Chapter 10 Contracts—Agreement

1. Chapter 10Contracts—Agreement

2. Introduction • Agreement = offer and acceptance. • Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed.

3. §1: Requirements of the Offer • Offeror’s serious intention. • Definiteness of terms. • Communication.

4. Offeror’s Serious Intention • Objective theory of contracts: Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer. • 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 are not offers. • Advertisements, Catalogues, Price Lists, and Circular are treated as Invitations to negotiate and not as offers.

5. Offer-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.

6. Offer-Communication Offeree’s knowledge of the offer: • Directly by the Offeror. • Use of Agents.

7. §2: Termination of the Offer • An offer may be terminated prior to acceptance by either: • Action of the Parties; or by • Operation of Law.

8. Termination by Action of the Parties [1] • Revocation of the offer by the Offeror: • Offer can be withdrawn anytime before Offeree accepts the offer.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.

9. Termination by Action of the Parties [2] • 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.

10. Termination by Action of the Parties [3] • 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 the Offeror’s offer exactly.

11. 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.

12. Termination by Operation of Law [2] • Death or Incompetence of the Offeror or Offeree. • Supervening Illegality of the Proposed Contract.

13. §3: Acceptance • Voluntary act (expressed or implied)- • by the Offeree that- • shows assent (agreement)- • to the terms of an offer.

14. 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).

15. 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.

16. Case 10.1: Lucy v. Zehmer(Intention) • FACTS: • One night, while the parties drank whiskey and talked, Lucy said, “I bet you wouldn't take $50,000 for that place.” Zehmer replied, “Yes, I would too; you wouldn't give fifty.” • Later that night, Zehmer wrote out an agreement to the effect that he and Mrs. Zehmer agreed to sell the farm to Lucy for $50,000. • Lucy sued Zehmer to go through with the sale. Zehmer argued that he had been drunk and that the offer had been made in jest and hence was unenforceable. • The trial court agreed. Lucy appealed.

17. Case 10.1: Lucy v. Zehmer(Intention) • HELD: REVERSED. FOR LUCY. • The Zehmers were ordered to carry through with the sale. • Noting that Lucy attempted to testify in detail as to what was said and done the night of the transaction, the state supreme court concluded that “Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed, and hence that instrument is not to be invalidated on that ground.” • The execution of the agreement was a serious business transaction the court found evidenced by a number of circumstances.

18. Case 10.2: Osprey LLC v. Kelly-Moore Paint (Mode and Timeliness of Acceptance) • FACTS: • Kelly‑Moore leased a store from Osprey under a fifteen‑year lease with two five‑year renewal options. The lease required written notice of the intent to renew at least six months before the lease expired. The notice “may be delivered either personally or by depositing the same in United States mail.” • Before the end of the fifteen-year term, Kelly-Moore sent the required notice by certified mail. • At the end of the first five-year term, Kelly‑Moore sent the notice by fax but Osprey denied receiving it. • Osprey sued Kelly Moore. Court ruled for Kelly and Osprey appealed.

19. Case 10.2: Osprey LLC v. Kelly-Moore Paint (Mode and Timeliness of Acceptance) • HELD: FOR KELLY. • The court also explained that “[t]he purpose of providing notice by personal delivery or registered mail is to insure the delivery of the notice, and to settle any dispute which might arise between the parties concerning whether the notice was received. • A substituted method of notice which performs the same function and serves the same purpose as an authorized method of notice is not defective.” • In this case, “[t]he fax provided immediate written communication similar to personal delivery …”