Transcript Chapter 10
Contracts
Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent
McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
3
Contracts
Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies
McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
3
C H A P T E R 10
The Agreement: Offer “There is nothing more likely to start disagreement among people or countries than an agreement.”
E.B. White
Learning Objectives
Requirements for an offer
Intent
Definiteness of Terms
Special Problems
Termination of an offer
10 - 5
Requirements for an Offer
An offer is a promise conditional on an act, return promise, or forbearance (refraining from doing something) Parties to a contract must have intent to enter binding agreement, terms must be definite, and the offer must be communicated to the offeree
10 - 6
Intent
An offeror must indicate present intent to contract, or
the intent to meet the contract obligation upon acceptance
Courts use the objective theory of contracts: Would a reasonable person judge the offeror’s words and acts in the context of the circumstances to signify intent?
10 - 7
Definiteness of Terms
Offer and resulting contract must be definite and certain Offer cannot be vague about major points Example: “I’ll paint your house until I’m tired” is vague, but “I’ll finish painting your house in three days” is definite
Armstrong v. Rohm and Haas Company, Inc.
10 - 8
Armstrong v. Rohm and Haas Company, Inc.
Facts: Plaintiffs worked at a manufacturing plant closed by RH, which gave employees a choice: accept a severance package or transfer to another facility Plant manager told plaintiffs to accept severance and begin a company, stating that RH “would like to” give plaintiffs “all [outsourced] work” Plaintiffs followed manager’s suggestions, but there was little work since RH still outsourced elsewhere, so plaintiffs sued for breach of contract
10 - 9
Armstrong v. Rohm and Haas Company, Inc.
Court’s Decision: Defendant’s alleged promise is too vague to ascertain a reasonably certain basis for providing an appropriate remedy Court listed issues about the alleged “contract” The lack of definiteness is fatal because the court cannot supply these terms RH’s alleged promise is therefore unenforceable as a matter of law
10 - 10
Definiteness Under the UCC
UCC often creates contractual liability where no contract would result under common law Article 2 sales contracts can be created “in any manner sufficient to show agreement, including conduct…” [2–204(1)] A price, quantity, delivery, and time for payment term left open in a contract can be filled by inserting a presumption found in the Code’s rules
10 - 11
Advertisements
Advertisements for the sale of goods at specified prices generally are not considered offers, but are invitations to offer or negotiate Examples: flyers, handbills, catalogs listing prices, “for sale” ads in newspaper or yard Sales puffery is not an offer Example: Leonard v. Pepsico, Inc. (the Harrier jet case)
10 - 12
Rewards, Auctions, and Bids
Advertisements offering rewards for lost property, information, or capture of criminals are treated as offers for unilateral contracts To accept the offer and receive the reward, an offeree must perform the requested act Sellers at auctions and advertisements for bids are generally treated as making an invitation to offer, so those who bid are making an offer that the seller may accept or reject
10 - 13
Termination by Revocation
An offer may be terminated by revocation: if revoked & communicated to offeree before the offer is accepted Exceptions: Option contract in which an offeror agrees not to revoke the offer for a stated time in exchange for some valuable consideration Offers for unilateral contracts (e.g., rewards) Promissory estoppel circumstances Firm offers for sale of goods
10 - 14
Other Methods of Termination
Rejection: Offeree expressly rejects (unwilling to accept) offer or impliedly rejects the offer by making a counteroffer an offer to contract on terms materially different from the terms of the original offer Lapse of time and expiration of offer Death or disability of either party
Destruction of subject matter Subsequent illegality
10 - 15
Test Your Knowledge
True=A, False = B
Courts apply the subjective theory of contracts when determining whether intent to contract existed The UCC often creates contractual liability where no contract would result under common law Sales puffery may be deemed to be a valid offer
10 - 16
Test Your Knowledge
Multiple Choice
An offer requires: (a) intent and communication to offeree (b) motive (c) definiteness of terms (d) all of the above (e) all of the above except (b) Which is not an invitation to negotiate: (a) Advertisement of sale (b) Offer of Reward (c) Auction
10 - 17
Thought Question
When you go to a department store and purchase an item, what have you done according to contract law?
10 - 18