Chapter 5 Contracts Instructor: Erlan Bakiev, Ph. D.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Introduction Contracts are voluntary agreements between the parties One party makes an offer that is accepted by the other party Without mutual assent, there is no contract 10-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Agreement Agreement: Manifestation by two or more persons of the substance of a contract Requires mutual assent to perform current or future contractual duties 10-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Case 10.1: Contract Case The Facebook, Inc. v. Winklevoss Web 2011 U.S. App. Lexis 7430 (2011) United States Court of Appeals for the Ninth Circuit Issue Is the settlement agreement enforceable? 10-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Offer: The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it Offeror: The party who makes an offer Offeree: The party to whom an offer has been made 10-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Requirements for an effective offer The offeror must objectively intend to be bound by the offer The terms of the offer must be definite or reasonably certain The offer must be communicated to the offeree 10-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Objective theory of contracts Intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties Express Terms The terms of an offer must be clear enough to the offeree to be able to decide whether to accept or reject the terms of the offer Terms must be definite 10-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer An offer must contain the following terms Identification of the parties Identification of the subject matter and quantity Consideration to be paid Time of performance 10-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer A sends a letter dated March 5 to B offering to sell its house for $1000, saying the offer is open until March 9 and it must have heard from B by then. B receives it on March 6 and immediately prepares letter of acceptance. Before B delivers his acceptance in the morning of March 7, A changes its mind and calls B saying it cancels the offer. 10-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Revocation is valid. 10-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Implied Terms The court can supply a missing term if a reasonable term can be implied Terms supplied in this way called implied terms 10-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Case 10.2: Contract Case Marder v. Lopez 450 F.3d 445, Web 2006 U.S. App. Lexis 14330 (2006) United States Court of Appeals for the Ninth Circuit Issue Is the general release Marder signed an enforceable contract? 10-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Offer Special Offers Advertisements Rewards Auctions 10-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Termination of an Offer by Act of the Parties Revocation: Withdrawal of an offer by the offeror that terminates the offer Rejection: Express words or conduct by the offeree to reject an offer Counteroffer: A response by an offeree that contains terms and conditions different from or in addition to those of the offer 10-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Termination of Offer by Operation of Law Destruction of the subject matter Death or incompetency of offeror or offeree Supervening illegality Lapse of time 10-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Acceptance: A manifestation of assent by the offeree to the terms of the offer in a manner invited or required by the offer as measured by the objective theory of contracts 10-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Unequivocal acceptance Clear and unambiguous acceptance Only one possible meaning must not contain conditions or exceptions 10-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Mirror Image Rule: for an acceptance to exist, the offeree must accept the terms as stated in the offer Any attempt to accept the offer on different terms constitutes a counteroffer 10-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Silence as Acceptance Offeree indicates that silence means assent Offeree signed agreement indicating continuing acceptance until further notification Prior dealings indicate that silence means assent 10-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Time of acceptance Mailbox rule: an acceptance is effective when it is dispatched, even if it is lost in transmission Does not apply if an offeree first dispatches a rejection and then sends an acceptance 10-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Acceptance Mode of acceptance Proper dispatch Authorized means of communication Implied authorization Express authorization 10-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

It is the price for which the promise of the other is bought Consideration 5.1 Meaning It is the price for which the promise of the other is bought Exchange of promise: contract Any party have both gains and losses

Love Gratitude Past consideration 5.2 What constitute consideration? (1) Anything having market value (2) Exception: Love Gratitude Past consideration

5.3 Adequacy (1) No requirement: exchange of equal value (2) $ 1 is adequate consideration

Forbearance to sue is adequate consideration. Case study： Adams, creditor of Brown, threatened to sue Brown for the debt of $ 1000. Cox, friend of Brown, then promised to pay Adams the debt if Adams would refrain from suing, and Adams agreed. If Cox failed to pay Adams as agreed, and Adams sued him for breach of contract, Adams would succeed. Forbearance to sue is adequate consideration.