Chapter 11 Notes Flashcards
A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract.
Agreement
The offer and the Acceptance.
Agreement is Evidenced by These Two Things
A promise or committment to perform or refrain from performing some specified act in the future.
Offer
A party’s words and conduct are held to mean whatever a reasonable person in the other party’s position would think they meant.
The Law of Contracts Generally Adheres to the Objective Theory of Contracts
The party making the offer.
Offeror
The party to whom the offer is made.
Offeree
- There must be a serious, objective intention by the offeror.
- The terms of the offer must be reasonably certain, or definate, so that the parties and the court can ascertain the terms of the contract.
- The offer must be communicated to the offeree.
Three Elements Necessary for an Offer to be Effective
Once an offer has been made, the offeree’s acceptance of that offer creates this.
A Legally Binding Contract
The first requirement of an effective offer (it is serious). It is the objective intent on the part of the offeror.
- Not determined by subjective intentions.
Intention
- Expression of opinion
- Statements of future intent
- Preliminary negotiations
- Advertisements, catalogues, and circulars
- Agreements to agree
- Preliminary agreements
Statements That are not Offers
This does not demonstrate an intention to enter into binding agreement. It is not a contract term. Goods or services can be “perfect” in one party’s opinion and “poor” in another’s.
Expressions of Opinion
A statement with an intention to do something in the future is not an offer.
Statements of Future Intent
A request or invitation to negotiate is not an offer. It only expresses a willingness to discuss the possibility of entering into a contract.
- When government or private firms invite contractors to put in bids to do construction work (these are offers, but are not binding without the acceptance).
Preliminary Negotiations
Also includes price lists. These are things that are meant for the general public are are treated as invitations to negotiate, not as offers to form a contract.
- Applies whether the publications appear in traditional media or online.
- Some advertisements can be treated as an offer when they contain definate terms (reward for lost dog, etc. )
Advertisements, Catalogues, and Circulars
Agreements to agree to the material terms of a contract at some future date are not enforceable agreements.
- may be enforceable if it is clear that the parties intended to be bound by the agreements.
- Today emphasis is on the party’s intent rather than the form.
Agreements to Agree
Constitutes a binding contract if the parties have agreed on all essential terms and no disputed issues remain to be resolved.
- If the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is binding only in the sense that the parties have comitted themselves to negotiate the undecided terms in good faith in an effort to reach a final agreement.
Preliminary Agreements
The second requirement for an effective offer. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy.
- The specific terms depend on the type of contract.
- An offer may invite an acceptance to be worded in such specific terms that the contract is made definite.
Definiteness
- The identification of the parties
- The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land.
- The consideration to be paid.
- The time of payment, delivery, or performance.
Generally, a Contract Must Include These Terms, Either Expressed in the Contract or Capable of Being Reasonably Inferred from it.
The third requirement for an effective offer. The offer must be communicated to the offeree.
Communication
The power of acceptance does not continue forever. It can be done two ways:
- Action of the parties
- Operation of law
Termination of the Offer
The withdrawal of a contract offer by the offeror. Unless an offer is irrevocable, it can be revoked at any time prior to acceptance without liability.
- Accomplished by repudiation of the offer (“I withdraw my previous offer of October 17”) or by the performance of acts that are inconsistent with the existence of the offer and that are made known to the offeree.
Revocation
Becomes effective when the offeree or the offeree’s agent actually receives it.
General Rule for Revocation
If an offeree rejects the offer, either by words or conduct, the offer is terminated.
- Any subsequent attempt of the offeree to accept will be construed as a new offer, giving the original offeror (now offeree) the power of acceptance.
- Effective only when it is actually received by the offeror or the offeror’s agent.
Termination by Action of the Offeree
This does not constitute a rejection.
Inquiries About an Offer
A rejection of the original offer and the simultaneous making of a new offer.
Counteroffer
Requires that the offeree’s acceptance match the offeror’s offer exactly. This is a common law rule.
- If acceptance materially changes or adds to the terms of the original offer, it would be considered not an acceptance, but a counteroffer(which need not be accepted).
Mirror Image Rule
Through the occurrance of:
- Lapse of time
- Destruction of the specific subject matter of the offer.
- Death of incompetence of the offeror or offeree
- Superventing illegality of the propsed contract
Termination by Operation of Law
An offer terminates automatically by law when the period of time specified in the offer has passed.
- If no specified time- terminates at the end of a reasonable period of time.
- determined by the subject matter of the contract, busines and market conditions, and other relevant circumstances.
Lapse of Time
- Terminated if the specific subject matter to the offer is destroyed before the offer is accepted.
- Power of acceptance is terminated when the offeror or offeree dies or becomes legally incapacitated, unless the offer is irrevocable.
- A statute or court decision that makes an offer illegal automatically terminates the offer.
Destruction, Death, or Illegality
Courts refuse to allow an offeror to revoke an offer when the offeree has changed position because of justifible reliance on the offeror.
- Includes “firm offers” made my merchants
- Includes option contracts
Irrevocable Offers
A contract under which the offeror cannot revoke the offer for a stipulated time period (because of offeree has given consideration for the offer to remain open).
- If no time period stipulated, then a reasonable period of time is implied.
- Often used in conjunction with the sale of real estate.
Option Contract
A voluntary agreeing, through words or conduct, to the terms of an offer, thereby creating a contract.
- Must be unequivocal and must be communicated to the offeror.
- Only the person to whom the offer is made or that person’s agent can accept the offer and create a binding contract.
Acceptance
- Mirror image rule
- Certain items included in an acceptance will not change the offer sufficiently to constitute rejection.
Unequivocal Acceptance
- Ordinarily cannot constitute acceptance.
- Offeree should not be put under a burden of liability to act affirmatively in order to reject an offer.
- In some instances, the offeree does have a duty to speak. If so, his or her silence or inaction will operate as an acceptance.
- Prior dealings wtih the offeror
- Has the option to reject but does nothing
Silence as Acceptance
Whether the offeror must be notified of the acceptance depends on the nature of the contract.
- Unilateral- Full performance of some act is called for. Acceptance is usually evident, and notification is therefore unnecessary (unless law requires).
- Bilateral- communication of acceptance is necessary, because acceptance is in the form of a promise. This contract is made when a promise is made rather than when the act is performed.
Communication of Acceptance
Acceptance in a bilateral contract is timely if it is made before the offer is terminated.
General Rule: Mode and Timeliness of Acceptance
A common law rule that acceptance takes effect, and this completes formation of the contract, at the time the offeree sends or delivers the acceptance via the communication mode expressely or impliedly authorized by the offeror (acceptance becomes valid when dispatched, not when received by offeror).
- Does not apply to instantaneous forms of communication
The Mailbox Rule (Deposited Acceptance Rule)
E-mail is considered sent when it either leaves the sender’s control or is received by the recipeient.
- Takes the place of the mailbox rule if the parties have agreed to conduct transactions electronically- allows e-mail acceptance to become effective when sent.
Uniform Electronic Transactions Act
Can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances of the situation.
- Expressly or impliedly authorized- not effective until received by the offeror.
- When offeror specifies how acceptance should be made, the contract is not formed unles the offeree uses that mode of acceptance.
- If not specified- any reasonably means
- same or faster means for acceptance
Authorized Means of Communication
Acceptance may still be effective if the substituted method serves the same purpose as the authorized means.
- Not effective on dispatch
- Not contract will be formed until acceptance is received by the offeror.
Substitute Method of Acceptance
