SAMPLE ANSWER
SPRING 1999 CONTRACTS MIDTERM II
The transaction between ALCO and B-PRINT, for the sale of a printing press by ALCO to B-PRINT is a transaction for the sale of a tangible thing, moveable at the time the item could be identified to the contract, and was thus governed by Article 2 of the UCC, regarding goods. The fact that the goods are to be specially manufactured does not make this a hybrid transactions, involving goods and services, because Article 2 expressly includes transactions for the sale of goods to be specially manufactured within its scope.
The meeting between Al and Betty, at Al's office did not result in the formation of a contract, because neither party manifested a willingness to enter into an agreement that could have been reasonably understood by the other as a commitment. Although Betty said that she'd "like to purchase" the press from ALCO, she unequivocally made this subject to an agreement about price indicating that her desire to purchase from Al dependend on their "agree[ing] about a suitable price.". Likewise, although Al expressed confidence that they could come to terms, he also stopped short of making a commitment, indicating that any deal would have to wait until they "settle[d] on a price.". Although a contract can be formed without agreement as to price, if the parties so intend, the parties statements at this face-to-face meeting unequivocally indicate their intent not to be bound, until a price is agreed upon.
During The first phone conversation between the parties, Al made a definite commitment to supply the press "delivered by March 1, for a price of $500,000" indicating both a definite time for delivery and a definite price. It is a manifestation of assent to definite terms that Betty could reasonably interpret as a willingness to enter into a bargain on the terms stated, and is therefore an offer.
Betty's direction to Al to "go ahead and get started" is similarly definite and unequivocal and could only be reasonably understood by Al as an acceptance of the terms proposed in Al's offer.
Despite this, there remains some question, over whether the parties would have reasonably understood that the conclusion of a deal was dependent on the exchange of documentation about the transaction. Betty's statement directing Al to get started right away and that the paperwork could be completed later, indicates that as far as Betty was concerned, the absence of documentation would not impose an impediment to the formation of an agreement. Al's statement, on the other hand, on receiving a purchase order from Betty, does indicate that completion of at least this much documentation is necessary before ALCO would consider itself bound. Thus, at this stage of the transaction, Betty could not reasonably believe that they had a deal -- Al's expression of his insistence on receipt of a purchase order, before a deal was concluded, would prevent formation of a contract.
Despite this, ALCO's beginning of performance belies any claim it might make that it was not bound until it received a purchase order was received from B-PRINT. Under Article 2 of the UCC a contract can be formed in any manner reasonable under the circumstances, including the beginning of performance. Al’s conduct indicates that Al's expression of the need for a purchase order was nothing more than a suggestion and not a condition to formation of a binding agreement. Thus, Al & Betty's conversation, combined with ALCO's commencement of performance indicates that both parties believed that an agreement had been reached for a price of $500,000, with delivery to be completed by March 1. This conclusion is buttressed by the subsequent conversation between Al & Betty, regarding a reduction in price and delayed delivery date, was appeared to be based on the parties mutual assumption that a contract for the higher price and earlier delivery date already exists.
Al's subsequent phone call to Betty, expressing his willingness to reduce the price, in exchange for a delayed delivery date, was an offer to modify the agreement. It was unequivocal and proposed definite terms (new price of $475,000 and a new delivery date, Mar. 7).
Under Article 2 of the UCC modifications need no consideration to be binding. However, the modification proposed by Al, if accepted by Betty, would provide consideration because he proposed an exchange: a lower price in exchange for delayed delivery. Modifications not made in good faith, however, are not binding. Al's threat to breach, if Betty did not agree to his proposal might be viewed as bad faith, perhaps even economic duresss, if no substitute were available on a timely basis and Al had reason to know of this. However, ALCO will likely be estopped from asserting its own economic duress as grounds for avoiding any liability it has for breach of the modification. Betty might assert that her agreement to the modification was in settlement of the assertion that Al appeared to be making that he was relieved of his obligation to deliver on time due to either a unilateral mistake on his part in agreeing to delivery by Mar. 1, or due to commercial impracticability. While it seems unlikely that unforeseen difficulties causing a 1 week delay would rise to the level of "extreme and unreasonable" that would justify excuse under the commercial impracticability doctrine, if Al had a good faith belief in this potential ground for being excused from the terms of the original agreement, then the modification would be an enforceable settlement agreement.
When Betty called back the next day, apparently to accept his proposal to modify, Al's interupted and attempted to revoke. Normally, an offer can be revoked any time prior to acceptance. Because Betty had not yet accepted, the offer would normally be revocable by Al.
