Chapter 14
Agreement
Chapter 14 Hypothetical
o
Keith Avondale is in the market for a new “big screen” flat-panel television.
While reviewing the Sunday newspaper, he notices a full-page
advertisement from “Transistor Town.” The advertisement includes a 45inch flat-panel television for $299. Surprised by the remarkably low price,
and eager to purchase his new luxury item, Avondale makes plans to
“open the store” on Monday morning.
Avondale is the first customer to arrive at the store on Monday, waiting
outside when the front doors open. He rushes into the store and announces
to the first sales representative he sees, “I will take a 45-inch flat-panel
television for $299!”
The sales representative immediately refers Avondale to the store
manager, who directs Avondale to his office. The store manager explains
to Avondale that the advertisement was an unfortunate mistake, resulting
from miscommunication between Transistor Town and the newspaper
publisher. The manager goes on to say that the intended advertise price
was $2,999, but that he would be willing to sell the described television to
Avondale for $2,449, Transistor Town’s cost for the television. Avondale
objects, demands that Transistor Town sell the television for $299, and
informs the store manager that his brother is a trial lawyer.
Who wins?
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Agreement
o Agreement = offer and acceptance.
o Parties must show mutual assent to
terms of contract.
o Once an agreement is reached, if the
other elements of a contract are
present, a valid contract is formed.
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Requirements of the Offer
o Offeror’s serious intention to be
bound.
o Definiteness of terms.
o Communication to Offeree.
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Offer
o Proposal/invitation by offeror to enter
into a contract.
o Objective intent by offeror to be
obligated by the offer; what would a
“reasonable person” think viewing the
communications and conduct of the
parties under the circumstances
o Terms of the offer must be reasonably
definite; need not be exact.
o Must be communicated to the
offeree.
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Offer: Intention
o Contract is judged by what a reasonable
person in the Offeree’s position would
conclude about the offer.
o Offers made in anger, jest, or undue
excitement are usually not offers.
o Expressions of opinion are not offers.
o Statements of Intention or preliminary
negotiations are are not offers.
o Advertisements, Catalogues, Price Lists, and
Circular are treated as Invitations to
negotiate and not as offers.
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Offer: Definiteness of Terms
o Terms (Expressed or Implied).
o Identification of the parties.
o Object or subject matter of the contract.
o Consideration to be paid.
o Time of payment, Delivery, or
Performance.
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Offer: Communication
o Offeree’s knowledge of the offer:
o Directly by the Offeror.
o Use of Agents.
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Auctions
o Auction With Reserve
o Seller merely expresses intent to receive
offers
o Auctioneer (as representative of seller)
may withdraw item from auction at any
time before “hammer falls”
o Before hammer falls (signaling
acceptance of offer), bidder/offeror may
revoke bid
o Auction Without Reserve
o Seller must accept highest bid
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Termination of the Offer
o Rejection by the offeree.
o Withdrawal/revocation by the offeror.
o By operation of law; e.g., by lapse of
a specified or “reasonable” time.
o Counteroffer by the offeree (See
Mirror Image Rule)
o Destruction of Subject Matter
o Failure of condition(s) specified in
offer
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Termination by Action of the Parties
o Revocation of the offer by the Offeror:
o Offer can be withdrawn anytime before Offeree
accepts the offer.
o Effective when the Offeree or Offeree’s agent
receive it.
o Exceptions:
o Irrevocable Offers (Detrimental Reliance).
o Option Contract: Promise to hold an offer open for a
specified period of time in return of consideration.
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Termination by Action of the Parties
o Exceptions (Cont’d):
o Detrimental Reliance or Promissory Estoppel
where Offeree relies on offer to his or her
detriment, thus Offeror is barred from
revoking the offer.
o Rejection of the offer by the Offeree:
o Rejection by the Offeree (expressed or
implied) terminates the offer.
o Effective only when it is received by the
Offeror or Offeror’s agent.
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Termination by Action of the Parties
o Rejection by Offeree (Cont’d).
o A counteroffer by the Offeree is a
rejection of the original offer and
making of a new offer.
o Mirror Image Rule.
o Offeree’s acceptance to match the
the Offeror’s offer exactly.
