1. © 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 8 Contracts: Agreement and Consideration

2. © 2007 West Legal Studies in Business, A Division of Thomson Learning 2 What elements are necessary for an effective offer? What are some examples of nonoffers? In what circumstances will an offer be irrevocable? What are the elements that are necessary for an effective acceptance? What is consideration? What is required for consideration to be legally sufficient? In what circumstances might a promise be enforced despite a lack of consideration? Learning Objectives

3. © 2007 West Legal Studies in Business, A Division of Thomson Learning 3 Agreement An essential element of contract formation is AGREEMENT: –OFFER, and –ACCEPTANCE.

4. © 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Offer--Requirements Elements: –Serious Intention, –Reasonably Definite Terms, and –Communication to Offeree. –CASE 8.1 Lucy v. Zehmer (1954).

5. © 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Offer--Requirements Serious Intention: –Opinions are not offers. –Good Intentions are not offers. –Preliminary Negotiations are not offers. –Agreements to Agree are not offers. –Auctions are not offers.

6. © 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Offer--Requirements Definiteness: Offer must have reasonably definite terms so a court can determine whether breach occurred. –CASE 8.2 Satellite Entertainment Center, Inc. v. Keaton (2002). Communication: Offer must be communicated to offeree.

7. © 2007 West Legal Studies in Business, A Division of Thomson Learning 7 Offer—Termination By Act of the Parties. Revocation by Offeror (unless irrevocable). Rejection by Offeree (or counteroffer). Operation of Law: lapse of time, destruction, death or incompetence, supervening illegality.

8. © 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Acceptance Voluntary act by Offeree that shows assent to terms of original offer. Mirror Image Rule. –Offeree must unequivocally accept offer. –Additional terms may be considered a counteroffer. Acceptance by Silence. –Ordinarily silence is not acceptance, unless offeree has duty to speak (benefit of services).

9. © 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Acceptance Communication of Acceptance. –Authorized Means of Communication is either express or implied by form of offer (e.g., U.S. mail, fax, email). –“Mailbox Rule”: Offeree accepts offer when the acceptance is dispatched to Offeror in the form it was received, unless offer requires a different method (e.g., Fed-Ex, or receipt by Offeror).

10. © 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Consideration and Its Requirements Consideration is value given in return for a promise. –Something of legally sufficient value, –Given in a bargained-for-exchange between the parties.

11. © 2007 West Legal Studies in Business, A Division of Thomson Learning 11 Legal Sufficiency and Adequacy Sufficient consideration must be something of value in the eyes of the law. Adequate consideration is “fair” although courts do not generally consider this. If consideration is inadequate (e.g., fraud) courts may strike down the contract as unconscionable. CASE 8.3 Seaview Orthopaedics v. National Healthcare Resources, Inc. (2004).

12. © 2007 West Legal Studies in Business, A Division of Thomson Learning 12 Contracts That Lack Consideration Pre-Existing Duty. Unforeseen Difficulties. Past Consideration. Illusory Promises.

13. © 2007 West Legal Studies in Business, A Division of Thomson Learning 13 Settlement of Claims Accord and Satisfaction. Release. Covenant Not to Sue.

14. © 2007 West Legal Studies in Business, A Division of Thomson Learning 14 Promissory Estoppel Promissory Estoppel (“detrimental reliance”) doctrine applies when a person relies on the promise of another to her legal detriment. Promisor is “estopped” (precluded) from revoking the promise. There must be: –Clear and definite promise with substantial reliance –Justice is served by enforcement of the promise.