Chapter 11 Notes

Question 1

A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract.

Answer 1

Agreement

Question 2

The offer and the Acceptance.

Answer 2

Agreement is Evidenced by These Two Things

Question 3

A promise or committment to perform or refrain from performing some specified act in the future.

Answer 3

Offer

Question 4

A party’s words and conduct are held to mean whatever a reasonable person in the other party’s position would think they meant.

Answer 4

The Law of Contracts Generally Adheres to the Objective Theory of Contracts

Question 5

The party making the offer.

Answer 5

Offeror

Question 6

The party to whom the offer is made.

Answer 6

Offeree

Question 7

1. There must be a serious, objective intention by the offeror.
2. 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.
3. The offer must be communicated to the offeree.

Answer 7

Three Elements Necessary for an Offer to be Effective

Question 8

Once an offer has been made, the offeree’s acceptance of that offer creates this.

Answer 8

A Legally Binding Contract

Question 9

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.

Answer 9

Intention

Question 10

• Expression of opinion
• Statements of future intent
• Preliminary negotiations
• Advertisements, catalogues, and circulars
• Agreements to agree
• Preliminary agreements

Answer 10

Statements That are not Offers

Question 11

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.

Answer 11

Expressions of Opinion

Question 12

A statement with an intention to do something in the future is not an offer.

Answer 12

Statements of Future Intent

Question 13

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).

Answer 13

Preliminary Negotiations

Question 14

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. )

Answer 14

Advertisements, Catalogues, and Circulars

Question 15

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.

Answer 15

Agreements to Agree

Question 16

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.

Answer 16

Preliminary Agreements

Question 17

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.

Answer 17

Definiteness

Question 18

1. The identification of the parties
2. 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.
3. The consideration to be paid.
4. The time of payment, delivery, or performance.

Answer 18

Generally, a Contract Must Include These Terms, Either Expressed in the Contract or Capable of Being Reasonably Inferred from it.

Question 19

The third requirement for an effective offer. The offer must be communicated to the offeree.

Answer 19

Communication

Question 20

The power of acceptance does not continue forever. It can be done two ways:

1. Action of the parties
2. Operation of law

Answer 20

Termination of the Offer

Question 21

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.

Answer 21

Revocation

Question 22

Becomes effective when the offeree or the offeree’s agent actually receives it.

Answer 22

General Rule for Revocation

Question 23

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.

Answer 23

Termination by Action of the Offeree

Question 24

This does not constitute a rejection.

Answer 24

Inquiries About an Offer

Question 25

A rejection of the original offer and the simultaneous making of a new offer.

Answer 25

Counteroffer

Question 26

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).

Answer 26

Mirror Image Rule

Question 27

Through the occurrance of: 1. Lapse of time 2. Destruction of the specific subject matter of the offer. 3. Death of incompetence of the offeror or offeree 4. Superventing illegality of the propsed contract

Answer 27

Termination by Operation of Law

Question 28

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.

Answer 28

Lapse of Time

Question 29

* 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.

Answer 29

Destruction, Death, or Illegality

Question 30

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

Answer 30

Irrevocable Offers

Question 31

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.

Answer 31

Option Contract

Question 32

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.

Answer 32

Acceptance

Question 33

* Mirror image rule * Certain items included in an acceptance will not change the offer sufficiently to constitute rejection.

Answer 33

Unequivocal Acceptance

Question 34

* 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

Answer 34

Silence as Acceptance

Question 35

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.

Answer 35

Communication of Acceptance

Question 36

Acceptance in a bilateral contract is timely if it is made before the offer is terminated.

Answer 36

General Rule: Mode and Timeliness of Acceptance

Question 37

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

Answer 37

The Mailbox Rule (Deposited Acceptance Rule)

Question 38

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.

Answer 38

Uniform Electronic Transactions Act

Question 39

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

Answer 39

Authorized Means of Communication

Question 40

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.

Answer 40

Substitute Method of Acceptance