MICHIGAN CONTRACTS & SALES DISTINCTIONS PROFESSOR ANNE LAWTON MICHIGAN STATE UNIVERSITY COLLEGE OF LAW

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1 MICHIGAN CONTRACTS & SALES DISTINCTIONS PROFESSOR ANNE LAWTON MICHIGAN STATE UNIVERSITY COLLEGE OF LAW CHAPTER 1: CONTRACT FORMATION AND MODIFICATION A. OFFER General rule: Time perid fr a cntract is a time are nt fr a reasnable perid f time, if n time is specified. In Michigan, the emplyment becmes part f yur if yu are hired. B. ACCEPTANCE An ffer fr a bilateral cntract is a fr a prmise. Yu have a cntract when the are exchanged. An ffer fr a unilateral cntract is an ffer t d smething in exchange fr. Example 1: Return Kitty and I will give yu a $500 reward. Yu find Kitty wh has her tags n and return the cat withut knwledge f the reward. Are yu entitled t the reward? Wuld it make a difference if n yur way t returning Kitty, yu run int smene wh infrms yu f the reward? Typical rule: Cannt accept an ffer In Michigan, if at any time between starting the perfrmance (starting the acceptance) and the cmpleting it, yu abut the ffer they have t pay yu the reward. Answer: C. CONSIDERATION Mdificatins Replaces cntract 1 and needs Editr's Nte 1: While mdificatin f a cntract that is gverned by the cmmn law generally requires cnsideratin, Michigan law des nt require

2 cnsideratin t mdify any cntract that is in writing and signed by the party against whm the mdificatin is charged. See Michigan Cntracts Distinctins utline I.B.2.d.2)a). Pre-existing duty rule: If yu have a cntract, yu d nt get t say t smene yu have t pay me mre t d smething. D nt get t be paid mre t d what yu are already bligated t d Example 2: Yu hire a firm t cut dwn a tree in yur yard. Yu agree t pay the firm $500. The firm cmes t yur huse, starts the wrk and then stps perfrmance. The firm s wner tells yu he will nt cntinue until yu pay him $600, rather than $500, fr cutting dwn the tree. Hw d yu respnd? Example 3: Yu hire a firm t clean ut yur attic and agree t pay them $750 fr a day s wrk. Unbeknwnst t yu (and the firm) sme f the wden beams n which yur belngings are stred have rtted. It s dangerus t walk and wrk in certain parts f the attic. Variatin 1: The firm s wner tells yu that it wants mre mney due t the added difficulty f the wrk remving the gds while wrking arund rtted and weakened wd. Yu agree t pay the additinal mney. Can yu later pay nly $750, citing the pre-existing duty rule? Variatin 2: The firm says it will replace the defective bards fr yu fr an additinal fee. Yu agree. Hw des Variatin #1 differ frm Variatin #2? Editr's Nte 2: In the explanatin fr Variatin 2 Prfessr Lawtn misspeaks and describes Variatin 1 as an exceptin t the Statute f Frauds. In fact, it is an exceptin t the pre-existing duty rule. Example 4: Yu have a lng-standing business relatinship with Acme, which supplies yur firm with parts. Yu and Acme enter int a valid cntract fr the purchase and sale f 500 widgets at $1.00 per widget. Suppse Acme s president calls yu up prir t delivery and says that the firm had made a pricing mistake; the widgets shuld have been priced at $1.10 per widget. He Themis Bar Review, LLC MI Cntracts & Sales Distinctins

3 aplgizes. Acme has never made such an errr befre, and yu want yur firm t cntinue t have a gd relatinship with Acme, s yu agree. What result? Statute f Frauds Yu d NOT need a writing fr a mdificatin unless the cntract falls within the. Example 5: Suppse the riginal cntract with Acme frm Example #4 was fr 500 widgets at $1.50 per widget, fr a ttal price f $750. Nw, suppse the president asks fr and yu give (rally) a price f $2.00 per widget. The price f the cntract is nw $1,000. Is the mdificatin enfrceable? Exam Nte: The cntract amunt necessary t trigger the Statute f Frauds is $500 under the UCC (and the MBE) and $1000 in Michigan (and the Michigan Essay Exam). CHAPTER 2: MODIFICATIONS CONTINUED, ACCORD & SATISFACTION, EXCUSE, AND DEFENSES A. MODIFICATIONS Statute f Frauds N ral mdificatin clauses (NOM) Statue f Frauds between Yu and I have made a cntract and we cannt it unless there is a writing signed by bth f us. Curts in Michigan have held that a is nt necessarily. Tw ways arund NOM clauses: Equitable Estppel Waiver Cannt a waiver in the face f a wavier is nt enugh. The claiming the waiver must prve it by evidence MI Cntracts & Sales Distinctins 2016 Themis Bar Review, LLC 3