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Termination by Operation of Law
o Lapse of Time.
o Offer terminates by law when the
period of time specified in the
offer has passed.
o If no time period for acceptance
is specified, the offer terminates
at the end of a reasonable period
of time.
o Destruction of the Subject
Matter.
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Termination by Operation of Law
o Death or Incompetence of the Offeror
or Offeree.
o Supervening Illegality of the Proposed
Contract.
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Acceptance
o Acceptance is the:
o
o
o
o
Voluntary act (expressed or implied),
by the Offeree that,
shows assent (agreement),
to the terms of an offer.
o “Mirror Image” Rule.
o an “acceptance” that changes an offer’s terms is an
counteroffer, which is (1) a rejection of the original
offer and (2) a new offer in and of itself that can be
accepted, rejected or the subject of another
counteroffer.
o By an authorized method of communication
– usually, any method proper, but the offer
itself may require a certain method of
communication for acceptance.
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Silence as Acceptance
o Acceptance of Services by Silence.
o Sometimes Offeree has a duty to speak.
o Prior Dealings and Acceptance.
o Silence can be acceptance if there are
prior dealings.
o Solicited Offers.
o Offeree has a duty to reject.
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Timeliness of Acceptance
o 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.
o Offeror specifies (expressly or impliedly)
how acceptance should be made.
o Effective when dispatched (mailed,
shipped).
o Revocation of offer effective only when
received by Offeree.
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Authorized Means of Acceptance
o Exceptions:
o If acceptance is not properly dispatched by the Offeree.
o If Offeror specifies that acceptance will not be effective
until it is received.
o If acceptance is sent after rejection, whichever is
received first is given effect.
o Unauthorized Means of Acceptance.
o Not effective until it is received by the Offeror. If timely
sent and dispatched it is considered to have been
effective on its dispatch.
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Technology and Acceptance
o Traditional rules provide framework
for digital age.
o But traditional rules may not apply to
acceptances via Fed Ex, email, or
fax.
o Generally, ‘mailbox rule’ does not
apply to online offers.
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Mutual Assent = Offer + Acceptance
o Shown by offeror’s offer and offeree’s
acceptance of the offer.
o Traditional inquiry – was there a
“meeting of the minds?”
o Judged by objective standard
(“reasonable person”).
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What Can Eliminate Mutual Assent?
o Fraud – also called misrepresentation
or deceit.
o Mistake – unilateral, which is usually
not a defense, or bilateral, which is
usually a defense; fact, which can be a
defense, or law, which is usually not a
defense.
o Duress – use or threat of physical or
economic harm.
o Undue influence – abuse of authority,
power or position.
o Existence of any of the above can
provide basis for or defense to breach
of contract case.
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Consideration
o Consideration for a promise must be either:
o Legally detrimental to the promisee, or Legally beneficial to
the promisor.
o Each party must give up something of legal value; no
consideration if party purports to give up something he
or she is already obligated to do (or not do).
o There is no “reasonableness” requirements, so
contract does not have to be “fair” or “equal” in order
to have the requisite consideration.
o “Legal Value” is a “Bargained for Exchange”:
o Promise,
o Performance, or
o Forbearance.
o Hamer v. Sidway (1891).
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Adequacy of Consideration
o A Court will not question the fairness
of the bargain if legally sufficient.
o Law does not protect a person for
entering into an unwise contract.
o In extreme cases, a court may find that a
party lacks legal capacity or that
contract was unconscionable.
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Agreements That Lack Consideration
o Preexisting Duty: Promise to to what one already
has a legal duty to do does not constitute legally
sufficient consideration. Exceptions:
o Unforeseen Difficulties.
o Rescission and New Contract.
o Past Consideration is no consideration
because the bargained-for exchange
element is missing.
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Capacity
o Contractual Capacity.
o The legal ability to enter into a contractual
relationship.
o Legality.
o The agreement must not call for the
performance of any act that is criminal, tortious,
or otherwise opposed to public policy.
o Minors
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Intoxication
o Lack of contractual capacity at the time
the contract is being made.
o Contract can be either voidable or valid.
o Courts look at objective indications to
determine if contract is voidable.
o If voidable:
o Person has the option to disaffirm, or
o Person may ratify the contract expressly or
impliedly.
