Chapter 10

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

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

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 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.

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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.

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

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

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 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Offer can be withdrawn anytime before Offeree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.

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 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.

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 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.

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 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.

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

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 §3: Acceptance

Voluntary act (expressed or implied)-

by the Offeree that-
shows assent (agreement)-
to the terms of an offer.

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 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).

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 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.
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 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.
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 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.

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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.

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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 …”

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