4 Can shw waiver thrugh cnduct Example 6: Jane and Acme enter int a valid, signed written cntract in which Jane agrees t sell Acme s prducts t retailers n a cmmissin basis (3.5%). The cntract has a tw-year term and prvides that all mdificatins must be in writing. Prir t the end f the tw-year perid, Acme agreed t extend the cmmissin cntract fr anther tw years. But, due t financial prblems, Acme prpsed, and Jane agreed, t a decrease in her cmmissin (2.5%). Jane cntinued t sell t retailers n Acme s behalf, and cashed her cmmissin checks. Jane later sued Acme fr the difference between the 3.5% and 2.5% cmmissin. Jane argued that Acme s claim that Jane had agreed t a lwer cmmissin was barred by the Statute f Frauds, and that the riginal cntract prvided that it culd nly be mdified in writing. Can Acme make the argument f waiver? Equitable Estppel In Michigan, equitable estppel may be used as an exceptin t the Statute f Frauds. Example 7: Same facts as Example 6: B. ACCORD AND SATISFACTION Brings in Article III f the UCC Exam Tip 1: In the past, the Michigan Essay Exam has tested accrd and satisfactin with a questin abut paying with a check. Example 8: Yu have a year-lng lease with Landlrd. Yu want t mve ut early because the schl year has ended, but yu still we three mnths rent. Yu speak t the Landlrd abut releasing yu, but he refuses t d s. Yu send Landlrd a check fr ne and a half mnths rent, write paid in full in big letters n the bttm f the check, and include a nte stating that cashing the check is in full satisfactin f the remaining rent. Landlrd cashes the check. Is this an accrd and satisfactin? Themis Bar Review, LLC MI Cntracts & Sales Distinctins

5 Example 9: Suppse yu and Acme have a bna fide dispute abut hw much yu we Acme. Yu write a check t Acme fr what yu hnestly believe yu we and include a ne-page nte, which in large, bld letters states that cashing the check cnstitutes payment in full f the debt yu we t Acme. Yu als write payment in full n the check in the bttm left crner. Acme cashes the check. Is there an accrd and satisfactin? Factrs t cnsider: Whether there was a statement f full satisfactin If there is a within days, there is n accrd and satisfactin. C. EXCUSE Mutual Mistake Abut sme fact situatin that at the time cntract is frmed. Impracticability and frustratin f purpse are abut events that change cntract frmatin Factrs necessary fr mutual mistake: Occurs at Relates t a basic n which the parties made the cntract Bth parties are blameless bth parties are mistaken In Michigan, yu lk t see wh the risk; wh yu put the mutual mistake n. If there is an as-is clause, the party that is trying t get ut f the deal may be deemed t have assumed the risk Refrmatin Key pint: Must distinguish between intrinsic and extrinsic mistake Refrmatin nly available fr mistake MI Cntracts & Sales Distinctins 2016 Themis Bar Review, LLC 5

6 Sme mistake in the actual f the cntract, nt sme fact external t cntract frmatin. D. DEFENSES TO CONTRACT FORMATION Uncnscinability Adhesin Cntracts A frm cntract with bargaining pwer and take-itr-leave-it terms Michigan des nt give any t the fact that a cntract is adhesive Have t shw reasn t upend the cntract ther than it being adhesive Example 10: Jacb was 52 years ld when he lst his jb. He applied fr a psitin with Acme. The Acme applicatin cntained a statement that any actin arising ut f emplyment r terminatin f emplyment with Acme had t be brught within 180 days f the event giving rise t the claim; if nt brught within that time frame, the claim was frever barred. Jacb bjected t the prvisin, but was tld he had t use the frm in rder t apply. Jacb signed the frm and gt the jb. He was later terminated frm Acme. Eight mnths later, he filed suit against Acme fr age discriminatin. Acme filed a mtin t dismiss based n the 180-day perid. Jacb s lawyer argued that the statute f limitatins in Michigan was lnger than 180 days and that the applicatin was nt part f the emplyment cntract. Jacb s attrney als argued that even if the applicatin were part f the emplyment cntract, it was unreasnable and unenfrceable as a cntract f adhesin. Hw will the curt rule n the mtin t dismiss? The curt will likely the mtin. The emplyment applicatin became part f Jacb s emplyment cntract. MI curts will nt revise an unambiguus cntract merely because it was adhesive. Furthermre shrtening the limitatin perid t 180 days is nt inherently unreasnable under MI law Themis Bar Review, LLC MI Cntracts & Sales Distinctins