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Mental Incompetence
o Void.
o If a person has been adjudged mentally incompetent by
a court of law and a guardian has been appointed.
o Voidable.
o If the person does not know he or she is entering into the
contract or lacks the mental capacity to comprehend its
nature, purpose, and consequences.
o Valid.
o If person is able to understand the nature and effect of
entering into a contract yet lack capacity to engage in
other activities.
o Lucid Interval.
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Legality
o A contract to do something
prohibited by federal or state
statutory law is illegal and therefore
void (never existed).
o Contract that calls for for a tortious act.
o Contract that calls for an act contrary to
public policy.
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Genuineness of Assent
o Contract may be unenforceable
if the parties have not genuinely
assented to its terms by:
o Mistakes.
o Misrepresentation.
o Undue Influence.
o Duress.
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Mistakes
o Only a Mistake of Fact allows a contract
to be canceled. Mistake of Value is
enforceable.
o Bilateral (Mutual) Mistakes can be
rescinded by either party.
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Mistakes
o Unilateral Mistakes cannot be canceled
unless:
o If other party to the contract knows or should
have known that a mistake of fact was made.
o If mistake was due to mathematical mistake in
addition, summation, subtraction, division, or
multiplication and was made inadvertently and
without gross negligence.
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Fraudulent Misrepresentation
o Contract Voidable by Innocent Party.
o Elements:
o Misrepresentation of Material Fact.
o Intent to Deceive.
o Reliance on Misrepresentation.
o Injury to the Innocent Party.
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Nonfraudulent Misrepresentation
o Innocent Misrepresentation.
o Negligent Misrepresentation.
o Equal to Scienter.
o Is treated as fraudulent
misrepresentation, even though the
misrepresentation was not purposeful.
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Undue Influence
o Contract is Voidable.
o Confidential or Fiduciary Relationship.
o Relationship of dependence.
o Influence or Persuasion.
o Weak party talked into doing something
not beneficial to him or herself.
o Presumption of Undue Influence.
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Duress
o Forcing a party to enter into a
contract under fear or threat makes
the contract voidable.
o Threatened act must be wrongful or
illegal.
o Exceptions:
o Threat to exercise legal rights (criminal or
civil suit).
o Economic.
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Adhesion Contracts and Unconscionability
o Adhesion Contracts.
o Preprinted contract in which the adhering
party has no opportunity to negotiate the
terms of the contract.
o Unconscionability.
o One sided bargains in which one party
has substantially superior bargaining
power and can dictate the terms of the
contract.
o “Standard-form.”
o “Take-it-or-leave-it” adhesion contracts.
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Statute of Frauds
o Certain types of contracts must be in writing
and signed by the party against whom
enforcement is sought to be enforceable.
o To be enforceable, the following types of
contracts must be in writing and signed:
o
o
o
o
o
Contracts involving interest in land.
Contracts involving “One Year Rule.”
Collateral or Secondary Contracts.
Promise made in consideration of marriage.
Contracts for the sale of goods priced at $500 or
more.
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Statute of Frauds & Parol Evidence Rule
o Can electronic communication meet
“writing” requirement of statute of
frauds?
o Parol evidence rule says written
contract cannot be contradicted by
evidence of any prior agreement or
contemporaneous oral agreement;
PER’s exceptions include ambiguity,
course of dealing, mistake, validity of
contract in dispute; PER is substantive
rule of contract interpretation.
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Electronic Contract/Signature
o Under certain conditions, both federal
and state laws permit contracts to be
formed electronically and allow
electronic signatures to satisfy statute
of frauds’ “writing” and “signature”
requirements.
o Examples – 15 U.S.C. § 7001 et seq.;
California Civil Code § 1633.1 et seq.
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Third Party Rights
o Only the Parties to a contract have
rights and liabilities under the
contract.
o Exceptions:
o Assignment or Delegation.
o Third party beneficiary contract.
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Assignments
Transfer of rights in a bilateral contract to
3rd party.
Obligee/
Assignor
Original Contract Formed
Obligor
Assignment
Duties Owed
Assignee
After Assignment
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Assignments
o Rights cannot be assigned:
o If the assignment is contrary to statute.
o When a contract is personal in nature.
o Assignment materially changes rights or duties of
obligor.
o If the contract stipulates the right cannot be
assigned.
o Valid notice must be given to all parties.
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