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: Acceptance PA E TR HC 11 “Make your bargain before beginning to plow.” Arab proverb

Learning Objectives  Basics of Acceptance  Intent  Communication  Special Problems

 Acceptance must be by clear expression by offeree of intent to be bound by terms of offer and communicated to offeror  Only offeree may accept offer  If offer calls for performance, then performance is acceptance  Offeror may specify manner of accepting offer  Example: “notify of your acceptance in writing” Requirements for Acceptance

Specht v. Netscape Communications Corp.  Facts & Procedural History :  Plaintiffs offered or downloaded Netscape software  Netscape included a licensing agreement in its “SmartDownload” process  Plaintiffs sued Netscape, alleging that download process transmitted private information  Netscape moved to compel arbitration per their online licensing agreement 8 - 7

Specht v. Netscape Communications Corp.  Issue: Under what circumstances does the act of downloading create a contract?  Reasoning and Holding:  Promises become binding when there is a meeting of the minds and consideration is exchanged  Netscape’s “browse-wrap” license merely invited plaintiffs to agree to the license  Plaintiffs did not assent to the license, thus are not subject to arbitration clause in the contract 8 - 8

 Silence may be acceptance  General rule is that an offeree’s silence, without more, is not an acceptance  Circumstances may impose a duty on offeree to reject the offer affirmatively or be bound  Includes cases in which offeree’s silence objectively indicates an intent to accept  Example: McGurn v. Bell Microproducts, Inc. Requirements for Acceptance

McGurn v. Bell Microproducts  Facts :  Bell extended offer of employment to plaintiff  Plaintiff altered written offer to include severance package, signed and returned  Bell silent regarding alteration and plaintiff worked for more than a year  Bell fired plaintiff and refused to pay severance  Plaintiff won summary judgment for breach of contract

McGurn v. Bell Microproducts  Reasoning & Ruling :  Silence in response to an offer does not constitute acceptance unless offeree takes benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation  Restatement (Second) of Contracts §69  Whether Bell accepted plaintiff’s alteration of the contract by its silence and conduct is a matter of fact, thus a matter for the jury; case remanded

 Traditional contract law rule required acceptance to be the mirror image of the offer  Currently, judges hold that only material variances between an offer and an alleged acceptance result in an implied rejection of the offer Mirror Image Rule

 UCC 2–207 allows contract formation even when there is some variance between terms of offer and terms of the acceptance  A definite and timely expression of acceptance creates a contract, even if it includes terms that are different from those stated in the offer or even if it states additional terms that the offer did not address [2–207(1)]  Example: Standard Bent Glass Corporation v. Glassrobots Oy Mirror Image Rule & The UCC

 With instantaneous forms of communication, knowing when acceptance occurs is easy  Complicated by non-instantanesous forms (e.g., mail)  Mailbox rule makes acceptance effective upon dispatch when the offeree used a manner of communication expressly or impliedly authorized (invited) by the offeror  Courts today allow communication by any reasonable means of communication  See Ellefson v. Megadeth, Inc. Communicating Acceptance

OFFER + ACCEPTANCE AGREEMENT Effect of Acceptance

Test Your Knowledge  True=A, False = B  Silence may never indicate acceptance  Offeror may specify manner of acceptance  O nly material variances between an offer and an alleged acceptance result in an implied rejection of the offer  UCC 2–207 does not allow contract formation if there is some variance between terms of offer and terms of the acceptance

Test Your Knowledge  Multiple Choice  The effect of offer plus acceptance is:  (a) negligible  (b) an agreement  (c) the mirror image rule  (d) none of the above

Thought Question  Do you read shrink-wrap and browse- wrap license agreements?