10-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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3•Introduction to Contracts

•The Agreement: Offer•The Agreement: Acceptance

•Consideration•Reality of Consent

Contracts

PART

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3•Capacity to Contract

•Illegality•Writing

•Rights of Third Parties•Performance and Remedies

Contracts

PART

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The Agreement: Offer

PA ET RHC 10

There is nothing more likely to start disagreement among people or countries than an agreement.

E.B. White

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Learning Objectives

• Explain the elements of an offer under both the UCC and common law

• Distinguish advertisements from mere invitations to negotiate

• Describe circumstances for termination of an offer

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• 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 by the offeror

Requirements for an Offer

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• 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?

– See Meram v. MacDonald

Intent

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• 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

– See Armstrong v. Rohm and Haas Company, Inc.

Definiteness of Terms

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• 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

Definiteness Under the UCC

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• Advertisements for a 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

Advertisements

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• 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 (such as returning a lost dog to its owner)

Rewards

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• Advertisements for bids and sellers at auctions generally are treated as making an invitation to offer, so those who bid are making an offer that seller may accept or reject

• Gleason v. Freeman: online real estate auction is not a binding contract, but a non-binding advertisement

Auctions and Bids

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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

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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 terms of the original offer

• Lapse of time and expiration of offer• Death or disability of either party• Destruction of subject matter• Subsequent illegality

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Thought Questions

• When you go to a department store and purchase an item, what have you done according to contract law?

• Is the law sensible about these contracts?