Chapter 14Agreement

Chapter 14 Hypothetical

oKeith Avondale is in the market for a new “big screen” flat-panel television. While reviewing the Sunday newspaper, he notices a full-page advertisement from “Transistor Town.” The advertisement includes a 45-inch flat-panel television for $299. Surprised by the remarkably low price, and eager to purchase his new luxury item, Avondale makes plans to “open the store” on Monday morning.

Avondale is the first customer to arrive at the store on Monday, waiting outside when the front doors open. He rushes into the store and announces to the first sales representative he sees, “I will take a 45-inch flat-panel television for $299!”

The sales representative immediately refers Avondale to the store manager, who directs Avondale to his office. The store manager explains to Avondale that the advertisement was an unfortunate mistake, resulting from miscommunication between Transistor Town and the newspaper publisher. The manager goes on to say that the intended advertise price was $2,999, but that he would be willing to sell the described television to Avondale for $2,449, Transistor Town’s cost for the television. Avondale objects, demands that Transistor Town sell the television for $299, and informs the store manager that his brother is a trial lawyer.

Who wins?

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Agreement

o Agreement = offer and acceptance.o Parties must show mutual assent to

terms of contract.o Once an agreement is reached, if the

other elements of a contract are present, a valid contract is formed.

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Requirements of the Offer

o Offeror’s serious intention to be bound.

o Definiteness of terms.o Communication to Offeree.

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Offer

o Proposal/invitation by offeror to enter into a contract.o Objective intent by offeror to be

obligated by the offer; what would a “reasonable person” think viewing the communications and conduct of the parties under the circumstances

o Terms of the offer must be reasonably definite; need not be exact.

o Must be communicated to the offeree.

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Offer: Intention

o Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer.

o Offers made in anger, jest, or undue excitement are usually not offers.

o Expressions of opinion are not offers.o Statements of Intention or preliminary

negotiations are are not offers.o Advertisements, Catalogues, Price Lists, and

Circular are treated as Invitations to negotiate and not as offers.

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Offer: Definiteness of Terms

o Terms (Expressed or Implied).o Identification of the parties.o Object or subject matter of the contract.o Consideration to be paid.o Time of payment, Delivery, or

Performance.

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Offer: Communication

o Offeree’s knowledge of the offer:o Directly by the Offeror.o Use of Agents.

Auctions

o Auction With Reserve

o Seller merely expresses intent to receive offers

o Auctioneer (as representative of seller) may withdraw item from auction at any time before “hammer falls”

o Before hammer falls (signaling acceptance of offer), bidder/offeror may revoke bid

o Auction Without Reserve

o Seller must accept highest bid

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Termination of the Offer

o Rejection by the offeree.o Withdrawal/revocation by the offeror.o By operation of law; e.g., by lapse of

a specified or “reasonable” time.o Counteroffer by the offeree (See

Mirror Image Rule)o Destruction of Subject Mattero Failure of condition(s) specified in

offer

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Termination by Action of the Parties

o Revocation of the offer by the Offeror:o Offer can be withdrawn anytime before Offeree

accepts the offer.o Effective when the Offeree or Offeree’s agent

receive it.o Exceptions:

o Irrevocable Offers (Detrimental Reliance).o Option Contract: Promise to hold an offer open for a

specified period of time in return of consideration.

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o Exceptions (Cont’d):o Detrimental Reliance or Promissory Estoppel

where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer.

o Rejection of the offer by the Offeree:o Rejection by the Offeree (expressed or

implied) terminates the offer.o Effective only when it is received by the

Offeror or Offeror’s agent.

Termination by Action of the Parties

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Termination by Action of the Parties

o Rejection by Offeree (Cont’d).o A counteroffer by the Offeree is a

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

o Mirror Image Rule.o Offeree’s acceptance to match the

the Offeror’s offer exactly.

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Termination by Operation of Law

o Lapse of Time.o Offer terminates by law when the

period of time specified in the offer has passed.

o If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time.

o Destruction of the Subject Matter.

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Termination by Operation of Law

o Death or Incompetence of the Offeror or Offeree.

o Supervening Illegality of the Proposed Contract.

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Acceptance

o Acceptance is the:o Voluntary act (expressed or implied),o by the Offeree that,o shows assent (agreement),o to the terms of an offer.

o “Mirror Image” Rule.o an “acceptance” that changes an offer’s terms is an

counteroffer, which is (1) a rejection of the original offer and (2) a new offer in and of itself that can be accepted, rejected or the subject of another counteroffer.

o By an authorized method of communication – usually, any method proper, but the offer itself may require a certain method of communication for acceptance.

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Silence as Acceptance

o Acceptance of Services by Silence.o Sometimes Offeree has a duty to speak.

o Prior Dealings and Acceptance.o Silence can be acceptance if there are

prior dealings.

o Solicited Offers.o Offeree has a duty to reject.

