10 - 1 © 2007 prentice hall, business law, sixth edition, henry r. cheeseman chapter 10 agreement...

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 1

Chapter 10Agreement

Chapter 10Agreement


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.


AgreementAgreement• The

manifestation by two or more persons of the substance of a contract

Agreement• The

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


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]


Requirements of an OfferFor an offer to be

effective:• 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.


Objective Theory of Contracts

• A theory that says the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties.


Objective Theory of Contracts (continued)

• No valid contract results from:– Preliminary negotiations– Offers that are made in jest,

anger, or undue excitement– Offers that are an expression

of opinion


Definiteness of 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.

• If the terms are indefinite, the courts cannot enforce the contract or determine an appropriate remedy for its breach.


Definiteness of Terms (continued)

• 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


Definiteness of Terms (continued)

Implied Terms• The court can supply a

missing term if a reasonable term can be implied.

• Terms that are supplied in this way are called implied terms.


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.


Special Offer Situations

AdvertisementsAdvertisements

RewardsRewards

AuctionsAuctions


Advertisements

• A general advertisement is an invitation to make an offer.

• A specific advertisement is an offer.


Rewards• 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


AuctionsAuction 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


Termination of an Offer by Action of the Parties

• Revocation– Withdrawal of an offer by the

offeror terminates the offer.– An offeror can revoke an offer

at any time prior to its acceptance by the offeree.

• Rejection– Express words or conduct by

the offeree that rejects an offer.

– Rejection terminates the offer.


Termination of an Offer by Action of the Parties (continued)

• Counteroffer– 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.


Termination of the Offer by Operation of Law

• Destruction of the subject matter– The offer terminates if the

subject matter of the offer is destroyed through no fault of either party prior to its acceptance.

• Death or incompetency of the offeror or offeree– The death or incompetency of

either party terminates the offer.


Termination of the Offer by Operation of Law (continued)

• 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– An offer terminates when a

stated time period expires.


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]


Acceptance (continued)

• Only the offeree can legally accept an offer and create a contract.

• The offeree’s acceptance must be unequivocal.– Mirror image rule requires the

offeree to accept the offeror’s terms.

• Silence is not considered acceptance even if the offeror states that it is.


Time and Mode of Acceptance

• Contract law establishes the following rules concerning the time and mode of acceptance:– Mailbox Rule– Proper Dispatch Rule– Mode of Acceptance

• Express Authorization• Implied Authorization


Time and Mode of Acceptance (continued)

• Mailbox Rule– A rule that states that an

acceptance is effective when it is dispatched, even if it is lost in transmission.

– Also called the acceptance-upon-dispatch rule.

– If an offeree first dispatches a rejection and then sends an acceptance, the mailbox rule does not apply to the acceptance.


Time and Mode of Acceptance (continued)

• Proper Dispatch Rule– The acceptance must be

properly dispatched.– The acceptance must be

properly addressed, packaged, and posted to fall within the mailbox rule.

– Under common law, if an acceptance is not properly dispatched, it is not effective until it is actually received by the offeror.


Mode of AcceptanceExpress

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.


Offer and Acceptance: Summary (1 of 2)

Communication by Offeror

Effective When

Offer Received by offeree

Revocation of offer Received by offeree


Offer and Acceptance: Summary (2 of 2)

Communication by Offeree

Effective When

Rejection of offer Received by offeror

Counteroffer Received by offeror

Acceptance of offer Sent by offeree

Acceptance after previous rejection of offer

Received by offeror

10 - 1 © 2007 prentice hall, business law, sixth edition, henry r. cheeseman chapter 10 agreement...

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