaintiff and damage to her property meet this test. Purely monetary
damage such as lost profits may sometimes qualify as well.
D.
Causation
Even if the defendant has breached a duty and the plaintiff has suffered actual
injury, there is no liability for negligence without the required causal relationship
between breach and injury. To determine the existence of actual cause, many courts
employ a “but for” test. Under this test, a defendant’s conduct is the actual cause of a
plaintiff’s injury if that injury would not have occurred except for (or but for) the
defendant’s breach of duty.
For example, during a bad storm a person drowns after falling from a ship that the
owner failed to equip with lifeboats. If the jury concludes that a life boat would not have
saved the victim’s life because of the severity of the storm, the failure to provide a
Key Concept #2
Page 4
lifeboat is not a cause in fact of the victim’s death. But for the negligent failure to provide
a lifeboat on the ship, the person would still have drowned.
VII.
Strict Liability
A.
In general: Strict liability is liability without fault or irrespective of fault.
This means that in strict liability cases, the defendant is liable even though he did not
intend to cause the harm and did not bring it about through his recklessness or
negligence.
B.
Abnormally Dangerous Activities: Abnormally dangerous (or
ultrahazadous) activities are activities that necessarily involve a risk of harm to others
that cannot be eliminated by the exercise of reasonable care. Hence, the actor engaging in
abnormally dangerous activities is held strictly liable for injuries sustained by third
parties as a result of the actor’s activities. Among the activities treated as abnormally
dangerous are blasting, crop dusting, stunt flying, and gasoline by truck.
C.
Statutory Strict Liability: Strict liability principles are also embodies in
modern legislation. The most important examples are the workers’ compensation acts
passed by most states early in this century. Such statutes allow employees to recover
statutorily limited amounts from their employers without any fault on the employer’s
part. Employers participate in a compulsory liability insurance system on to consumers,
who then become the industrial production. Other examples of statutory strict liability
include the dram shop statutes of some states, which impose liability on sellers of
alcoholic beverage without proof of negligence when third parties are harmed due to a
buyer’s intoxication. Also included is the statutory strict liability that some states impose
on the operators of aircraft for ground damage resulting from aviation accidents.
Key Concept #2
Page 5
I.
Understanding the Roles of Offer and Acceptance in the Formation of a
Contract*
What is an Acceptance?
An acceptance is “a manifestation of assent to the terms [of the offer] made by the
offeree in the manner invited or required by the offer.” In determining if an offeree
accepted an offer and created a contract, a court will look for evidence of three factors:
(1) the offeree intended to enter the contract, (2) the offeree accepted on the terms
proposed by the offeror, and (3) the offeree communicated his acceptance to the offeror.
Intention to Accept
In determining whether an offeree accepted an offer, the court is looking for the same
present intent to contract on the part of the offeree that it found on the part of the offeror.
And, as is true to intent to make an offer, intent to accept is judged by an objective
standard. The difference is that the offeree must objectively indicate a present intent to
contract on the terms of the offer for a contract to result. As the master of the offer, the
offeror may specify in detail what behavior is required of the offeree to bind him to a
contract. If the offeror does so, the offeree must ordinarily comply with all the terms of
the offer before a contract results.
Intent and Acceptance on the Offeror’s Terms
Common Law: Traditional “Mirror Image” Rule
The traditional contract law rule is that an acceptance must be the mirror image of the
offer. Attempts by offerees to change the terms of the offer or to add new terms to it are
treated as counteroffers because they impliedly indicated an intent by the offeree to reject
the offer instead of being bound by its terms. However, recent years have witnessed a
judicial tendency to apply the mirror image rule in more liberal fashion by holding that
only material (important) variances between an offer and a purported acceptance result in
an implied rejection of the offer.
Even under the mirror image rule, no rejection is implied if an offereee merely asks about
the terms of the offer without indicating its rejection (an inquiry regarding terms), or
accepts the offer’s terms while complaining about them (a grumbling acceptance).
