1 Ch 11 & Ch12—The Heart of A Contract Ch 11: A. Requirements of an Offer 1. Intent 2. Definiteness 3. Communication B. Termination of the Offer C. Acceptance

2 Ch 10 & Ch11—The Heart of A Contract Ch 12: Consideration A. Elements of Consideration B. Adequacy of Consideration C. Contracts That Lack Consideration 1. Pre-existing Duty 2. Past Consideration 3. Illusory Promises D. Settlement of Claims E. Promissory Estoppel

3 §1: Requirements of the Offer Offeror’s serious intention. Definiteness of terms. Communication to Offeree.

4 Offeror’s Serious Intention Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer. –Case: 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.

5 Auctions With Reserve (normal): Auction = Invitation to Offer Bid = Offer Acceptance = “sold” or gavel falls Without Reserve: Auction = offer to sell Bid = Acceptance

6 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 : Satellite Entertainment Center v. Keaton (1997).

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.

8 Termination by Action of the Parties [1] Revocation of the offer by the Offeror: –Offer can be withdrawn anytime before Offeree accepts the offer.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.

9 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]

10 Irrevocable Offers –Exceptions (Irrevocable Offers): Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. Option contracts—the offeror, in exchange for consideration from the offeree, cannot revoke the offer for a stipulated period of time.  The offeree must give the offeror valuable consideration to make an option k irrevocable.  Offers on which the offeree has justifiably relied to his/her detriment (a.k.a promissory estoppel)

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.

12 Termination by Operation of Law [2] Death or Incompetence of the Offeror or Offeree. Supervening Illegality of the Proposed Contract.

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.

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.

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).

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 : Osprey LLC v. Kelly-Moore Paint Company (1999).

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.

18 Introduction Consideration is legal value given in return for a promise or performance. –Must have something of legally sufficient value. –Must be given as part of a bargained-for exchange.

19 §1: Elements of Consideration Consideration for a promise must be either: –Legally detrimental to the promisee, or Legally beneficial to the promisor. “Legal Value”: –Promise, –Performance, or –Forbearance. Case : Hamer v. Sidway (1891).

20 §3: Agreements That Lack Consideration Preexisting Duty. –Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. –Exceptions: Unforeseen Difficulties. Recession and New Contract. Past Consideration is no consideration because the bargained-for exchange element is missing.

21 Uncertain Performance Illusory Promises. –Promisor has not definitely promised to do anything (no promise at all). Option-to-Cancel Clauses. Requirements and Output Contracts.