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Contracts I

Fall 2026: Santa Barbara & Ventura

Prof. Virginia Goodrich and Prof. Bryan Clifton

QUESTION #1

PalmCo located in L.A. is a distributor of high quality palm oil which is used as a key ingredient in many processed food products. PalmCo imports its palm oil from Indonesia and Malaysia. PalmCo had excess inventory of palm oil in its warehouse.

On November 1, PalmCo’s sales manager sent an email to its best customer, ChipCo, a potato chip manufacturer which stated, “We have available for immediate sale, 100 tons of palm oil, at a price of $440 per ton, full payment due on delivery. This quote shall be valid two weeks only.” The market price for the same palm oil was $450 per metric ton.

The next day ChipCo’s buyer emailed the following response, “We are not interested in purchasing the palm oil at $440 per ton, but would consider purchasing it at $410 per ton.”

On November 3, a dock strike at several local ocean ports along the west coast of the U.S. caused an immediate rise in the market price for palm oil. The market price for palm oil rose to $500 per ton. On the same day, PalmCo sold all of its excess inventory in its warehouse to other customers.

On November 4, ChipCo’s buyer sent an email which stated the following, “We accept your offer for 100 tons of palm oil at a price of $440 per ton. Payment will be made 45 days after delivery of the palm oil.”

1. Is PalmCo obligated to sell 100 tons of palm oil to ChipCo at $440 per ton? Discuss.

2. Assuming PalmCo is bound to sell the palm oil to ChipCo, can ChipCo be required to make full payment upon delivery of the palm oil? Discuss.

Contracts I

Fall 2026: Santa Barbara & Ventura

Prof. Virginia Goodrich and Prof. Bryan Clifton

QUESTION #2

Director, looking to promote his new feature length film, contacted Promoter to set up an ad campaign. Director called Promoter on December 1, 2016, leaving a voicemail which stated that Director wanted to hire Promoter, but he needed to hear back from Promoter no later than December 8. The job included creating posters, movie trailers, and a viral Youtube campaign.

The next day, Promoter got the voicemail and immediately called Director back. Speaking with Promoter’s assistant, Promoter relayed that he was willing to do the job, but he needed a contract which included the amount of $15,000 for promoting the film, plus Director would have to cover all of Promoter’s costs, with the contract to be performed over the next 15 months prior to the film being released. Promoter asked, that if this was agreeable, for Director to mail over the contract so it could be signed.

After hanging up the phone, Promoter got to work immediately and started to create movie posters for review, and created a couple of Youtube videos. Promoter didn’t release the posters, but the Youtube videos became an immediate success, receiving over 1 Million views overnight. Promoter spent about $1,000 putting everything together for the campaign.

The next day, Director had his legal team put together a letter with a contract indicating that Promoter’s offer was accepted, which was signed by Director and mailed to Promoter via Fedex. Due to no fault of Director, Promoter never received the contract, and after waiting two weeks for a response from Director, Promoter abandoned the project, and signed a contract for a competing film.

Director sued for breach, because he had to hire a different firm for his film, costing him $20,000 to promote his film.

1. Discuss Contract formation issues. Is there an enforceable Contract?

2. If Director sues Promoter, what, if any, damages would Promoter be entitled to?

3. What, if any, damages could Promoter sue for?

ISSUE SHEET (Fall 2016) Prof. Virginia Goodrich

Question #1

1. Is PalmCo obligated to sell 100 tons of palm oil to ChipCo at $440 per ton?

CONTRACT FORMATION

Whether PalmCo is bound to sell the palm oil to ChipCo at the price of 440 per ton will depend on whether there was an enforceable contract. An enforceable contract requires a valid offer, acceptance, consideration and no defenses to formation.

In addition to the issue of contract formation, and the student is required to determine what payment terms are included in the contract in the second call of the question.

UCC or Common Law: Contracts for the sale of goods are governed by the Article II of the Uniform Commercial Code (UCC). The student should describe the goods, palm oil and the potential litigating parties, PalmCo and ChipCo whom are both are merchants. This transaction is governed by the UCC.

Common Law Offer: An offer is an outward manifestation of intent to be bound by contractual agreement requiring definite and certain terms communicated to the offeree. When PalmCo’s sales manager sent an email to ChipCo to tell them that PalmCo was selling 100 tons of palm oil at a price of $440 per ton, PalmCo demonstrated an outward manifestation of present intent to be contractually bound and its intent was communicated to ChipCo, the offeree.

The terms of the offer described the quantity, 100 tons of palm oil, time, for immediate delivery, the identity of the parties were PalmCo and ChipCo, the price was $44,000 (100 tons X $440 per ton), and the palm oil was the subject matter. Since the terms were mentioned with particularity, they were definite and certain under common law. Under the UCC, the only minimum term required, quantity, is also satisfied.