Distinguishing among a counteroffer, an inquiry regarding terms, and a grumbling
acceptance is often a difficult task. The fundamental issue, however, remains the same:
Did the offeree objectively indicate a resent intent to be bound by the terms of the offer?
UCC Standard for Acceptance on the Offeror’s Terms: The “Battle of the Forms”
Strictly applying the mirror image rule to modern commercial transactions, most of
which are carried out by using preprinted form contracts, would often result in frustrating
the parties’ true intent. Offerors use standard order forms prepared by their lawyers, and
offerees use standard acceptance or acknowledgement forms drafted by their counsel.
The odds that these forms will agree in every detail are slight, as are the odds that the
*
Excerpts from Jane Mallor, Business Law and the Regulatory Environment (11th Ed. 2001).
parties will read each other’s forms in their entirety. Instead, the parties to such
transactions are likely to read only crucial provisions concerning the goods ordered, the
price, and the delivery date called for, and if these terms are agreeable, believe that they
have a contract.
If a dispute arose before the parties started to perform, a court strictly applying the mirror
image rule would hold that no contract resulted because the offer and acceptance forms
did not match exactly. If a dispute arose after performance had commenced, the court
would probably hold that the offeror had impliedly accepted the offeree’s counteroffer
and was bound by its terms.
Because neither of these results is very satisfactory, the Code, in a very controversial
provision often called the “Battle of the Forms” section [2-207] has changed the mirror
image rule for contracts involving the sale of goods. UCC section 2-207 allows the
formation of a contract even when there is some variance between the terms of the offer
and the terms of the acceptance. It also makes it possible, under some circumstances, for
a term contained in the acceptance form to become part of the contract. The Code
provides that a definite and timely expression of acceptance creates a contract, even if it
includes terms that are different from those stated in the offer or even if it states
additional terms that the offer did not address [2-207(1)]. An attempted acceptance that
was expressly conditioned on the offeror’s agreement to the offeree’s terms would not be
a valid acceptance, however [2-201(1)].
What are the terms of a contract created by the exchange of standardized forms? The
additional terms contained in the offeree’s form are treated as “proposals for addition to
the contract.” If the parties are both merchants, the additional terms become part of the
contract unless:
1. The offer expressly limited acceptance to its own terms.
2. The new terms would materially alter the offer, or
3. The offeror gives notice of objection to the new terms within a reasonable
time after receiving the acceptance [2-207(2)].
When the offeree has made his acceptance expressly conditional on the offeror’s
agreement to the new terms or when the offeree’s response to the offer is clearly not “an
expression of acceptance” (e.g., an express rejection), no contract is created under section
2-207(1). A contract will only result in such cases if the parties engage in conduct the
“recognizes the existence of a contract,” such as an exchange of performance. Unlike her
counterpart under traditional contract principles, however, the offeror who accepts
performance in the face of an express rejection or expressly conditional acceptance is not
thereby bound to all of the terms contained in the offeree’s response. Instead, the Code
provides that the terms of a contract created by such performance are those on which
parties’ writings agree, supplemented by appropriate gap-filling provisions from the
Code [2-207(3)].
Communication of Acceptance
To accept an offer for a bilateral contract, the offeree must make the promise requested
by the offer. An offeror must communicate the terms of his proposal to the offeree before
an offer results. This is so because communication is a necessary component of the
present intent to contract required for the creation of an offer. For similar reasons, it is
generally held that an offeree must communicate his intent to be bound by the offer
before a contract can be created. To accept an offer for a unilateral contract, however, the
offeree must perform the requested act. The traditional contract law rule on this point
assumes that the offeror will learn of the offeree’s performance and holds that no further
notice from the offeree is necessary to create a contact unless the offeror specifically
requests notice.
Manner of Communication
The offeror, as the master of the offer, has the power to specify the precise time, place,
and manner in which acceptance must be communicated. This is called stipulation. If the
offeror stipulates a particular manner of acceptance, the offeree must respond in this way
to form a valid acceptance. Suppose Prompt Printing makes an offer to Jackson and the
offer states that Jackson must respond by certified mail. If Jackson deviates from the
offer’s instructions in any significant way, no contract results unless Prompt Printing
indicates a willingness to be bound by the deviating acceptance. If, however, the offer
merely suggests a method or place of communication or is silent on so such matters, the
offeree may accept within a reasonable time by any reasonable means of communication.
