P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

The Agreement: Offer PA E TR HC 10 “There is nothing more likely to start disagreement among people or countries than an agreement.” E.B. White

Learning Objectives  Requirements for an offer  Intent  Definiteness of Terms  Special Problems  Termination of an offer

 An offer is a promise conditional on an act, return promise, or forbearance (refraining from doing something)  Parties to a contract must have intent to enter binding agreement, terms must be definite, and the offer must be communicated to the offeree Requirements for an Offer

 An offeror must indicate present intent to contract, or the intent to meet the contract obligation upon acceptance  Courts use the objective theory of contracts:  Would a reasonable person judge the offeror’s words and acts in the context of the circumstances to signify intent? Intent

 Offer and resulting contract must be definite and certain  Offer cannot be vague about major points  Example:  “I’ll paint your house until I’m tired” is vague, but “I’ll finish painting your house in three days” is definite  Armstrong v. Rohm and Haas Company, Inc. Definiteness of Terms

Armstrong v. Rohm and Haas Company, Inc.  Facts :  Plaintiffs worked at a manufacturing plant closed by RH, which gave employees a choice: accept a severance package or transfer to another facility  Plant manager told plaintiffs to accept severance and begin a company, stating that RH “would like to” give plaintiffs “all [outsourced] work”  Plaintiffs followed manager’s suggestions, but there was little work since RH still outsourced elsewhere, so plaintiffs sued for breach of contract

Armstrong v. Rohm and Haas Company, Inc.  Court’s Decision :  Defendant’s alleged promise is too vague to ascertain a reasonably certain basis for providing an appropriate remedy  Court listed issues about the alleged “contract”  The lack of definiteness is fatal because the court cannot supply these terms  RH’s alleged promise is therefore unenforceable as a matter of law

 UCC often creates contractual liability where no contract would result under common law  Article 2 sales contracts can be created “in any manner sufficient to show agreement, including conduct…” [2–204(1)]  A price, quantity, delivery, and time for payment term left open in a contract can be filled by inserting a presumption found in the Code’s rules Definiteness Under the UCC

 Advertisements for the sale of goods at specified prices generally are not considered offers, but are invitations to offer or negotiate  Examples: flyers, handbills, catalogs listing prices, “for sale” ads in newspaper or yard  Sales puffery is not an offer  Example: Leonard v. Pepsico, Inc. (the Harrier jet case) Advertisements

 Advertisements offering rewards for lost property, information, or capture of criminals are treated as offers for unilateral contracts  To accept the offer and receive the reward, an offeree must perform the requested act  Sellers at auctions and advertisements for bids are generally treated as making an invitation to offer, so those who bid are making an offer that the seller may accept or reject Rewards, Auctions, and Bids

Termination by Revocation  An offer may be terminated by revocation :  if revoked & communicated to offeree before the offer is accepted  Exceptions:  Option contract in which an offeror agrees not to revoke the offer for a stated time in exchange for some valuable consideration  Offers for unilateral contracts (e.g., rewards)  Promissory estoppel circumstances  Firm offers for sale of goods

Other Methods of Termination  Rejection: Offeree expressly rejects (unwilling to accept) offer or impliedly rejects the offer by making a counteroffer  an offer to contract on terms materially different from the terms of the original offer  Lapse of time and expiration of offer  Death or disability of either party  Destruction of subject matter  Subsequent illegality

Test Your Knowledge  True=A, False = B  Courts apply the subjective theory of contracts when determining whether intent to contract existed  The UCC often creates contractual liability where no contract would result under common law  Sales puffery may be deemed to be a valid offer

Test Your Knowledge  Multiple Choice  An offer requires:  (a) intent and communication to offeree  (b) motive  (c) definiteness of terms  (d) all of the above  (e) all of the above except (b)  Which is not an invitation to negotiate:  (a) Advertisement of sale  (b) Offer of Reward  (c) Auction

Thought Question  When you go to a department store and purchase an item, what have you done according to contract law?