The issue here is whether Al's offer to modify has become irrevocable. An offer is irrevocable if there is a promise to keep the offer open if that promise itself is supported by consideration. Here, Al did not explicitly promise to keep the offer open for a day -- he merely indicated that he needed to know by the end of the next day. Because it was presented by Al as a demand, Betty's interpretation of Al's offer as including an implied promise to keep it open, would have been reasonable. If so, however, because Betty did not pay Al to keep the offer open for a day, there is no consideration for any such implied promise.
In the absence of consideration, some courts have ruled that an implied promise to keep an offer open is irrevocable if reasonably and forseeably relied upon. Here, Betty relied by changing her production schedule, at additional cost, based on her assumption that Al's offer to change the price and delivery date, would not be revoked by the deadline imposed by Al. Because of Betty's statement that she would "do what she could", Al can be said to have foreseen that she might make changes in her own operation in order to comply with his demand. Given Al's ultimatum, and that fact that she had little practical choice, it might seem reasonable for Betty to have relied on Al's offer in this manner, although a court might conclude that her actions, prior to communicating her acceptance of Al's proposed modification, were taken at her own risk.
As noted earlier, Al's demand for a modification might easily be construed as an effort to exercise economic duress. Al knew that Betty needed the press by March 1 and threatened not to deliver it at all if Betty did not agree to delivery by March 7. This fact might permit Betty to enforce the terms of the original agreement, but she wants to hold Al to the terms of the modification, not to those of the original agreement. If anything, Al's imposition makes Betty's claim of reliance stronger -- given the alternatives posed by Al, she had no real choice, but to act quickly to change her schedule, arguably making her reliance forseeable by Al
The requirements of Article 2's firm offer rule, making offers irrevocable in the absence of consideration are not met. Although ALCO is in the business of manufacturing printing presses, and thus is a merchant, Al's demand for a change was not in writing and contained no explicit assurances that the offer would be kept open. Unless reliance can be used to supplement the firm offer rule of Article 2, ALCO will not be bound to the terms of its proposed modification.
If ALCO's offer to modify is not revocable, then the question is whether B-PRINT has accepted ALCO's offer to modify. While Betty's preparations for delayed performance should not constitute acceptance, as she did not notify Al that she was taking these actions. Her statement "I still expect to get the price reduction, however, is likely to constitute the type of unequivocal expression of agreement, that would constitute an acceptance. Her dispatch of the purchase order, the next day, while unequivocal, was too late -- the offer to modify was at most, open only for a day after it was made and the purchase order was sent the day after.
ALCO might attempt to avoid liability on the modified contract by asserting the statute of frauds. This is a contract for the sale of goods with a price of $500 or more ($475,000-$500,000). Initially Al signed nothing containing the $500,000 price or the March 1 delivery date. However, the statute of frauds in UCC Article 2 does not require that these essential terms be included in the writing, only that a writing sufficient to show the existence of a contract for the sale of goods -- ALCO's Invoice accomplishes this, even though it has the $500,000 price. Moreover, the printing press may well be specially manufactured goods, not suitable for sale to others. If so, Al's substantial beginning of their manufacture may satisfy the statute. The fact that the press was to be built to Betty's specifications indicates that it may not be suitable for sale to others. However, 2-201(3)(a) requires both elements be satisfied and absent independent facts showing that the press is not suitable for sale to others, this exception’s requirements have not yet been satisfied. The fact that ALCO is apparently willing to back out of the deal, even though it has made a substantial beginning, indicates that the goods may well be suitable for the sale to others. Also, the special manufacture exception seems designed to provide a seller with relief from the statute where the buyer is seeking to avoid the contract, as it is a codification of the common-law part performance exception, and thus not suitable for Betty to use in attempting to enforce the contract against ALCO. The fact that ALCO delivered the goods, however, would satisfy another branch of the statute of frauds provision in article 2.
Finally, the exchange of forms by the parties, in an apparent effort to establish their positions with respect to the modification, should not be viewed as a "battle of the forms" addressed by the UCC. First, there was already an agreement between the parties for March 1 delivery for a price of $500,000. The only real dispute is the enforceability of the modification. Second, 2-207 deals with forms sent back and forth in the contract formation stage; here they were sent after the contract was formed and a dispute over its terms had already arisen. In this context, quite different from the situation they were designed to address, the rules in 2-207 are ineffective.
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