So, if Prompt Printing’s offer did not require any particular manner of accepting the offer,
Jackson could accept the offer by any reasonable manner of communication within a
reasonable time.
When Is Acceptance Communicated?
Acceptances by Instantaneous Forms of Communication
When the parties are dealing face-to-face, by telephone, or by other means of
communication that are virtually instantaneous, there are few problems determining when
the acceptance was communicated. As soon as the offeree says, “I accept,” or words to
that effect, a contract is created, assuming that the offer is still in existence.
Acceptances by Noninstantaneous Forms of Communication
Suppose the circumstances under which the offer was made reasonably led the offeree to
believe that acceptance by some noninstantaneous form of communication is acceptable,
and the offeree responds by using mail, telegraph, or some other means of
communication that creates a time lag between the dispatching of the acceptance and its
actual receipt by the offeror. The practical problems involving the timing of acceptance
multiply in such transactions. The offeror may be attempting to accept it. An acceptance
may get lost and never be received by the offeror. The time limit for accepting the offer
may be rapidly approaching. Was the offer accepted before a revocation was received or
before the offer expired? Does a lost acceptance create a contract when it is dispatched,
or is it totally ineffective?
Under the so-called “mailbox rule,” properly addressed and dispatched acceptances can
become effective when they are dispatched, even if they are lost and never received by
the offeror. The mailbox rule protects the offeree’s reasonable belief that a binding
contract was created when the acceptance was dispatched. By the same token, it exposes
the offeror to the risk of being bound by an acceptance that she has never received. The
offeror, however, has the ability to minimize this risk by stipulating in her offer that she
must actually receive the acceptance for it to be effective. Offerors who do this
maximize the time they have to revoke their offers and ensure that they will never be
bound by an acceptance that they have not received.
Operation of the Mailbox Rule: Common Law of Contracts
As traditionally applied by the common law of contracts, the mailbox rule would make
acceptances effective upon dispatch when the offeree used a manner of communication
that was expressly or impliedly authorized (invite) by the offeror. Any manner of
communication suggested by the offeror (e.g., “You may respond by mail”) would be
expressly authorized, resulting in an acceptance sent by the suggested means being
effective on dispatch. Unless circumstances indicated to the contrary, a manner of
communication used by the offeror in making the offer would be impliedly authorize
(e.g., an offer sent by mail would impliedly authorize an acceptance by), as would a
manner of communication common in parties’ trade or business (e.g., a trade usage in the
parties’ business that offers are made by mail and accepted by telegram would authorize
an acceptance by telegraph). Conversely, an improper dispatched acceptance or one that
was nonauthorized would be effective when received, assuming that the offer was still
open at that time. This placed on the offeree the risk of the offer being revoked or the
acceptance being lost.
The mailbox rule is often applied more liberally by courts today. A modern version
applied of the mailbox rule that is sanctioned by the Restatement (Second) holds that an
offer that does not indicate otherwise is considered to invite acceptance by any
reasonable means of communication, and a properly dispatched acceptance sent by a
reasonable means of communication within a reasonable time is effective on dispatch.
The Cantu case illustrates the more liberal version of the mailbox rule.
Operation of the Mailbox Rule: UCC
The UCC, like the Restatement (Second), provides that an offer that does not specify a
particular means of acceptance is considered to invite acceptance by any reasonable
means of communication. It also provides that a properly dispatched acceptance sent by
a reasonable means of communication within a reasonable time is effective on dispatch.
What is reasonable depends on the circumstances in which the offer was made. These
include the speed and reliability of the means used by the offeree, the nature of the
transaction (e.g., does the agreement involve goods subject to rapid price fluctuations?),
the existence of any trade usage governing the transaction, and the existence of prior
dealings between the parties (e.g., has the offeree previously used the mail to accept
telegraphed offers from the offeror?). So, under proper circumstances, a mailed response
to a telegraphed offer or telegraphed response to a mailed offer might be considered
reasonable and therefore effective on dispatch.
