Chapter 10
Agreement
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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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
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Agreement
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
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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
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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
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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
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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
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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
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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
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Special Offer Situations
Advertisements
Rewards
Auctions
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Advertisements
• A general advertisement
is an invitation to make
an offer.
• A specific advertisement
is an offer.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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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
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Auctions
Auction with
Auction without
reserve
reserve
• Unless
• An auction in
expressly
which the
stated
seller expressly
otherwise, an
gives up his or
auction is an
her right to
auction with
withdraw the
reserve, i.e.,
goods from
the seller
sale and must
retains the
accept the
right to refuse
highest bid
the highest bid
and withdraw
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Mode of Acceptance
Express
Implied
Authorization
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
communicatio
transactions,
n.
usage of
• Use of an
trade, or prior
unauthorized
dealings
means of
between the
communicatio
parties.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
n makes
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Offer and Acceptance: Summary
(1 of 2)
Communication by
Effective When
Offer
Received by
offeree
Revocation of offer
Received by
offeree
Offeror
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Offer and Acceptance: Summary
(2 of 2)
Communication by
Effective When
Rejection of offer
Received by offeror
Counteroffer
Received by offeror
Acceptance of
offer
Sent by offeree
Offeree
Acceptance after
Received by offeror
previous rejection of
offer
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
10 - 27