Chapter 9 Contracts Agreement and Consideration 2002 by

Agreement § Agreement = Offer and Acceptance. § Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed. © 2002 by West Legal Studies in Business A Division of Thomson Learning 2

Requirements of the Offer §Offeror’s serious intention. §Definiteness of terms. §Communication. –Case 9. 1 Lucy v. Zehmer (1954). © 2002 by West Legal Studies in Business A Division of Thomson Learning 3

Offeror’s Serious Intention § Offers made in anger, jest, or undue excitement are usually not offers. § Expressions of opinion are not offers. § Statements of Intention or preliminary negotiations are not offers. – Case 9. 2 Mellen v. Johnson (1948). § Advertisements, Catalogues, Price Lists, and Circular are treated as Invitations to negotiate and not as offers. © 2002 by West Legal Studies in Business A Division of Thomson Learning 4

Definiteness of Terms § Terms (Expressed or Implied). – Identification of the parties. – Object or subject matter of the contract. – Consideration to be paid. – Time of payment, Delivery, or Performance. § Case 9. 3 R. K. Chevrolet, Inc. v. Hayden (1997). © 2002 by West Legal Studies in Business A Division of Thomson Learning 5

Offer-Communication § Offeree’s knowledge of the offer: – Directly by the Offeror. – Use of Agents. – Case 9. 4 Glover v. Jewish War Veterans (1949). © 2002 by West Legal Studies in Business A Division of Thomson Learning 6

Termination of the Offer § An offer may be terminated prior to acceptance by either: – Action of the Parties; or by – Operation of Law. © 2002 by West Legal Studies in Business A Division of Thomson Learning 7

Termination by Action of the Parties § Revocation of the Offer by the Offeror: – Offer can be withdrawn anytime before Offeree accepts the offer. – Effective when the Offeree or Offeree’s agent receive it. – Exceptions: • Irrevocable Offers. • Option Contract: Promise to hold an offer open for a specified period of time in return of consideration. © 2002 by West Legal Studies in Business A Division of Thomson Learning 8

Termination by Action of the Parties – Exceptions (Cont’d): • Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. § Rejection of the offer by the Offeree: – Rejection by the Offeree (expressed or implied) terminates the offer. – Effective only when it is received by the Offeror or Offeror’s agent. © 2002 by West Legal Studies in Business A Division of Thomson Learning 9

Termination by Action of the Parties § Rejection by Offeree (Cont’d). – A counteroffer by the Offeree is a rejection of the original offer and making of a new offer. § Mirror Image Rule. – Offeree’s acceptance to match the Offeror’s offer exactly. © 2002 by West Legal Studies in Business A Division of Thomson Learning 10

Termination by Operation of Law § Lapse of Time. – Offer terminates by law when the period of time specified in the offer has passed. – If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. § Destruction of the Subject Matter. © 2002 by West Legal Studies in Business A Division of Thomson Learning 11

Termination by Operation of Law § Death or Incompetence of the Offeror or Offeree. § Supervening Illegality of the Proposed Contract. © 2002 by West Legal Studies in Business A Division of Thomson Learning 12

Acceptance § Voluntary act (expressed or implied), § by the Offeree that, § shows assent (agreement), § to the terms of an offer. © 2002 by West Legal Studies in Business A Division of Thomson Learning 13

Mode and Timeliness of Acceptance § Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance. – Offeror specifies (expressly or impliedly) how acceptance should be made. – Effective when dispatched (mailed, shipped). © 2002 by West Legal Studies in Business A Division of Thomson Learning 14

Means of Acceptance § Exceptions: – If acceptance is not properly dispatched by the Offeree. – If Offeror specifies that acceptance will not be effective until it is received. – If acceptance is sent after rejection, whichever is received first is given effect. § Unauthorized Means of Acceptance. – Not effective until it is received by the Offeror. If timely sent and dispatched it is considered to have been effective on its dispatch. © 2002 by West Legal Studies in Business A Division of Thomson Learning 15

Consideration is legal value given in return for a promise or performance. – Must have something of legal value or sufficiency. – Must be a bargained-for exchange. © 2002 by West Legal Studies in Business A Division of Thomson Learning 16

Legal Sufficiency of Consideration for a promise must be either: –Legally detrimental to the promisee, or –legally beneficial to the promisor. © 2002 by West Legal Studies in Business A Division of Thomson Learning 17

Contracts That Lack Consideration § Preexisting Duty. – Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. – Exceptions: • Unforeseen Difficulties. • Recession and New Contract. § Past Consideration is no consideration because the bargained-for exchange element is missing. © 2002 by West Legal Studies in Business A Division of Thomson Learning 18

Consideration Issues § Illusory Promise: promissor has not definitely promised to do anything (no promise at all). § Settlement of Claims: Debtor offers to pay a lesser amount than the creditor purports to be owed. © 2002 by West Legal Studies in Business A Division of Thomson Learning 19

Consideration Issues § Accord and Satisfaction. – Liquidated Debt. • Amount has been ascertained, fixed, agreed on, settled, or exactly determined. – Unliquidated Debt. • Parties give up legal right to contest the amount in dispute, and thus consideration is given. © 2002 by West Legal Studies in Business A Division of Thomson Learning 20

Consideration Issues § Release bars any further recovery beyond the terms stated in the release. § Covenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim. © 2002 by West Legal Studies in Business A Division of Thomson Learning 21

Promises Enforceable Without Consideration § Promises to Pay Debt Barred by a Statue of Limitations. § Detrimental Reliance and Promissory Estoppel. – Must be clear and definite promise – Promisee must justifiably and substantially rely – Justice will be served. © 2002 by West Legal Studies in Business A Division of Thomson Learning 22