Contracts Class Notes 11/7/03


Kari v. General Motors Corp.


How do you reconcile this case with McDonald?


In Kari, the disclaimer is on the last page of the handbook, italicized, and outlined in red.


What other differences are there?  In both cases, the employers didn’t intend to promise anything; that’s the subjective intent of the employers.  In Kari, the court’s willing to say as a matter of summary judgment that Kari either got that message or should have gotten it.  In McDonald, they’re not willing to give summary judgment.


Kari is an engineer, whereas McDonald is a technician.  Kari has more sophistication and education.  It’s easier to enforce a disclaimer against someone who is particularly literate and educated.


What’s involved in the two cases?  In McDonald, it’s a termination procedure.  McDonald wants a hearing before he’s fired.  In Kari, it’s a separation allowance.  It’s not exactly a gift from the employer, but it’s close to it.  It’s easier to disclaim the latter than the former.  There are a lot of factors at work that the court might consider.


Another thing to think about in these cases is consideration.  What did the employee give for the employer’s promise (assuming we can find a solid promise by the employer in the employment manual)?  One thing the employee usually doesn’t give is the promise to work for a particular period of time.  An employee typically doesn’t commit himself to stay on the job for a certain amount of time.  What’s the consideration?  When you take a job, what do you want from your employer?  You want money!  In particular, what money do you want?  You want what’s promised: the salary, which you take into consideration when you accept the job.  You also want benefits.  You want insurance and stuff!  You want a 401k and all that!


So what’s your consideration for all the employer’s promises?  You work.  Adequacy is immaterial.  If you work one day, you earn the bundle of promises from the employer.


Moulton v. Kershaw


It’s different!  The plaintiff is trying to turn the defendant into a seller.  The defendant doesn’t want to be a seller.  The defendant sends the plaintiff a letter talking about selling salt.  The plaintiff responds, and says that the defendant can ship him 2,000 barrels.  The defendants refused to ship the barrels.  The plaintiff wants $800 in damages.  How would you measure the $800 in damages?  This would be the market price minus the contract price.  The contract price was $1,700 total, so the market price (or in modern terms, the cost of cover) is $2,500.  That would be fine if there had been a contract.


But the court here says that there is no contract.  How come?  The court notes that the word “sell” was not used by the defendants.  But do you need the word “sell” to make a contract?


Clovis seems to doubt this result.


The court says that there is no offer.  The court also says that most advertisements are not offers.  How do you know which ones are?  What’s an offer?  The UCC doesn’t talk about it; rather, it’s filled in by common law.  In fact, the common law definition will apply.  We can find that definition in the Restatement.


§ 24. Offer Defined


An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.


But what the hell does that mean???  We can get more help from Professor Sharp.  It turns out that an offer is a promise.  An offer is a promise or commitment to do something if the other party gives the agreed exchange.  The agreed exchange may be a promise and it may be a performance.  It’s a promise to be bound in exchange for a “yes” answer.  An offer plus a “yes” makes a deal.


Why aren’t most advertisements offers?  It’s not the absence of the word “sell” or any other magic word.  In this particular case, there is no quantity mentioned.  Also, the letter appears to be a form letter; it’s not addressed to any particular person.


If orders will create contracts, the defendant may have a problem because the defendant may have only a limited quantity of salt available.  The defendant could get caught with a whole bunch of acceptances that would make it liable to deliver more salt than they have.  If they breach a lot of contracts to deliver salt, they could be liable for a whole bunch of money.


The court infers that the defendant is not making offers, but rather notifying people that he’s going to accept offers.  The letter in this case is more in the nature of a preliminary negotiation.


§ 26. Preliminary Negotiations


A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.


We want to avoid the problem of the proposer ending up with more acceptances than he can handle.


Whenever quantity is open to the extent it is here, it will be difficult to find that manifestation of willingness to be a commitment to be bound.


There’s no contract when I say, “I offer to sell you my bike” and you say “I agree to buy the bike for 50 cents.”  When important terms are left out of an offer, it tends to show that there is no commitment.  What we probably have instead is a preliminary negotiation.


The reason most ads aren’t treated as offers is related: when you advertise something and treat that as an offer, you might get caught with a lot more acceptances than you can possibly handle.  Some advertisements are plainly not offers.  Most advertisements are just meant to drum up interest in their brand name.  They don’t deal with their potential customers directly anyway.  In no way is anything being offered in, for example, a beer commercial or a car commercial.


In Lefkowitz v. Great Minneapolis Surplus Store, the ads were held to be offers.  How come?  The ads gave times, quantity, and price.  When you put these terms in an ad, it shows your commitment.  It shows that your commitment is reasonably restricted.


What kind of ads today are offers?  Ads that have coupons offering a bargain price for a limited time at certain places show a commitment.  You bring in the required money and the coupon and you’ve got a deal.


What about the “house rule” against men?  Does that prevent Lefkowitz’s claim?  No, because the house rule was not communicated in the ad.  The store’s truthful meaning probably was “women only”, because it doesn’t help business to have big burly guys barge up to the counter and buy the goods.  Lefkowitz doesn’t know this.  On the basis of objective mutual assent, he should get the contract the first week.  It would seem, however, having been told the house rule the first week, he wouldn’t have any excuse for the second week.


However, the actual result of the case was that Lefkowitz recovered for the second week, but not the first week.  How come?  The first ad said that the coats were worth “to” $100.  Therefore, there isn’t necessarily proof of loss.  However, the second ad said that the stole was “worth” a certain amount.  The court awards money even though he knew the offer wasn’t open to him the second week.


What about supermarkets?  When do you make a contract in a typical self-serve supermarket?  The contract is formed at the checkout counter.  When the sale is rung up, you’ve got a contract.


Sometimes courts manipulate the court so that contract formation occurs earlier.  The courts do it when what you take off the rack is soft drinks in glass bottles and one of the bottles explodes and hurts you.  There is a huge advantage to the plaintiff to be able to proceed on the basis of a sale.  If no sale has occurred, then your only basis for liability will be negligence.  If a sale has occurred, you have strict liability in tort and you have breach of warranty, which are both strict liability provisions.  If you want to help the plaintiff out, the court tends to find the contract early on.  They only do this in personal injury cases.


Most advertisements aren’t offers.  You might have false advertising problems, but there are ways to police that through the states’ Attorneys General.  It’s a rare advertisement that will amount to an offer.


Hypotheticals related to UCC § 2-305


Suppose that last spring, Oliver Orchard, the operator of an apple farm agreed to sell his apple crop to a merchant buyer of fruit and agreed to deliver it on November 1st, price “to be agreed upon”.  Oliver doesn’t deliver, and the merchant sues for breach.  Can the merchant recover?


Suppose a buyer and a seller, after a lengthy negotiation, agree to the sale of a famous painting.  They agree to delivery in three months, price “to be agreed upon”.  The seller repudiates.  Can the buyer recover for breach?


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