1. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 AGREEMENT © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 10

2. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 Introduction Contracts are voluntary agreements between the parties. One party makes an offer that is accepted by the other party. Without mutual assent, there is no contract.

3. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Agreement Manifestation by two or more persons of the substance of a contract Agreement Manifestation by two or more persons of the substance of a contract Parties Offeror –Person who makes an offer Offeree –Person to whom an offer has been made Parties Offeror –Person who makes an offer Offeree –Person to whom an offer has been made

4. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 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.” [Restatement (Second) of Contracts]

5. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Requirements for Effective Offer The offeror must objectively intend to be bound by the offer. The terms of the offer must be definite or reasonably certain. The offer must be communicated to the offeree.

6. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 Objective Theory of Contracts Intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties.

7. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 Objective Theory of Contracts (continued) No valid contract results from: –Preliminary negotiations “Would you sell your building for $100,000?” –Offers that are made in jest, anger, or undue excitement

8. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 Express Terms 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. Terms must be definite.

9. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Express Terms (continued) Offer must contain the following terms: –Identification of the parties –Identification of the subject matter and quantity –Consideration to be paid –Time of performance Complex contracts may also contain other terms.

10. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Implied Terms The court can supply a missing term if a reasonable term can be implied. –E.g., time of performance, price. Terms supplied in this way called implied terms.

11. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 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.

12. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Special Offer Situations Advertisements Rewards Auctions

13. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 Advertisements A typical advertisement is an invitation to make an offer. A specific advertisement is an offer. – E.g., “To the first ten customers on November 28, Sony notebook computer model 388x, $200.”

14. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Rewards Offer to form a unilateral contract. –E.g., “I will pay $50 if you return my dog.” To collect, offeree must: Have knowledge of the reward offer prior to completing the requested act Perform the requested act

15. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 Auctions Auction with reserve Unless expressly stated otherwise, an auction is an auction with reserve. 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. 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.

16. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 Termination of Offer by Act of Parties Revocation Rejection Counteroffer

17. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 Revocation Withdrawal of offer by offeror. –By express statement (“I revoke”), or by act inconsistent with offer (e.g., selling goods to another party.) Can revoke at any time prior to acceptance, usually even if offeror promised to hold offer open. –Exception: option contracts. Revocation must be received by offeree to be effective.

18. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Rejection –Words or conduct by offeree that rejects an offer. –Rejection terminates the offer. –Rejection effective when received by offeror.

19. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 Counteroffer –A response by offeree that contains terms and conditions different from or in addition to those of the offer. E.g., “I think your price is too high. I will pay $100,000.” –A counteroffer terminates the offer.

20. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 Termination of Offer by Operation of Law Destruction of the subject matter through no fault of either party prior to its acceptance. Death or incompetency of offeror or offeree. Supervening illegality by enactment of statute, regulation, or court decision. Lapse of time as stated in offer or after reasonable time.

21. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 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. [Restatement (Second) of Contracts]

22. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 22 Acceptance (continued) Only offeree can legally accept the offer and create a contract. Mirror image rule requires the offeree to accept the offeror’s terms unequivocally. –“Okay, I agree to that” is acceptance. –“Okay, I’ll take it, but wish I’d gotten a better price” is acceptance. –“That’s too high a price. I’ll think about it” is not acceptance. –Response by offeree including different or additional terms is not acceptance.

23. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 23 Silence as Acceptance Silence generally not acceptance. Silence serves as acceptance when: –Offeree states that silence means assent. –Offeree signed agreement indicating continuing acceptance until further notification. –Prior dealings indicate that silence means assent. –Offeree accepts benefits, had opportunity to reject, knows offeror expects compensation.

24. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 24 Time and Mode of Acceptance –Mailbox Rule –Proper Dispatch Rule –Mode of Acceptance Express Authorization Implied Authorization

25. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 25 Time and Mode of Acceptance (continued) Mailbox Rule –Acceptance-upon-dispatch rule. –Acceptance is effective when dispatched, even if it is lost in transmission. Potential for confusion. Wise offeror may state in offer that acceptance effective upon receipt. –If offeree first dispatches a rejection and then sends acceptance, mailbox rule does not apply.

26. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 26 Time and Mode of Acceptance (continued) Proper Dispatch Rule –Acceptance must be properly dispatched. Properly addressed, packaged, and posted –Under common law, if acceptance is not properly dispatched, it is not effective until actually received by the offeror.

27. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 27 Mode of Acceptance Express Authorization If offer says acceptance must be by a specified means of communication. Use of an unauthorized means, acceptance not effective. Express Authorization If offer says acceptance must be by a specified means of communication. Use of an unauthorized means, acceptance not effective. Implied Authorization Mode of acceptance implied from what is customary in similar transactions, usage of trade, or prior dealings between the parties. Implied Authorization Mode of acceptance implied from what is customary in similar transactions, usage of trade, or prior dealings between the parties.

28. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 28 Offer and Acceptance: Summary Communication by Offeror Effective When OfferReceived by offeree Revocation of offerReceived by offeree

29. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 29 Offer and Acceptance: Summary (continued) 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