UCC §2-206 Offer and Acceptance in Formation of Contract: An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. As described above under the common law analysis there was valid offer. The student can analyze the issue of offer and acceptance under either UCC (§2-204 or §2-206) or common law rules.

Rejection of Offer: A rejection by the offeree to a valid offer will ordinarily put to an end of the offer and the offeree will not permitted to accept it later. Here, PalmCo will argue that on November 1 when ChipCo’s buyer emailed that it was not interested in purchasing the palm oil, ChipCo had effectively rejected their offer and sent to PalmCo a counter-offer to purchase the palm oil at $410 per ton.

ChipCo will counter that it did not reject the offer but was merely inquiring to the possibility that PalmCo would be willing to negotiate a lower price than what was offered.

UCC §2-205 Merchant’s Firm Offer: An offer by a merchant to buy or sell goods in signed record which by its terms gives assurance that it will be held open is not revocable for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months, but any such term of assurance in a form supplied by the offeree must be separately signed by the offeror.

Here, PalmCo, a merchant, emailed to ChipCo the quote to sell 100 tons of palm oil at a price of 440 per ton which satisfies the requirement for a signed record. The time stated was two weeks, therefore, the offer was irrevocable for a period of two weeks. ChipCo provided a valid merchant’s firm offer.

Common Law Acceptance – Mirror Image Rule: Under common law acceptance is an unequivocal assent to the terms of the offer.

When ChipCo’s buyer sent an email which stated the following, “We accept your offer for 100 tons of palm oil at a price of $440 per ton. Payment will be made 45 days after delivery of the palm oil, ChipCo will argue that it unequivocally assented to PalmCo’s offer. However, ChipCo’s email included a different term that payment for the goods will occur 45 days after delivery. Therefore, because ChipCo’s email did not mirror the offer, at common law there was no acceptance.

Mailbox Rule: Acceptance is effective upon dispatch of a properly addressed letter.

Here, ChipCo will argue that on Nov. 4 when ChipCo’s buyer sent an email that they accepted PalmCo’s offer for 100 tons of palm oil at $440 per ton, ChipCo accepted a contract and that the contract formed. However, PalmCo will counter that because ChipCo rejected the offer (as discussed above), the offer was no longer valid and or available for acceptance.

UCC §2-207Additional Terms in Acceptance or Confirmation: In the contracts for the sale of goods, the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer. Rather, the acceptance is effective unless it is expressly made conditional on assent to the additional terms.

If both parties to the contract are merchants the additional terms automatically become part of the contract unless: 1) It materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available); 2) The offer expressly limits acceptance to the terms of the offer; or 3) The offeror has already objected to the particular terms, or objects within a reasonable time.

When ChipCo emailed to PalmCo that it accepted its offer to purchase 100 tons of palm oil at $440 per ton, ChipCo included in the email the additional and different term that payment shall be made 45 days after delivery. The payment term in PalmCo’s offer was that full payment was due on delivery. As established above, both parties in this potential lawsuit were merchants.

Therefore, the additional term contained in ChipCo’s acceptance email will automatically become a part of the contract unless one of the three items (1, 2, or 3) identified above are present.

Pursuant to 1), PalmCo will argue that the different payment term is materially altering and cannot be included as a term of the contract because it impact’s PalmCo’s risk and rights under the contract. That is, if ChipCo’s term is included in the contract, PalmCo has effectively granted credit to ChipCo and lost the ability to make use of the money immediately after delivery. Therefore, ChipCo would be required to make full payment upon delivery of the palm oil.

Consideration: There must be a bargained-for exchange between the parties; and that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.

Here, ChipCo bargained for money $44,000 (100 cases X $440 per case), in exchange for the return promise from PalmCo to ship palm oil to ChipCo. Furthermore, PalmCo obligated itself to sell to ChipCo the palm oil which it was not previously obligated to do. This was a detriment incurred in exchange for the benefit for the money it would receive from the sale of the palm oil. ChipCo obligated itself to buy the palm oil which it was not obligated to do. This was a detriment incurred in exchange for the benefit of receiving the palm oil.

Therefore, since consideration is present, a valid contract was formed.

UCC §2-201 Statute of Frauds: Contracts for the sale of goods over $500 must be in writing. Here, the total contract price of the contract is $44,000 which is over $500. Therefore, the contract is subject to the Statute. On November 4 ChipCo sent an email with the definite and certain terms, quantity, and price, therefore the email satisfies the Statute which requires a writing.

2. Assuming PalmCo is bound to sell the palm oil to ChipCo, can ChipCo be required to make full payment upon delivery of the palm oil?

The second call of the question requires the student to assume that ChipCo won its argument that it did not effectively reject the offer and that a valid, enforceable contract was formed. Assuming a valid contract formed, which payment terms will prevail? The answer is a based on a thorough §2-207 analysis. Specifically how are different terms handled based on the two views?

