The trouble with Harry
By John Murray, Jr. -- Purchasing, 2/11/1999
Once again, it is time to test your awareness of fundamental legal principles and rules surrounding the making of contracts. The analyses of all questions will be found after the questions. Don't peek.* Case 1. Harry Ames is a purchasing manager for Amalgamated Industries Inc. He sent an RFP to the Green Corp. for 100 office desks and chairs. Green replied that the price for such "sets" was $500 each. Harry then dispatched a purchase order for 100 sets. Hearing nothing from Green, Harry inquired and Green informed him that it would not ship the 100 sets. Harry believes that a contract exists with Green. Analyze.
* Case 2. George Fox addressed a letter to Amalgamated, c/o Harry Ames, in which Fox offered to sell a tract of land he owned to Amalgamated for $75,000. The letter stated that the offer would expire at the end of ten days. On the eighth day, Harry learned from a reliable source that Fox had sold the tract to a third party. Harry immediately sent a letter to Fox accepting the offer. Is there a contract between Amalgamated and Fox?
* Case 3. Amalgamated owed $100,000 to the Barnes Co. for repair services. Harry called Barnes and asked for an extension of one month and Barnes agreed. A week later, Barnes sued Amalgamated for $100,000. Harry claims that this is a breach of Barnes' promise to allow an extension on the amount owed. Analyze.
* Case 4. Harry signed a contract for Amalgamated with Peterson Inc. for the purchase of 25 model X-90 computers at $5,000 each. Shortly after the contract was signed, Harry learned that Peterson would unveil a new model, the X-92, with more features. Harry requested that Peterson substitute X-92's for X-90's at no increase in price and Peterson agreed. Later, Peterson informed Harry that it would require an additional $500 for each computer if Harry wanted the new model. Analyze.
* Case 5. Harry sent a purchase order to the West Corp. for a West computerized extraction device, model 975 at a price of $120,000. West immediately shipped a model 950 device which did not meet the performance specifications of the 975. West failed to provide any explanation for shipping the wrong model. Harry has located a device similar to the 975 from another supplier at a price of $140,000. Advise Harry.
Analyses
* Case 1. The RFP was a mere inquiry as to prices. The response to the RFP was a quotation of prices. As such, it is not an offer. It is no more legally effective than a trade circular or brochure setting forth the description of goods and the prices. Such documents are nothing more than invitations to the other party to make an offer. A contract requires an offer and an acceptance. Harry's purchase order is an offer, but it was never accepted. There is no contract between Amalgamated and Green.
* Case 2. When Harry sent a letter accepting Fox's offer to sell the land, there was no offer to accept. Offers can be withdrawn--they are revocable. Even offers that state that they will expire within a given period may be revoked at any time during that period, unless the contract is for the sale of goods and the offer is "firm," i.e., gives assurance that it will not be revoked. While Fox did not inform Harry that the offer was revoked, Harry learned from a reliable source that Fox had sold the land to another. Such action on the part of Fox is totally inconsistent with the offer remaining open to Amalgamated. This is called "indirect revocation," but it is, nonetheless, an effective revocation so long as the source is reliable and the information is correct. There is no contract between Amalgamated and Fox.
* Case 3. Barnes' promise to extend the time for the $100,000 to be repaid is not legally enforceable. To make a promise enforceable, it must be supported by "consideration" (or some substitute). Consideration requires the promisor (Barnes) to receive something of value (a "benefit" to the promisor) or some surrender of a legal right by the promisee (a "detriment" to Amalgamated). Here, Barnes was getting nothing for promising to extend the loan and Amalgamated was not surrendering any legal right in exchange for Barnes' promise. If Amalgamated had agreed to pay additional interest on the loan for the extended period, there would be consideration (value or benefit to the promisor, Barnes) and Barnes' promise would be enforceable. As is, however, it is not a legally enforceable promise.
* Case 4. While there is no consideration for Peterson's promise to deliver a newer model with more features at the same price, Peterson's promise is enforceable because of an exception to the requirement of consideration. If the contract is for the sale of goods and the parties enter into a good faith modification of that contract, the governing law in contracts for the sale of goods (Uniform Commercial Code) states that such a modification needs no consideration to be binding. Peterson's promise is enforceable. If Harry had demanded the new models at the same price with the threat of breaching the contract if Peterson did not agree, such a "bad faith" modification would not be enforceable.
* Case 5. An offer to enter into a contract may be accepted in any reasonable manner. Where the offer is to purchase goods of any kind, it may be accepted by the seller's promise to accept the offer or by the seller's shipment of the goods. Here, West indicated its acceptance by shipment. Though West shipped the wrong model (nonconforming goods), the Uniform Commercial Code considers this to be an effective acceptance. There is a contract for the model 975 at $120,000. Harry can "cover" by purchasing the substitute equivalent to the 975 from another supplier and collect the difference in price ($20,000) from West. West could have avoided this problem by sending a notice to Harry that it was shipping the 950 as an accommodation, i.e., it did not intend to accept Harry's offer. Failing to so notify Amalgamated within a reasonable time, West is stuck with the obligation to supply Amalgamated with the model 975 at the contract price of $120,000.
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