Chapter 10 Agreement 2007 Prentice Hall Business Law

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 2

Agreement Parties • The manifestation by two or more persons of the substance of a contract • Offeror – Person who makes an offer • Offeree – Person to whom an offer has been made © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 3

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] © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 4

Requirements of an Offer For 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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 5

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 6

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 7

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 8

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 9

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

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 11

Special Offer Situations Advertisements Rewards Auctions © 2007 Prentice Hall, Business Law, sixth edition,

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

Rewards • • An offer to pay a reward is an offer to form a unilateral contract. To collect a reward, the offeree must: 1. 2. Have knowledge of the reward offer prior to completing the requested act Perform the requested act © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 14

Auctions Auction without reserve • Unless • An auction in expressly which the stated seller expressly otherwise, an gives up his or auction is an her right to auction withdraw the reserve, i. e. , the goods from seller retains sale and must the right to accept the refuse the highest bid and withdraw © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 15

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 16

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 17

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 18

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 19

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] © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 20

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 21

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 22

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 acceptanceupon-dispatch rule. – If an offeree first dispatches a rejection and then sends an acceptance, the mailbox rule does not apply to the acceptance. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 23

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 24

Mode of Acceptance Express Implied Authorization • A stipulation in • Mode of the offer that acceptance says the that is implied acceptance from what is must be by a customary in specified similar means of transactions, communicatio n. usage of trade, or prior • Use of an unauthorized dealings means of between the communicatio parties. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman n makes 10 - 25

Offer and Acceptance: Summary (1 of 2) Communication by Offeror Effective When Offer Received by offeree Revocation of offer Received by offeree © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 26

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 Received by offeror previous rejection of offer © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 10 - 27