Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6 th Edition by Henry R. Cheeseman Chapter 10 Agreement and Consideration

10 - 2Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Introduction Contracts are voluntary agreements between the parties. One party makes an offer that is accepted by the other party. mutual assent Without mutual assent, there is no contract.

10 - 3Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Agreement Agreement The manifestation by two or more persons of the substance of a contractAgreement Parties Involved Offeror Person who makes an offer Offeree Person to whom an offer has been made Parties Involved Offeror Person who makes an offer Offeree Person to whom an offer has been made

10 - 4Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Offer “The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” [Section 24 of the Restatement (Second) of Contracts]

10 - 5Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Requirements of an Offer For an offer to be effective: objectively intend 1.The offeror must objectively intend to be bound by the offer. certain. 2.The terms of the offer must be definite or reasonably certain. communicated 3.The offer must be communicated to the offeree.

10 - 6Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Objective Intent objective theory of contracts. The intent to enter into a contract is determined using the objective theory of contracts. i.e., whether a reasonable person viewing the circumstances would conclude that the parties intended to be legally bound Offers that are made in jest, anger, or undue excitement do not include the necessary objective intent.

10 - 7Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Definiteness of Terms (1 of 3) The terms of an offer must be clear enough to the offeree to be able to decide whether to accept or reject the terms of the offer. If the terms are indefinite, the courts cannot enforce the contract or determine an appropriate remedy for its breach.

10 - 8Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Definiteness of Terms (2 of 3) An offer (and contract) must contain the following terms: Identification of the parties Identification of the subject matter and quantity Consideration to be paid Time of performance

10 - 9Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Definiteness of Terms (3 of 3) Implied Terms The court can supply a missing term if a reasonable term can be implied. implied terms. Terms that are supplied in this way are called implied terms.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Communication An offer cannot be accepted if it is not communicated to the offeree by the offeror or a representative or agent of the offeror.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Special Offer Situations: Advertisements A general advertisement is an invitation to make an offer. A specific advertisement is an offer. A general advertisement is an invitation to make an offer. A specific advertisement is an offer.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Special Offer Situations: Rewards reward An offer to pay a reward is an offer to form a unilateral contract. To collect a reward, the offeree must: 1.Have knowledge of the reward offer prior to completing the requested act 2.Perform the requested act

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Special Offer Situations: Auctions Auction With Reserve Unless expressly stated otherwise, an auction is an auction with reserve, i.e., the seller retains the right to refuse the highest bid and withdraw the goods from auction Auction With Reserve Unless expressly stated otherwise, an auction is an auction with reserve, i.e., the seller retains the right to refuse the highest bid and withdraw the goods from auction Auction Without Reserve An auction in which the seller expressly gives up his or her right to withdraw the goods from sale and must accept the highest bid Auction Without Reserve An auction in which the seller expressly gives up his or her right to withdraw the goods from sale and must accept the highest bid

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Termination of an Offer (1 of 3) Revocation of the Offer by the Offeror Revocation of the Offer by the Offeror offeror Withdrawal of an offer by the offeror terminates the offer offeror An offeror can revoke an offer at any time prior to its acceptance by the offeree Rejection of the Offer by the Offeree Rejection of the Offer by the Offeree offeree Express words or conduct by the offeree that rejects an offer Rejection terminates the offer

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Termination of an Offer (2 of 3) Counteroffer by the Offeree Counteroffer by the Offeree offeree A response by an offeree that contains terms and conditions different from or in addition to those of the offer A counteroffer terminates an offer Destruction of the Subject Matter Destruction of the Subject Matter prior The offer terminates if the subject matter of the offer is destroyed through no fault of either party prior to its acceptance

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Termination of an Offer (3 of 3) Death or Incompetency of the Offeror or Offeree Death or Incompetency of the Offeror or Offeree The death or incompetency of either party terminates the offer Supervening Illegality Supervening Illegality The enactment of a statute, regulation, or court decision that makes the object of an offer illegal This action terminates the offer Lapse of Time Lapse of Time An offer terminates when a stated time period expires

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Option Contracts option contract An option contract is created if an offeree pays the offeror compensation to keep an offer open for an agreed upon period of time. The offeror cannot sell the property to anyone else during the option period.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Acceptance (1 of 2) Acceptance Acceptance A manifestation of assent by the offeree to the terms of the offer in a manner invited or required by the offer as measured by the objective theory of contracts. [Section 50 of the Restatement (Second) of Contracts]