What if an offeree attempts to accept the offer by some means that is unreasonable under
the circumstances or if the acceptance is not properly addressed or dispatched (e.g.,
misaddressed or accompanied by insufficient postage?) The UCC rejects the traditional
rule that such acceptances cannot be effective until received, It provides that an
acceptance sent by an unreasonable means would be effective on dispatch if it is received
within the time than an acceptance by a reasonable means would normally have arrived.
Stipulated Means of Communication
As we discussed earlier, an offer may stipulate the means of communication that the
offeree must use to accept by saying, in effect: “You must accept by mail.” An
acceptance by the stipulated means of communication is effective on dispatch, just like an
acceptance by any other reasonable or authorized means of communication. The
difference is that an acceptance buy other than the stipulated means does not create a
contract because it is an acceptance at variance with the terms of the offer.
Special Acceptance Problem Areas
Acceptance in Unilateral Contracts
A unilateral contract involves the exchange of a promise for an act. To accept an offer to
enter such a contract, the offeree must perform the requested act. As you learned in the
last chapter, however, courts applying modern contract rules may prevent an offeror from
revoking such an offer once the offeree has begun performance. This is achieved by
holding either that a bilateral contract is created by the beginning of performance or that
the offeror’s power to revoke is suspended for the period of time reasonably necessary for
the offeree to complete performance.
Acceptance in Bilateral Contracts
A bilateral contract involves the exchange of a promise for a promise. As a general rule,
to accept an offer to enter such a contract, an offeree must make the promise requested by
the offer. This may be done in a variety of ways. For example, Wallace sends Stevens a
detailed offer for the purchase of Steven’s business. Within the time period prescribed by
the offer, Steven sends Wallace a letter that says, “I accept your offer.” Stevens has
expressly accepted Wallace’s offer, creating a contract on the terms of the offer.
Acceptance, however, can be implied as well as expressed. Offerees who take action that
objectively indicates agreement risk the formation of a contract. For example, offerees
who act in a manner that is inconsistent with an offeror’s ownership of offered property
are commonly held to have accepted the offeror’s terms. So, if Arnold, a farmer, leaves
10 bushels of corn with Porter, the owner of a grocery store, saying, “Look this corn over.
If you want it, it’s $5 a bushel,” and Porter sells the corn, he has impliedly accepted
Arnold’s offer. But what if Porter just let the corn sit and, when Arnold returned a week
later, Porter told Arnold that he did not want it? Could Porter’s failure to act ever amount
to an acceptance?
Silence as Acceptance
Since contract law generally requires some objective indication that an offeree intends to
contract, the general rule is that an offeree’s silence, without more, is not an acceptance.
In addition, it is generally held that an offeror cannot impose on the offeree a duty to
respond to the offer. So, even if Arnold made an offer to sell corn to Porter and said, “If I
don’t hear from you in three days, I’ll assume you’re buying the corn,” Porter’s silence
would still not amount to acceptance.
On the other hand, the circumstance of a case sometimes impose a duty on the offeree to
reject the offer affirmatively or be bound by its items. These are cases in which the
offeree’s silence objectively indicates an intent to accept. Customary trade practice or
prior dealings between the parties may indicate that silence signals acceptance. So, if
Arnold and Porter had dealt with each other on numerous occasion and Porter has always
promptly returned items that her did not want, Porter’s silent retention of the goods for a
week would probably constitute an acceptance. Likewise, an offeree’s silence can also
operate as an acceptance if the offeree has indicated that it will. For example, Porter (the
offeree) tells Arnold, “If you don’t hear from me in three days, I accept.”
Finally, it is generally held that offerees who accept an offeror’s performance knowing
what the offeror expects in return for his performance have impliedly accepted the
offeror’s terms. So, if Apex Paving Corporation offers to do the paving work on new
subdivision being developed by Majestic Homes Corporation, and Majestic fails to
respond to Apex’s offer but allows Apex to do the work, most courts would hold that
Majestic is bound by the terms of Apex’s offer.