UCC §2-207Additional Terms in Acceptance or Confirmation:

The applicability with regard to different terms, as opposed to additional terms, will depend on whether the jurisdiction in which the contract will be interpreted follows the Knockout Rule or the Leading Minority View.

Knockout Rule: In jurisdictions that follow the majority view apply the knockout rule, which states that conflicting terms in the offer and acceptance are knocked out of the contract because each party is assumed to object to the inclusion of such terms in the contract. Any gaps left by knocked out terms are filled by UCC gap fillers.

Under the knockout rule, because both terms supplied by PalmCo and ChipCo were conflicting, the terms will be knocked out and the payment term filled in by the courts with a UCC gap filler, 2-310, which states payment is due at the time and place at which the buyer is to receive the goods.

In California, which follows the “leading” minority view, treat different terms like additional terms, and follow the same test set out above in determining whether the terms should be part of the contract. As discussed above PalmCo will argue that the different payment term is materially altering and cannot be included as a term of the contract because it impact’s PalmCo’s risk and rights under the contract.

That is, if ChipCo’s term is included in the contract, PalmCo would be granting credit to ChipCo and lose the ability to make use of the money immediately after delivery. ChipCo would be required to make full payment upon delivery of the palm oil.

[In this fact pattern, both views on different terms lead to the same conclusion.]

ISSUE SHEET (Fall 2016) Prof. Bryan Clifton

Question #2

UCC v. C.L.

Since this is a contract for services, this is a contract which falls under Common Law.

Offer

Bilateral or Unilateral

This is a Bilateral offer insofar that what is being requested is a promise for a promise. Although Promoter wants the written contract to be sent offer as acceptance, this is not performance on the contract, but just a written promise to perform.

The first communication from Director is an Offer for an Offer. Although it is an offer to enter into a contract, it has none of the essential terms for this to be an offer. All that is communicated is that Director wants Promoter to work for him. The real Offer, that is, the one containing the terms of the agreement, comes from Promoter.

Acceptance

The Offeror (Promoter), as the master of the offer, may dictate whatever terms he desires for the acceptance of the Offer. Here, Promoter indicated that the offer could be accepted by sending the contract to him. When Director created the contract and sent it to Promoter, Director was accepting the offer.

Mailbox Rule

When an Offer may be accepted by mail, if the mailed acceptance is sent, properly addressed and labeled, then the Acceptance is valid upon dispatch. When Director mailed the contract to Promoter, he was accepting the Offer. Since the facts indicate that there was no error on the part of Director with the mailing, the Acceptance would have been valid as soon as it left the control of Director, despite the fact that it never was received by Promoter.

Consideration

There seems to be clear consideration here that this is an exchange of money for services.

Breach

If we find that there was a valid contract, a breach can be found by either party not performing their obligations under the contract. Here, Promoter abandoned the project for Director. Since Promoter did not perform under the contract, this would be seen as a breach.

Statute of Frauds

For a contract that falls under the Statute of Frauds to be enforceable, it must be signed by the party against whom enforcement is sought. The Statute of Frauds applies in cases where the contract Can Not be performed within 1 year. Since this agreement, by its terms could not be completed within 1 year, the Statute of Frauds applies.

Since this document was only signed by Director, and not Promoter, the statute of frauds would not be satisfied here.

Merchants exception does not apply, as this is not a UCC case. However, bonus point for indicating that if these were merchants, then the statute of frauds could be satisfied since a signed, confirmation of the agreement, containing the terms was sent, and no objection was sent to those terms. Minor discussion of the fact that Promoter did not know the contents of the mailing.

Damages

Expectation

Expectation damages are only available when there is an enforceable contract. If there is an enforceable contract, then Director could sue for his damages that were in excess of the $15,000 that Promoter was charging. This would be the amount of $5,000.

Reliance

Even if there wasn’t an enforceable contract, either party may be entitled to Reliance Damages. This would apply to Promoter, that Promoter, on relying on Director’s ‘Offer’ started working on the Project. The first question was, was this reasonable on the part of Promoter. There is limited information as to whether or not this was reasonable, but the facts tend to indicate that these are sophisticated parties, who would probably be justified in relying on each other’s indications that they were going to enter into a contract.

For the damages calculation, this would be the out of pocket expenses that Promoter incurred. That is, $1,000.

Restitution

Restitution is an issue here if there is no Contract. When asking for Restitution, the question is, how much did Director benefit from Promoter’s actions, and would it be unjust for Director to keep that benefit.

Here, Promoter created a Youtube Campaign which arguably benefited Director. Although it would be almost impossible to quantify the benefit to Director, it should be discussed that this is a benefit to Director, and that it would be unjust for Promoter to not be compensated for this. Although we cannot know the exact amount, this needs to be discussed.

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