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Acceptance (2 of 2) offeree Only the offeree can legally accept an offer and create a contract. offeree’s The offeree’s acceptance must be unequivocal. Mirror image rule Mirror image rule requires the offeree to accept the offeror’s terms. Silence Silence is not considered acceptance even if the offeror states that it is.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Time of Acceptance (1 of 2) Mailbox Rule Mailbox Rule A rule that states that an acceptance is effective when it is dispatched, even if it is lost in transmission acceptance-upon-dispatch rule Also called the acceptance-upon-dispatch rule offeree If an offeree first dispatches a rejection and then sends an acceptance, the mailbox rule does not apply to the acceptance

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Time of Acceptance (2 of 2) Proper Dispatch Rule Proper Dispatch Rule properly dispatched The acceptance must be properly dispatched The acceptance must be properly addressed, packaged, and posted to fall within the mailbox rule common law offeror Under common law, if an acceptance is not properly dispatched, it is not effective until it is actually received by the offeror

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Mode of Acceptance Express Authorization A stipulation in the offer that says the acceptance must be by a specified means of communication Use of an unauthorized means of communication makes acceptance not effective Express Authorization A stipulation in the offer that says the acceptance must be by a specified means of communication Use of an unauthorized means of communication makes acceptance not effective Implied Authorization Mode of acceptance that is implied from what is customary in similar transactions, usage of trade, or prior dealings between the parties Implied Authorization Mode of acceptance that is implied from what is customary in similar transactions, usage of trade, or prior dealings between the parties

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Offer and Acceptance: Summary (1 of 2) Communication by Offeror Effective When OfferReceived by offeree Revocation of offerReceived by offeree

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Offer and Acceptance: Summary (2 of 2) Communication by Offeree Effective When Rejection of offerReceived by offeror CounterofferReceived by offeror Acceptance of offerSent by offeree Acceptance after previous rejection of offer Received by offeror

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Nondisclosure Agreements (NDA) An NDA swears the signatory to secrecy about confidential ideas, trade secrets, and other nonpublic information revealed by the party proffering the NDA. An NDA is an enforceable contract. If someone violates it the disclosing party can sue the breaching party for damages.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Consideration Consideration Consideration – something of legal value given in exchange for a promise. Consideration is a necessary element for the existence of a contract. Common types of consideration are: A tangible payment (money or property); or Performance of an act (e.g., providing legal services)

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Requirements of Consideration Legal Value Under the modern law of contracts, a contract is considered supported by legal value if: legal detriment 1.The promisee suffers a legal detriment ; or legal benefit 2.The promisor receives a legal benefit Legal Value Under the modern law of contracts, a contract is considered supported by legal value if: legal detriment 1.The promisee suffers a legal detriment ; or legal benefit 2.The promisor receives a legal benefit Bargained-For Exchange Exchange that parties engage in that leads to an enforceable contract Gift or gratuitous promise Gift or gratuitous promise is an unenforceable promise because it lacks consideration Bargained-For Exchange Exchange that parties engage in that leads to an enforceable contract Gift or gratuitous promise Gift or gratuitous promise is an unenforceable promise because it lacks consideration

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Special Contracts Requirements Contracts Requirements Contracts Buyer agrees to purchase all the requirements for an item from a single seller Output Contracts Output Contracts Seller agrees to sell all its production to a single buyer Best Efforts Contracts Best Efforts Contracts Contracts that require a party to use its best efforts to accomplish the objective of the contract

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Contracts Lacking Consideration Type of Consideration Description of Promise Illegal consideration Promise to refrain from doing an illegal act. Illusory promise Promise where one or both parties can choose not to perform their obligation. Moral obligation Promise made out of a sense of moral obligation or honor or love or affection. Some states enforce these types of contracts. Preexisting duty Promise based on the preexisting duty of the promisee to perform. The promise is enforceable if (1) the parties rescind the contract and enter into a new contract, or (2) there are unforeseen difficulties. Past consideration Promise based on the past performance of the promise.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Settlement of Claims Accord Accord – an agreement whereby the parties agree to accept something different in satisfaction of the original contract. Satisfaction Satisfaction – the performance of the accord. If the accord is not satisfied, the other party can sue to enforce either the accord or the original contract.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Promissory Estoppel (1 of 3) A doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Promissory Estoppel (2 of 3) promissory estoppel For the doctrine of promissory estoppel to be applied, the following elements must be shown: 1.The promisor made a promise. 2.The promisor should have reasonably expected to induce the promisee to rely on the promise.

Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Promissory Estoppel (3 of 3) 3.The promisee actually relied on the promise and engaged in an action or forbearance of a right of a definite and substantial nature. 4.Injustice would be caused if the promise were not enforced.