Acceptance When a Writing Is Anticipated
Frequently, the parties to a contract intend to prepare a written draft of their agreement
for both parties to sign. This is a good idea not only because the law requires written
evidence of some contracts, but also because it provides written evidence of the terms of
the agreement if a dispute arises at a later date. If a dispute arises before such a writing
has been prepared or signed, however, a question may arise concerning whether the
signing of the agreement was a necessary condition to the creation of a contract. A party
to the agreement who now wants out of the deal may argue that the parties did not intend
to be bound until both parties signed in writing. A clear expression of such intent by the
parties during the negotiation process prevents the formation of a contract until both
parties have signed. However, in the absence of such a clear expression of intent, the
courts ask whether a reasonable person familiar with all the circumstances of the parties’
negotiations would conclude that the parties intended to be bound only when a formal
agreement was signed. If it appears that the parties had concluded their negotiations and
reached agreement on all the essential aspects of the transaction, most courts would
probably find a contract at the time agreement was reached, even though no formal
agreement had been signed.
Acceptance of Ambiguous Offers
Although offerors have the power to specify the manner in which their offers can be
accepted by requiring that the offeree make a return promise (a bilateral contract) or
perform a specific act (a unilateral contract), often an offer is unclear about which form
of acceptance is necessary to create a contract. In such a case, the offer may be accepted
in any manner that is reasonable in light of the circumstances surrounding the offer.
Thus, either a promise to perform or performance, if reasonable , creates a contract.
Acceptance by Shipment
The Code specifically elaborates on the rule stated in the preceding section by stating that
an order requesting prompt or current shipment of goods may be accepted either by a
prompt promise to ship or by a prompt or current shipment of the goods [2-206(1)(b)].
So, if Apex Corporation orders 500 IBM personal computers from Marks Office Supply,
to be shipped immediately, Marks could accept either promptly promising to ship the
goods or by promptly shipping them. If Marks accepts by shipping, any subsequent
attempt by Ampex to revoke the order will be ineffective.
What if Marks did not have 500 IBMs in stock and Marks knew that Ampex desperately
needed the goods? Marks might be tempted to ship another brand of computers (that is,
nonconforming goods – goods different from what the buyer ordered), hoping that
Ampex would be forced by its circumstances to accept them because by the time they
arrived it would be too late to get the correct goods elsewhere. Marks would argue that
by shipping the wrong goods it had made a counteroffer because it had not performed the
act requested by Ampex’s order. If Ampex accepts the goods, Marks could argue that
Ampex has impliedly accepted the counteroffer. If Ampex rejects the goods, Marks
would arguably have no liability since it did not accept the order.
The Code prevents such a result by providing that prompt shipment of either conforming
goods (what the order asked for) or nonconforming goods (something else) operates as an
acceptance of the order [2-206(1)(b)]. This protects buyers such as Ampex because,
sellers who ship the wrong goods have simultaneously accepted their offers and breached
the contract by sending the wrong merchandise.
But what if Marks is an honest seller merely trying to help out a customer that has placed
a rush order? Must Marks expose itself to liability for breach of contract in the process?
The Code prevents such a result by providing that no contract is created if the seller
notifies the buyer within a reasonable time that the shipment of nonconforming goods is
intended as an accommodation (an attempt to help the buyer) [2-206(1)(b)]. In this case,
the shipment is merely a counteroffer that the buyer is free to accept or reject and the
seller’s notification gives the buyer the opportunity t seek the goods he needs elsewhere.
Who Can Accept an Offer?
As the masters of their offers, offerees have the right to determine who can bind them in a
contract. So, the only person with the legal power to accept an offer and create a contract
is the original offeree. An attempt to accept by anyone other than the offeree is treated as
an offer, because the party attempting to accept is indicating a present intent to contract
on the original offer’s terms. For example, Price offers to sell his car to Waterhouse for
$5,000. Anderson learns of the offer, calls Price, and attempts to accept. Anderson has
made an offer that Price is free to accept or reject.