CHAPTER 10
CONTRACTUAL AGREEMENT:
MUTUAL ASSENT
DAVIDSON, KNOWLES & FORSYTHE
Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE FIRST STEP IN
CONTRACT FORMATION

Valid offer by the offeror (the person
making the offer).
 Valid acceptance by the offeree (the person
to whom the offer is made).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
MUTUAL ASSENT

Requires the assent of both parties to the
agreement.
 Parties must agree exactly to the same terms
and conditions.
 Without mutual assent no agreement comes
into existence.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE OBJECTIVE THEORY
OF CONTRACTS

Offeror has the right to set the terms of the
offer.
 Offeror controls method of acceptance by
the offeree.
 Offeror must exhibit clear and present intent
to offer.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE OBJECTIVE THEORY
OF CONTRACTS

Objective: observed and verified without
being distorted by personal feelings and
prejudices.
 Subjective: observed and verified through
individual feelings and emotions.
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A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
OFFER

Clear Intention to Contract and Definiteness
of the Offer
– Statements of opinions, intentions, and
preliminary negotiations lack definiteness.
– Offer must be specific in all particulars.

Advertisements and Auctions
– Advertisements not valid offers because lack
sufficient specificity.
– In auctions the law treats the bidder as the
offeror.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
OFFER

Communication of the Offer to the Offeree.
– Offeror must communicated the offer to the
offeree to have legal effect.

Duration of the Offer.
 Four methods for terminating an offer:
–
–
–
–
Lapse;
Revocation;
Rejection;
Acceptance.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ACCEPTANCE

Usual mode of terminating an offer.
 Offeror and offeree have arrived at an
agreement.
 Binding contract exists.
 Involves the offeree’s assent to all the terms
of the offer.
 The acceptance is oral, written, or implied.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
8
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ACCEPTANCE

Mirror-Image Rule: the acceptance must
match, term by term, the provisions in the
offer.
 Manner and Time of Acceptance: offeree
must accept in exactly the mode specified or
stipulated, by the offeror in the offer.
Acceptance becomes legally effective at the
time of dispatch.
– “Mailbox Rule”.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
9
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ACCEPTANCE

Silence: overt act accompanies acceptance, which
requires a clear intent to accept, prior dealings of
parties may permit acceptance based on silence.
 Bilateral vs. Unilateral Contracts.
– Bilateral Contracts the offeree accepts by either
a direct communication to offeror or a counterpromise inferred from the offeree’s conduct.
– Unilateral Contracts the offeree accepts by
merely completing the act called for in the
offer.
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A Division of Thomson Learning
10