CHAPTER 10

AGREEMENT

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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.

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 Agreement

Agreement Parties
• Manifestation by two • Offeror
or more persons of – Person who makes
the substance of a an offer
contract • Offeree
– Person to whom an
offer has been made

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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.”
[Restatement (Second) of Contracts]

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 Requirements for Effective Offer

• 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.

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 Objective Theory of Contracts

• Intent to contract is judged by the

reasonable person standard and not by
the subjective intent of the parties.

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 Objective Theory of Contracts (continued)

• No valid contract results from:

– Preliminary negotiations
• “Would you sell your building for $100,000?”
– Offers that are made in jest, anger, or undue
excitement

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 Express 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.
• Terms must be definite.

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 Express Terms (continued)

• Offer must contain the following terms:

– Identification of the parties
– Identification of the subject matter and
quantity
– Consideration to be paid
– Time of performance
• Complex contracts may also contain other
terms.

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 Implied Terms

• The court can supply a missing term if a

reasonable term can be implied.
– E.g., time of performance, price.
• Terms supplied in this way called implied
terms.

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 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.

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 Special Offer Situations

Advertisements

Rewards

Auctions

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 Advertisements

• A typical advertisement is an invitation to

make an offer.

• A specific advertisement is an offer.

– E.g., “To the first ten customers on November 28,

Sony notebook computer model 388x, $200.”

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 Rewards

• Offer to form a unilateral contract.

– E.g., “I will pay $50 if you return my dog.”

• To collect, offeree must:

• Have knowledge of the reward offer prior to
completing the requested act
• Perform the requested act

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 Auctions

Auction with reserve Auction without

• Unless expressly reserve
stated otherwise, an • An auction in which
auction is an auction the seller expressly
with reserve. gives up his or her
• Seller retains the right right to withdraw the
to refuse the highest goods from sale and
bid and withdraw the must accept the
goods from auction. highest bid.

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 Termination of Offer by Act of Parties

• Revocation
• Rejection
• Counteroffer

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 Revocation
• Withdrawal of offer by offeror.
– By express statement (“I revoke”), or by act
inconsistent with offer (e.g., selling goods to
another party.)
• Can revoke at any time prior to acceptance,
usually even if offeror promised to hold offer
open.
– Exception: option contracts.
• Revocation must be received by offeree to be
effective.

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 Rejection

– Words or conduct by offeree that rejects

an offer.
– Rejection terminates the offer.
– Rejection effective when received by
offeror.

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 Counteroffer

– A response by offeree that contains terms

and conditions different from or in addition to
those of the offer.
• E.g., “I think your price is too high. I will
pay $100,000.”
– A counteroffer terminates the offer.

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 Termination of Offer
by Operation of Law
• Destruction of the subject matter through no
fault of either party prior to its acceptance.
• Death or incompetency of offeror or offeree.
• Supervening illegality by enactment of statute,
regulation, or court decision.
• Lapse of time as stated in offer or after
reasonable time.

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 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.
[Restatement (Second) of Contracts]

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 Acceptance (continued)

• Only offeree can legally accept the offer and

create a contract.
• Mirror image rule requires the offeree to accept
the offeror’s terms unequivocally.
– “Okay, I agree to that” is acceptance.
– “Okay, I’ll take it, but wish I’d gotten a better price” is
acceptance.
– “That’s too high a price. I’ll think about it” is not
acceptance.
– Response by offeree including different or additional
terms is not acceptance.

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 Silence as Acceptance

• Silence generally not acceptance.

• Silence serves as acceptance when:
– Offeree states that silence means assent.
– Offeree signed agreement indicating continuing
acceptance until further notification.
– Prior dealings indicate that silence means assent.
– Offeree accepts benefits, had opportunity to
reject, knows offeror expects compensation.

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 Time and Mode of Acceptance

– Mailbox Rule
– Proper Dispatch Rule
– Mode of Acceptance
• Express Authorization
• Implied Authorization

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 Time and Mode of Acceptance (continued)

• Mailbox Rule
– Acceptance-upon-dispatch rule.
– Acceptance is effective when dispatched,
even if it is lost in transmission.
• Potential for confusion. Wise offeror may state in
offer that acceptance effective upon receipt.
– If offeree first dispatches a rejection and then
sends acceptance, mailbox rule does not
apply.

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 Time and Mode of Acceptance (continued)

• Proper Dispatch Rule

– Acceptance must be properly dispatched.
• Properly addressed, packaged, and posted
– Under common law, if acceptance is not
properly dispatched, it is not effective until
actually received by the offeror.

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 Mode of Acceptance
Express Authorization Implied Authorization
• If offer says • Mode of acceptance
acceptance must be implied from what is
by a specified means customary in similar
of communication. transactions, usage of
• Use of an trade, or prior
unauthorized means, dealings between the
acceptance not parties.
effective.

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 Offer and Acceptance: Summary

Communication by Offeror Effective When

Offer Received by offeree

Revocation of offer Received by offeree

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 Offer and Acceptance: Summary
(continued)

Communication by Offeree Effective When

Rejection of offer Received by offeror

Counteroffer Received by offeror

Acceptance of offer Sent by offeree
Acceptance after previous Received by offeror
rejection of offer

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