THE AGREEMENT Chapter 2

OBJECTIVES Explain the difference between an offer and acceptance. Provide examples of the differences between legitimate offers as opposed to unenforceable statements. Describe what the phrase “void for vagueness” means. Define and discuss the mailbox rule in contract law. Differentiate between auctions with reserve and auctions without reserve. Explain why offers must be definite. Identify how one may accept an offer. Describe how reward offers fit in contract law.

The 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.” Restatement (Second) of Contracts §24

Making Of An Offer Offeror Offeree Offer

Elements Of A Valid Offer Objective Intent to Be Bound. Terms must be definite or reasonably certain. Must be communicated to the offeree.

Objective Intent Determined using objective theory of contracts. Not considered offers: Preliminary Negotiations “Are you interested in selling your building for $2 million?” vs. “I will buy your building for $2 million.” Offers that are made in jest, anger, or undue excitement. “For $2 I’d sell the whole computer division!” Expressions of opinion

Definiteness of Terms Parties Subject Matter (including quantity) Consideration Time of Performance

Implied Terms Terms of an offer must be “reasonably certain.” Reasonableness depends on the circumstances. Courts can supply a missing term if a reasonable term can be implied. Price requires a market or source from which to determine the price of the item or service. Time = reasonable time

Marder v. Lopez, 450 F.3d 445 (9th Cir. 2006) “Though in hindsight the agreement appears to be unfair to Marder-she only received $2,300 in exchange for a release of all claims relating to a movie that grossed over $150 million.” Judge Pregerson, United States Court of Appeals for the Ninth Circuit

Release Language Marder “releases and discharges Paramount Pictures Corporation. . . of and from each and every claim, demand, debt, liability, cost and expense of any kind or character which have risen or are based in whole or in part on any matters occurring at any time prior to the date of this Release.” Marder also released Paramount from claims “arising out of or in any way connected with either directly or indirectly, any and all arrangements. . .in connection with the preparation of screenplay material and production, filming and exploitation of. . . Flashdance.

Discussion 1. What does the adage “A contract is a contract is a contract” mean? Was it applied in this case? 2. Why did Marder bring this lawsuit? 3. Did she act ethically in bringing this lawsuit? Why or why not? 4. Do you think Paramount should have paid Marder more money after the movie Flashdance became a success?

Communication Mr. Jones, the CEO of Ace Corporation, wants to sell a manufacturing division to Baker Corporation. He puts the offer in writing, but he does not send it. Assume that Mr. Griswald, a Baker Company employee, visits Mr. Jones and sees the written offer lying on Jones’ desk. Mr. Griswald tells the CEO of Baker Corporation about the offer. Does a valid offer exist?

Special Offers Advertisements A general advertisement is an invitation to make an offer. A specific advertisement is an offer. Rewards To collect a reward, the offeree must: Have knowledge of the reward offer prior to completing the requested act; AND Perform the requested act. Auctions Auction with reserve – an invitation to make an offer. Seller is offeree. Auction without reserve. Seller is offeror.

Termination Of Offers By Action of the Parties Harriet Jackson, sales manager of IBM Corporation, offers to sell 1,000 computers to Ted Green, purchasing manager of General Motors Corporation for $250,000. The offer is made on Aug.1. Green telephones Jackson to say that he is not interested. Revocation by the offeror. May be communicated by offeror or a third party. Counteroffer by the offeree. May be made by the offeror’s express statement or conduct inconsistent with the offer. Isha Patel says to Harold Brown, “I will sell you my house for $700,000.” Brown says, “I think $700,000 is too high; I will pay you $600,000.” Rejection by the offeree.

McLaughlin v. Heikkila 697 N.W.2d 231 (Minn. Ct. App. 2005) “A written offer does not evidence a completed contract and a written acceptance is required.” Judge Dietzen, Court of Appeals of Minnesota

Termination of Offers (continued) By Operation of Law Destruction of the subject matter. Death or incompetency of the offeror or offeree. Supervening illegality. Lapse of time.

Contemporary Issue: Option Contracts Offeree can prevent the offeror from revoking the offer by paying the offeror compensation to keep the offer open for an agreed-upon period of time. Example: Anne Mason offers to sell a piece of real estate to Harold Greenberg for $1 million. Greenberg wants time to make a decision, so he pays Mason $20,000 to keep her offer open to him for six months.

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.” Restatement (Second) of Contracts §50(1)

Acceptance of Offer Offeror Offeree Offeree accepts the offeror’s offer and creates a contract.

Power Of Acceptance Only the offeree has the legal power to accept an offer and create a contract. Multiple offerees? Offeror may specify mode of acceptance (i.e., mail, fax, email, etc.). If no mode is specified, acceptance should occur by means reasonable under the circumstances.

Mirror Image Rule For an acceptance to exist, the offeree must accept the terms as stated in the offer – or in other words, the acceptance must “mirror” the offer. No acceptance if certain conditions are added to the acceptance. A “grumbling acceptance” is okay.

Silence As Acceptance The offeree has indicated that silence means assent. “If you do not hear from me by Friday, ship the order.” The offeree signed an agreement indicating continuing acceptance of delivery until further notification. Prior dealings between the parties indicate that silence means acceptance. Offeree takes the benefit of goods or services provided by the offeror even though s/he has an opportunity to reject the goods or services but fails do so and (b) knows the offeror expects to be compensated.

Mailbox Rule Applies to bilateral contracts. Rejection or Revocation Acceptance Effective upon proper dispatch Rejection or Revocation Effective when received

Closure The offeror is the master of the offer and has all the power, at the outset, to create the terms of acceptance. A valid offer has three requirements: objective intent to be bound by the offeror, definite terms, and communication of the offer to the offeree. A valid offer is definite as to the parties, the subject matter, consideration, and time of payment/delivery/performance. An offer that is too indefinite will be void for vagueness.

Closure (continued) Acceptance must mirror the terms of the offer. Advertisements are generally not offers, but if the advertisement is specific it may be a valid offer. A reward is an offer to enter into a unilateral contract. To collect the reward, the offeree must know of the reward and perform the requested act. Promissory Estoppel (Detrimental Reliance) permits a court to imply the existence of a contract if it can be proven that a statement was made or there was conduct that would reasonably induce the other party to perform.