© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 10 Contracts: Agreement Chapter 10 Contracts: Agreement

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Agreement = offer and acceptance. Parties must show mutual assent to terms of contract. Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed. Agreement = offer and acceptance. Parties must show mutual assent to terms of contract. Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 §1: Requirements of the Offer Offeror’s serious intention. Definiteness of terms. Communication to Offeree. Offeror’s serious intention. Definiteness of terms. Communication to Offeree.

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 Offeror’s Serious Intention Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer.  Case 10.1: Lucy v. Zehmer (1954). Offers made in anger, jest, or undue excitement are usually not offers. Expressions of opinion are not offers. Statements of Intention or preliminary negotiations are are not offers. Advertisements, Catalogues, Price Lists, and Circular are treated as Invitations to negotiate and not as offers. Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer.  Case 10.1: Lucy v. Zehmer (1954). Offers made in anger, jest, or undue excitement are usually not offers. Expressions of opinion are not offers. Statements of Intention or preliminary negotiations are are not offers. Advertisements, Catalogues, Price Lists, and Circular are treated as Invitations to negotiate and not as offers.

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 Offer-Definiteness of Terms Terms (Expressed or Implied).  Identification of the parties.  Object or subject matter of the contract.  Consideration to be paid.  Time of payment, Delivery, or Performance. Case 10.2: Satellite Entertainment Center v. Keaton (1997). Terms (Expressed or Implied).  Identification of the parties.  Object or subject matter of the contract.  Consideration to be paid.  Time of payment, Delivery, or Performance. Case 10.2: Satellite Entertainment Center v. Keaton (1997).

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 Offer-Communication Offeree’s knowledge of the offer:  Directly by the Offeror.  Use of Agents. Offeree’s knowledge of the offer:  Directly by the Offeror.  Use of Agents.

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 §2: Termination of the Offer An offer may be terminated prior to acceptance by either:  Action of the Parties; or by  Operation of Law. An offer may be terminated prior to acceptance by either:  Action of the Parties; or by  Operation of Law.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 Termination by Action of the Parties [1] Revocation of the offer by the Offeror:  Offer can be withdrawn anytime before Offeree accepts the offer.  Effective when the Offeree or Offeree’s agent receive it.  Exceptions: Irrevocable Offers. Option Contract: Promise to hold an offer open for a specified period of time in return of consideration. Revocation of the offer by the Offeror:  Offer can be withdrawn anytime before Offeree accepts the offer.  Effective when the Offeree or Offeree’s agent receive it.  Exceptions: Irrevocable Offers. Option Contract: Promise to hold an offer open for a specified period of time in return of consideration.

© 2004 West Legal Studies in Business A Division of Thomson Learning 9  Exceptions (Cont’d): Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. Rejection of the offer by the Offeree:  Rejection by the Offeree (expressed or implied) terminates the offer.  Effective only when it is received by the Offeror or Offeror’s agent.  Exceptions (Cont’d): Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. Rejection of the offer by the Offeree:  Rejection by the Offeree (expressed or implied) terminates the offer.  Effective only when it is received by the Offeror or Offeror’s agent. Termination by Action of the Parties [2]

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 Termination by Action of the Parties [3] Rejection by Offeree (Cont’d).  A counteroffer by the Offeree is a rejection of the original offer and making of a new offer. Mirror Image Rule.  Offeree’s acceptance to match the the Offeror’s offer exactly. Rejection by Offeree (Cont’d).  A counteroffer by the Offeree is a rejection of the original offer and making of a new offer. Mirror Image Rule.  Offeree’s acceptance to match the the Offeror’s offer exactly.

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 Termination by Operation of Law Lapse of Time.  Offer terminates by law when the period of time specified in the offer has passed.  If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. Destruction of the Subject Matter. Lapse of Time.  Offer terminates by law when the period of time specified in the offer has passed.  If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. Destruction of the Subject Matter.

© 2004 West Legal Studies in Business A Division of Thomson Learning 12 Termination by Operation of Law [2] Death or Incompetence of the Offeror or Offeree. Supervening Illegality of the Proposed Contract. Death or Incompetence of the Offeror or Offeree. Supervening Illegality of the Proposed Contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning 13 §3: Acceptance Acceptance is the  Voluntary act (expressed or implied),  by the Offeree that,  shows assent (agreement),  to the terms of an offer. “Mirror Image” Rule. Acceptance is the  Voluntary act (expressed or implied),  by the Offeree that,  shows assent (agreement),  to the terms of an offer. “Mirror Image” Rule.

© 2004 West Legal Studies in Business A Division of Thomson Learning 14 Silence as Acceptance Acceptance of Services by Silence.  Sometimes Offeree has a duty to speak. Prior Dealings and Acceptance.  Silence can be acceptance if there are prior dealings. Solicited Offers.  Offeree has a duty to reject. Acceptance of Services by Silence.  Sometimes Offeree has a duty to speak. Prior Dealings and Acceptance.  Silence can be acceptance if there are prior dealings. Solicited Offers.  Offeree has a duty to reject.

© 2004 West Legal Studies in Business A Division of Thomson Learning 15 Mode and Timeliness of Acceptance Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance.  Offeror specifies (expressly or impliedly) how acceptance should be made.  Effective when dispatched (mailed, shipped). Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance.  Offeror specifies (expressly or impliedly) how acceptance should be made.  Effective when dispatched (mailed, shipped).

© 2004 West Legal Studies in Business A Division of Thomson Learning 16 Means of Acceptance Exceptions:  If acceptance is not properly dispatched by the Offeree.  If Offeror specifies that acceptance will not be effective until it is received.  If acceptance is sent after rejection, whichever is received first is given effect. Unauthorized Means of Acceptance.  Not effective until it is received by the Offeror. If timely sent and dispatched it is considered to have been effective on its dispatch. Case 10.3: Osprey LLC v. Kelly-Moore Paint Company (1999). Exceptions:  If acceptance is not properly dispatched by the Offeree.  If Offeror specifies that acceptance will not be effective until it is received.  If acceptance is sent after rejection, whichever is received first is given effect. Unauthorized Means of Acceptance.  Not effective until it is received by the Offeror. If timely sent and dispatched it is considered to have been effective on its dispatch. Case 10.3: Osprey LLC v. Kelly-Moore Paint Company (1999).

© 2004 West Legal Studies in Business A Division of Thomson Learning 17 § 4: Technology and Acceptance Traditional rules provide framework for digital age. But traditional rules may not apply to acceptances via Fed Ex, , or fax. Generally, ‘mailbox rule’ does not apply to online offers. Traditional rules provide framework for digital age. But traditional rules may not apply to acceptances via Fed Ex, , or fax. Generally, ‘mailbox rule’ does not apply to online offers.

© 2004 West Legal Studies in Business A Division of Thomson Learning 18 Law on the Web Law Office’s Website. Law Office’s Website Findlaw.com Contracts Site. Legal Research Exercises on the Web.Legal Research Exercises on the Web Law Office’s Website. Law Office’s Website Findlaw.com Contracts Site. Legal Research Exercises on the Web.Legal Research Exercises on the Web