CHAPTER 10 Agreement
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Quote of the Day “It takes two to speak the truth -- one to speak and one to hear.” Henry David Thoreau, American Philosopher
Meeting of the Minds • The parties can form a contract only if they had a meeting of the minds. • They must understand each other and intend to reach an agreement. • A judge will make an objective assessment of any disagreements about whether a contract was made -- whether or not a reasonable person would conclude that there was an agreement, based on the parties’ conduct.
Offer • An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms. • Problems with Intent • Invitation to bargain is not an offer. • Price quote is generally not an offer. • A letter of intent may help clarify progress in negotiation, but may or may not be binding. • An advertisement is generally not an offer. • Placing an item up for auction is not an offer, it is merely a request for an offer. • Problems with Definiteness • The terms of the offer must be definite.
UCC and Open Terms The UCC has provisions for supplying some missing contract terms. • Open Price • The UCC establishes a price, based on market value or valuation by a neutral party. • Output and Requirements Provisions • An output contract obligates a seller to sell all of his output to one buyer, who agrees to buy it. • A requirements contract obligates a buyer to obtain all of his needed goods from the seller. • The UCC requires parties to act in good faith.
UCC and Open Terms (cont’d) • Delivery, Time, and Payment • Usually, delivery is at the seller’s business, time must be reasonable and payment is due upon receipt of goods. • Warranties • An implied warranty of merchantability, means that the goods must be of at least average, passable quality in the trade. • An implied warranty of fitness means the goods are suitable for a particular purpose.
Termination of Offers • Termination by Revocation • Effective when the offeree receives it. • Firm Offers and Revocability • Common Law Rule • Revocation of a firm offer is effective if the offeree receives it before he accepts. • Option Contract • The offeror may not revoke an offer during the option period. • Sale of Goods • A writing signed by a merchant, offering to hold an offer open, may not be revoked.
Termination of Offers (cont’d) • Termination by Rejection • If an offeree rejects an offer, the rejection immediately terminates the offer. • A counteroffer is a rejection; it terminates the offer. • Termination by Expiration • When an offer specifies a time limit for acceptance, that period if binding. • If the offer specified no time limit, the offeree has a reasonable period in which to accept. • Termination by Operation of Law • Death or mental incapacity of the offeror terminates an offer. • Destruction of subject matter terminates offer.
Acceptance • The offeree must say or do something to accept. • In a bilateral contract, the offeree generally must accept by making a promise. • In a unilateral contract, the offeree must accept by performing. • If the offer is ambiguous, the offeree may accept by either a promise or performance. • Mirror Image Rule (Common Law) • Requires that acceptance be on precisely the same terms as the offer.
UCC and the Battle of Forms • An offeree may include in the acceptance terms that are additional to or different from those in the offer. • Additional terms are those that bring up new issues. • If both parties are merchants, the additional terms will generally become part of the contract. • Different terms are those that contradict terms in the offer. • The majority of states hold that different (contradictory) terms cancel each other out.
Clickwraps and Shrinkwraps • A license agreement on a computer program, which asks the user to “read the terms and click here if you agree” is called a “Clickwrap.” • A license agreement inside a sealed package which tells the user that “inserting the CD indicates that you agree with the terms” is called a “Shrinkwrap.” • Clickwraps and shrinkwraps often include arbitration clauses.
Communication of Acceptance • Medium and Manner of Acceptance • If an offer demands acceptance in a particular medium or manner, the offeree must follow those requirements. • If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium. • Time of Acceptance: The Mailbox Rule • An accceptance is generally effective upon dispatch, meaning the moment it is out of the offeree’s control.
“Vagueness or ambiguity in an offer or acceptance guarantees problems and may lead to litigation. The executive or consumer who articulates to herself precisely what she wants and then bargains clearly for it, is likely to spend more time doing business and less time in court.”