7 CHAPTER 3: DEFENSE CONTINUED, DISCHARGE, STATUTE OF FRAUDS, PAROL EVIDENCE, CONDITIONS, AND REMEDIES A. DEFENSES TO CONTRACT FORMATION Uncnscinability Cvenants nt t cmpete factrs: the cvenant is scpe Nature f the wrk that is prhibited B. DISCHARGE Impracticability and frustratin f purpse have t d with pst-frmatin events Basic test: An event ccurs, the f which was a basic f the parties agreement The party seeking t rescind the cntract must nt have the risk f the event ccurring. The event must: Fr frustratin f purpse: frustrate the purpse f the cntract Fr impracticability: perfrmance impracticable Exam Nte: Sellers tend t use impracticability and buyers tend t use frustratin f purpse. C. STATUTE OF FRAUDS T satisfy the Statue f Frauds: Writing needs t be signed by the party enfrcement is sught Writing need nt be Paper need nt be Example 11: Mary and Ellen met at a netwrking event. Ellen wns a business and Mary was seeking emplyment in the advertising department f any large firm. Ellen and Mary discussed the needs f Ellen s business and Ellen then tld Mary she was hired. Mary tk the napkin sitting next t her cffee cup, handed it t Ellen, and asked her t write dwn the particulars. Ellen tk the napkin and wrte the fllwing in pen: hire Mary as advertising cnsultant; 18- mnths starting March 1; $50K per year /s/ Ellen. Mary tk the napkin, thanked Ellen, and shwed up fr wrk n March 1. Ellen refused t emply Mary, wh sued fr breach f cntract. Ellen raised the Statute f Frauds. MI Cntracts & Sales Distinctins 2016 Themis Bar Review, LLC 7

8 What result? Wuld yur answer change if Mary had nt shwn up fr wrk n March 1, and Ellen had sued Mary fr breach f cntract? D. THE PAROL EVIDENCE RULE Decide what kind f agreement yu have: Fully integrated agreement Parties intended this agreement t be it Cannt t the agreement with any written r ral agreements Partially integrated agreement supplement the agreement It is final with regard t what it is written n the paper, but the paper is nt everything In Michigan, yu cannt use parl evidence t establish that a cntract is nt if the cntract has a merger clause Merger clause: Prvides that the agreement is the and final understanding f the parties What are yu using the evidence fr? Can use parl evidence t the written cntract Whether yu can use parl evidence t add r supplement is the integratin f the agreement Partially integrated Fully integrated Can use parl evidence t shw, illegality, r mistake E. CONDITIONS Example 12: The Smiths decided t sell their party stre, which included a liqur license. Buyer ffered t purchase the liqur license and fixtures, but nt the stre, fr $85,000. The Smiths accepted. The parties agreement cntained a clause prviding that the agreement was subject t review and apprval by the Smiths attrney n r befre March 31. The Smiths submitted the agreement t their lawyer wh was away n vacatin. Befre the Smiths attrney returned frm vacatin, Purchaser ffered t buy the liqur license and Themis Bar Review, LLC MI Cntracts & Sales Distinctins

9 party stre fr $325,000. The Smiths als accepted this ffer and the parties agreement cntained the same attrney-apprval clause. When the Smiths attrney returned frm vacatin n March 10, she reviewed bth agreements and apprved the agreement with Purchaser because Purchaser agreed t buy everything, and at a much higher price than Buyer. Buyer seeks specific perfrmance f the parties agreement. The lawyer apprval clause is a cnditin. The party wh inserts the cnditin cannt place an in the path f the cnditin actually happening. Curts say that the bstacle that yu place in the path f the cnditin happening has t take the frm f an act r t d smething required by the parties agreement- if this ccurs the cnditin is excused. F. REMEDIES Recgnize that cntract remedy is (frward-lking) Basic damages frmula, whether under cmmn law r the UCC, is the fllwing: Difference between the cst f and the parties plus damages plus damages minus any expenses saved d nt receive cnsequential damages under the UCC [END OF HANDOUT] MI Cntracts & Sales Distinctins 2016 Themis Bar Review, LLC 9

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