Question

Nora Hudson, is the owner of a company that manufactures unique toys. She has come up with an idea for a new toy, and had her designer draw out the plans for that toy. Ms. Hudson has contacted Tim Wood, whose business it is to build prototypes/samples. Ms. Wood and Mr. Hudson are meeting, and after some preliminary greeting, she shows him the plans for the toy, and asks if he could make a sample of that toy so she could look at it and decide whether she wants to produce it. Tim took the plans drawn by Nora’s designer and said that he would get back to her. She said “ok”, and the two parted.

A few days later Tim called Laura and said that he could make the model if she wanted him to do it. Nora told him to go ahead and make the model. Two weeks later Tim called and told Nora that the model was ready for her to pick up and that the cost would be $5,000. She has now refused to purchase the model. She claims that there is no enforceable agreement between the two, or if there is, he took too long to make it and the price is too high. Analyze whether there is an agreement between the two. You must address every applicable Article 2 rule that applies. (out of Chapter #19) (Worth 20 points)

Assume there is an agreement between them is her argument that it took too long and the price is too high valid? Why or why not? You must do a complete analysis of these two issues. (Chapter #19 again)(Worth 15 points)

Bedn manufactures electrical wire, and ASC manufactures automobile sensors. Since 2010, ASC, in repeated transactions has purchased wire from Bedn to use in its sensors. On October 17, 2019, ASC sent Bedn a purchase order containing the quantity, price shipment date and product specifications. Bedn responded on October 22, 2019, with its order acknowledgment form. Bedn's order acknowledgment referenced ASC's specific request and contained boilerplate language on the back. The language on Bedn's form purports to limit Bedn's liability for special, indirect, and consequential damages. The back of the order acknowledgment also stated:

1.2 Where this agreement is found to be an acknowledgment, if such acknowledgment constitutes an acceptance of an offer such acceptance is expressly made conditional upon Buyer's assent solely to the terms of such acknowledgment, and acceptance of any part of product(s) delivered by company shall be deemed to constitute assent. Is there a contract, and if so what are the terms? Fully support your answer with a complete legal explanation using the correct Article 2 clauses. Pay attention to who actually made the offer and who made the acceptance. You may assume no one has ever read the entire form of either party. (This is worth 15 points)

Answer 1

A contract is an agreement enforceable by law. In order to constitute a binding contract, it must contain following essential elements-

1. Offer

2. Acceptance

3. Consideration

4. Intention to create legal relationship

5. Legality and capacity

6. Certainity

In the present case, Ms. Hudson is desirous of entering into legal relationship with Mr. Wood for development of a prototype for a new toy. Ms. Hudson by her act of delivering the toy to Mr. Wood have made an offer which has been accepted by Mr. Wood. Although both the parties are silent with regard to considertaion, however consideration can be deemed to exist in this case. Mr. Wood on request of Ms. Hudson, have employed considerable work and resources to develop the prototype for which consideration can be reasonably demanded to the exent of cost incurred thereof. It is not necessary condition that consideration must be present beforehand. As the parties are not aware of the actual expenses, an agreement to pay for the consideration based on future determinable cost is valid. Hence there is a valid contractual agreement between Ms. Hudson and Mr. Wood

The contention raised by Ms. Hudson are as follows-

1. That Mr. Wood took too long to build the prototype- A contract can be vitiated on this ground only when it is shown that time was of essence in the contract. In the present case, Ms. Hudson did not stipulated any time for completion of development. Where the contract is silent with regard to time, a reasonable time limit is presumed in the contract. Reasonable time will depend upon facts and cirumstance of each case. In the present case, Ms. Hudson had requested Mr. Wood to build the prototype which was delivered in two weeks time. The two weeks time is to be presumed as reasonable owing to the standard processing time taken to build a new toy out of prototype. This contention can only be valid if it could be shown by Ms. Hudson that time was of essence in the contract.

2. That the price charged is too high - Since both the parties are unaware of the consideration at the begining of contract, the actual price can only be known once the actual toy is produced out of prototype. The reasonability of price will depend upon the industry standard cost and the markup as commonly charged. This contention can only be valid if Ms. Hudson can prove that consideration demanded was excessive in contrast to the industry standards.

Part-II

ASC on october 17, 2019 have sent a purchase order to Bedn with details of price, quantity and specifications required. The said order is accompanied with acknowledgment form for confirmation of Bedn. However, Bedn have added in Boilerplate language on the back of acknowledgment form which purports to limit the liability of Bedn in certain cases. According to general principles of contract law, in order to form a valid acceptance, it must be -

1. Communicated by the offeree to the offeror

2. Absolute and unqualified

An acceptance with variation is no acceptance. It simply amounts to a counter proposal which must be accepted by original promisor before a contract is made.

In the present case, the act of Bedn to include new terms in acknowledgment letter amounts to counter proposal. It can be constituted into a contract, only once such conditions are accepted ASC.

However, it is important to note that the act of parties can constitute acceptance in certain cases. Where an order is placed after the terms in the contract have been altered, it would amount to deemed acceptance.

In the present case, ASC can reject the newly introduced terms of the contract incorporated by Bedn and this would in turn bring the parties at the same position as if no contract have existed between them.

The addition of deemed acceptance on the back of acknowledgment form have altered the terms of contract. If ASC do not object to the terms imposed by Bedn and places an order on basis of purchase order, it will bind ASC under contract. However, where it is shown that neither parties have actually gone into the exact terms of the contract, the alteration in terms would amount to no valid acceptance. Hence no contract will come to exist in such case.