Review I. Formation, enforceability and defenses on the exam

For forty seven lectures I have asked you one question, over and over. What exactly did these people promise each other? Today and next time I ask it the way your exam will. Not about one case, but about a story, with no headings, no case names, and a clock running. The skill is not remembering the cases. It is seeing which rule each fact is there to trigger.
Here is the story. Read it with me slowly, because every sentence is there for a reason. A bakery in Ohio, a family business, wants a new commercial oven. The owner phones an oven manufacturer in Michigan. They talk for twenty minutes. At the end the owner says, send me the model forty for forty eight thousand dollars, delivered by the first of October, before the holiday season. The manufacturer's sales manager says, done.
The next morning the manufacturer emails a form confirmation. It states the model, the price and the date. At the bottom, in the same type as everything else, it adds two terms. Any dispute goes to arbitration in Michigan. And interest runs at one and a half per cent a month on late payment. The bakery owner reads the email and does not reply.
In August the manufacturer calls. The price of steel has jumped by a third. It says it cannot deliver for forty eight thousand. It needs fifty five, or it will have to push the bakery to the back of the line and deliver in January. The owner, who needs the oven for the holidays and has found no other maker who can deliver before December, agrees by email to pay fifty five.
In September a fire at a supplier's plant cuts the manufacturer's supply of a control panel. The manufacturer says it will be three weeks late. It relies on a clause in its form, excusing delay caused by fire, flood, strikes, or acts of God. The oven arrives on the twenty second of October. The bakery pays forty eight thousand and refuses the rest. The manufacturer sues for seven thousand. The bakery counterclaims for its lost holiday sales.
So here is the question, the only question an exam ever asks. Discuss. Before I say a word, take a sheet of paper and list every issue you see, in the order they arise. Do not write rules yet. Just issues. Think about it before I go on.
Here is the first thing to do, before any issue. Decide which law governs. An oven is a thing movable at the time of identification to the contract. This is a sale of goods, and Article Two of the Code governs, supplemented by the common law where the Code is silent. Say that in one sentence at the top of your answer. Half of what follows changes if you get it wrong.
And both parties are merchants. The manufacturer deals in ovens. A bakery that buys commercial equipment has knowledge or skill in the practices involved. Several Code rules apply only between merchants, so say it once, early, and use it later.
Issue one. Was there a contract, and when? On the phone the owner said send me the model forty for a price and a date. That is an offer, a manifestation of willingness to enter into a bargain, definite as to quantity, price and time. The sales manager said done. That is an acceptance by promise. The contract was made on the phone, with the terms spoken. Remember the objective theory.
We ask what a reasonable person would understand from the words, not what either party privately meant.
Issue two. Is the oral contract enforceable? It is a sale of goods for more than five hundred dollars, so the statute of frauds applies. Section two dash two oh one requires some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought. The bakery signed nothing. But the manufacturer sent a confirmation, and they are merchants.
Read the merchant exception exactly. If within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection one against such party unless written notice of objection to its contents is given within ten days after it is received. The bakery read it and did not object. The statute is satisfied against both sides.
Notice what a good answer does here. It does not stop at satisfied. It adds, and even if the confirmation failed, the bakery's own August email agreeing to fifty five would be a signed writing indicating a contract. Give the reader two routes where the facts offer two.
Issue three. What are the terms? The confirmation added arbitration and interest. This is the battle of the forms. Section two dash two oh seven, subsection one. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
Here the contract was already made on the phone, so the confirmation's new terms are proposals for addition. Between merchants such terms become part of the contract unless the offer limits acceptance to its terms, they materially alter it, or notification of objection is given. The ground is the second. Is an arbitration clause a material alteration? Courts divide, and many hold it is, because it takes away a court. Interest on late payment is more often held not to be material.
Say both, argue both, and pick.
Issue four. Is the promise to pay fifty five thousand binding? At common law this is the pre-existing duty rule. A promise to do what one is already bound by contract to do is not consideration for a promise of additional payment. But this is a sale of goods. Section two dash two oh nine. An agreement modifying a contract within this Article needs no consideration to be binding.
So consideration drops out, and the question becomes good faith. A modification extorted without a legitimate commercial reason is not in good faith and does not bind. Is a thirty per cent rise in steel a legitimate reason? It can be. But the manufacturer's threat was to deliver in January, after the season, unless paid. Now remember Austin against Loral, from the duress lecture.
There the buyer could not obtain the goods from another source of supply, and a threat to withhold them was economic duress.
Here the bakery had found no other maker who could deliver before December. That is the same fact. A wrongful threat, no reasonable alternative, and the bakery's will overborne. If duress is made out, the modification is voidable, and the bakery owes forty eight. Give both sides. The manufacturer will say steel really rose and it asked, it did not threaten to breach. The bakery will say delivering in January was a breach, and threatening it was the threat.
