1. Fundamentals of Business Law Summarized Cases, 8 th Ed., and Excerpted Cases, 2 nd Ed. ROGER LeROY MILLER Institute for University Studies Arlington, Texas GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

2. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2 Learning Objectives 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 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?

3. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3Agreement An essential element of contract formation is AGREEMENT: –OFFER, and –ACCEPTANCE.

4. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Requirements of the Offer Serious Intention, Reasonably Definite Terms, and Communication to Offeree. CASE 8.1 Lucy v. Zehmer (1954).

5. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Offer: Intention Opinions are not offers. Good Intentions are not offers. Preliminary Negotiations are not offers. Advertisements and Circulars are considered “invitations to negotiate.” Auctions are not offers. Agreements to Agree are not offers. –CASE 8.1 Basis Technology Corp. v. Amazon.com, Inc. (Mass, 2008).

6. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Offer: Definiteness Offer must have reasonably definite terms so a court can determine whether breach occurred. –Offer can require acceptance to be worded in such a way for contract to be formed.

7. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Offer: Communication Communication: Offer must be communicated to offeree.

8. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Termination of the Offer By Act of the Parties. Revocation by Offeror (unless irrevocable). Rejection by Offeree (or counteroffer). Operation of Law: –Lapse of time. –Destruction of the subject matter. –Death or incompetence of Offeror or Offeree. –Supervening illegality of proposed contract.

9. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9Acceptance Voluntary act by Offeree that shows assent to original terms. Unequivocal Acceptance: “Mirror Image” Rule. –Offeree must unequivocally accept offer. –Additional terms may be considered a counteroffer. Silence as Acceptance. –Ordinarily silence is not acceptance, unless offeree has duty to speak (benefit of services).

10. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10Acceptance 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. Authorized Means of Acceptance: Offeree must accept the offer in the form it was received, unless offer requires a different method (e.g., Fed-Ex, or receipt by Offeror).

11. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 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.

12. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 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. Legal Sufficiency and Adequacy

13. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Pre-Existing Duty. –Unforeseen Difficulties. –Rescission and New Contract. Past Consideration. –CASE 8.3 Access Organics, Inc. v. Hernandez (Montana, 2008). Illusory Promises. Agreements That Lack Consideration

14. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Settlement of Claims Accord and Satisfaction. –Amount of debt must be in dispute. –If liquidated debt (uncertain) accord and satisfaction cannot occur. Release. –Good faith, signed writing, consideration. Covenant Not to Sue. –Does not always bar further recovery.

15. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 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.