Issue five. Is the manufacturer excused for the late delivery? Two routes, and a strong answer takes both. First the Code. Section two dash six fifteen excuses delay if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made. A fire at a supplier's plant can qualify. But the seller must show it could not reasonably get the part elsewhere, and must notify the buyer seasonably.
And note the steel. Increased cost alone does not excuse performance. That is Transatlantic, and it kills any argument from the price of steel.
Second, the clause. The form listed fire, flood, strikes, acts of God. Kel Kim taught you how courts read these. Ordinarily, only if the force majeure clause specifically includes the event that actually prevents a party's performance will that party be excused. Fire is listed. But whose fire? The clause may mean a fire at the manufacturer's plant, not at a supplier's. And is the clause even in the contract? It came in the confirmation, as an additional term. Go back to issue three.
You see how the issues lock together.
Issue six. The bakery's counterclaim for lost holiday sales. That is a remedies question and it belongs to next lecture. But on the exam you would flag it here and finish it there. For now write one line. If the delay is not excused, the bakery may recover consequential damages the manufacturer had reason to know of at contracting. The owner said before the holiday season on the phone. Keep that sentence. It is the fact that wins the foreseeability argument.
Now step back and look at the method, because that is what this lecture is for. Every issue had the same four moves. Name the issue in a short sentence. State the rule in the words you have learned, and where the Code has words, use them. Apply the rule to these facts, naming the facts, not summarising them. And conclude, but only after arguing the other side.
The application is where the marks are. Weak answers state a rule and then say, therefore there was a contract. Strong answers say, the owner's words, send me the model forty for forty eight thousand by the first of October, were definite as to quantity, price and time, and the manager's done was an unconditional assent to them. Put the facts inside the sentence.
Second habit. Where the facts cut both ways, and they will, argue both ways. Examiners plant facts on both sides deliberately. The bakery found no other maker, a fact for duress. Steel really rose by a third, a fact for good faith. If your answer uses only one of them, you have found half the question.
Third habit. Order. Take issues in the order a court would have to decide them. Governing law, formation, enforceability, terms, modification, excuse, remedy. Each answer can depend on an earlier one. The force majeure clause is useless if it never became a term, so terms come before excuse.
Fourth habit. Time. Divide the minutes by the points before you write. List issues first, as you did at the start. An issue you never reach earns nothing, however well you would have written it. A half page on each of six issues beats three pages on two.
Now let's change one fact. The call was not between merchants. A home cook phoned for a domestic oven for three thousand dollars, and the store sent the same kind of confirmation. Choose an answer before I go on.
Then the merchant confirmation rule does not apply against the buyer, because it operates only between merchants. The statute of frauds is satisfied against the store, which signed, but not against the cook, unless another exception applies, such as payment and acceptance of the goods, or an admission in court. And under two dash two oh seven the additional terms are only proposals, which do not become part of the contract unless the cook agrees to them.
Change one fact again. In August the manufacturer said, steel has jumped, would you consider paying more, we will deliver on time either way. The owner agreed. Choose.
Now the modification binds. No consideration is needed under two dash two oh nine, and there was no threat. The manufacturer promised to perform either way and asked for relief on a real cost increase. That is the paradigm of a good faith modification. The duress argument disappears, because there was no wrongful threat and the owner chose freely. The bakery owes fifty five.
Change one fact a third time. There was no fire. The oven was late because the manufacturer took a larger order from a hotel chain and built its ovens first. Choose.
Then nothing excuses the delay. There was no contingency at all, only a choice to prefer a more valuable customer. Impracticability requires an event beyond the seller's control whose non-occurrence was a basic assumption. A seller that sells its capacity twice has allocated the risk to itself. The delay is a breach, and the bakery's counterclaim goes forward.
Here is what people get wrong on exams, and why it is tempting. The first mistake is to write everything you know about a topic when one fact triggers it. The confirmation raises the merchant exception and the battle of the forms, not the whole history of the mailbox rule. Answer the facts, not the syllabus. The second mistake is to apply the common law to a sale of goods. Pre-existing duty and mirror image are the right rules in the wrong case here.
The third mistake is concluding before arguing. A conclusion without the other side's best argument looks like a guess. A conclusion after it looks like judgment.
Here is the method, in one breath. Identify the governing law and the parties' status first, then take the issues in the order a court must decide them, formation, enforceability, terms, modification, defenses and excuse, and for each state the rule in its own words, apply it by naming the facts that trigger it, argue the facts that cut the other way, and only then conclude. Now, five questions.