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Timeliness of Acceptance

o Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance.o Offeror specifies (expressly or impliedly)

how acceptance should be made.o Effective when dispatched (mailed,

shipped).o Revocation of offer effective only when

received by Offeree.

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Authorized Means of Acceptance

o Exceptions:o If acceptance is not properly dispatched by the Offeree.o If Offeror specifies that acceptance will not be effective

until it is received.o If acceptance is sent after rejection, whichever is

received first is given effect.

o Unauthorized Means of Acceptance.o Not effective until it is received by the Offeror. If timely

sent and dispatched it is considered to have been effective on its dispatch.

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Technology and Acceptance

o Traditional rules provide framework for digital age.

o But traditional rules may not apply to acceptances via Fed Ex, email, or fax.

o Generally, ‘mailbox rule’ does not apply to online offers.

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Mutual Assent = Offer + Acceptance

o Shown by offeror’s offer and offeree’s acceptance of the offer.

o Traditional inquiry – was there a “meeting of the minds?”

o Judged by objective standard (“reasonable person”).

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What Can Eliminate Mutual Assent?

o Fraud – also called misrepresentation or deceit.

o Mistake – unilateral, which is usually not a defense, or bilateral, which is usually a defense; fact, which can be a defense, or law, which is usually not a defense.

o Duress – use or threat of physical or economic harm.

o Undue influence – abuse of authority, power or position.

o Existence of any of the above can provide basis for or defense to breach of contract case.

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Consideration

o Consideration for a promise must be either:o Legally detrimental to the promisee, or Legally beneficial to

the promisor.o Each party must give up something of legal value; no

consideration if party purports to give up something he or she is already obligated to do (or not do).

o There is no “reasonableness” requirements, so contract does not have to be “fair” or “equal” in order to have the requisite consideration.

o “Legal Value” is a “Bargained for Exchange”:o Promise,o Performance, oro Forbearance.

o Hamer v. Sidway (1891).

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Adequacy of Consideration

o A Court will not question the fairness of the bargain if legally sufficient.o Law does not protect a person for

entering into an unwise contract.o In extreme cases, a court may find that a

party lacks legal capacity or that contract was unconscionable.

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Agreements That Lack Consideration

o Preexisting Duty: Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. Exceptions:

o Unforeseen Difficulties. o Rescission and New Contract.

o Past Consideration is no consideration because the bargained-for exchange element is missing.

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Capacity

o Contractual Capacity.o The legal ability to enter into a contractual

relationship.o Legality.

o The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy.

o Minors

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Intoxication

o Lack of contractual capacity at the time the contract is being made.

o Contract can be either voidable or valid.o Courts look at objective indications to

determine if contract is voidable.

o If voidable:o Person has the option to disaffirm, oro Person may ratify the contract expressly or

impliedly.

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Mental Incompetence

o Void.o If a person has been adjudged mentally incompetent by

a court of law and a guardian has been appointed.

o Voidable.o If the person does not know he or she is entering into the

contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.

o Valid.o If person is able to understand the nature and effect of

entering into a contract yet lack capacity to engage in other activities.

o Lucid Interval.

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Legality

o A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed).o Contract that calls for for a tortious act.o Contract that calls for an act contrary to

public policy.

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Genuineness of Assent

o Contract may be unenforceable if the parties have not genuinely assented to its terms by:o Mistakes. o Misrepresentation.o Undue Influence.o Duress.

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Mistakes

o Only a Mistake of Fact allows a contract to be canceled. Mistake of Value is enforceable.

o Bilateral (Mutual) Mistakes can be rescinded by either party.

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Mistakes

o Unilateral Mistakes cannot be canceled unless:o If other party to the contract knows or should

have known that a mistake of fact was made.o If mistake was due to mathematical mistake in

addition, summation, subtraction, division, or multiplication and was made inadvertently and without gross negligence.

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Fraudulent Misrepresentation

o Contract Voidable by Innocent Party.o Elements:

o Misrepresentation of Material Fact.o Intent to Deceive.o Reliance on Misrepresentation.o Injury to the Innocent Party.

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Nonfraudulent Misrepresentation

o Innocent Misrepresentation.o Negligent Misrepresentation.

o Equal to Scienter.o Is treated as fraudulent

misrepresentation, even though the misrepresentation was not purposeful.

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Undue Influence

o Contract is Voidable.o Confidential or Fiduciary Relationship.o Relationship of dependence.o Influence or Persuasion.o Weak party talked into doing something

not beneficial to him or herself.

o Presumption of Undue Influence.

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Duress

o Forcing a party to enter into a contract under fear or threat makes the contract voidable.

o Threatened act must be wrongful or illegal.

o Exceptions:o Threat to exercise legal rights (criminal or

civil suit).o Economic.

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Adhesion Contracts and Unconscionability

o Adhesion Contracts.o Preprinted contract in which the adhering

party has no opportunity to negotiate the terms of the contract.

o Unconscionability.o One sided bargains in which one party

has substantially superior bargaining power and can dictate the terms of the contract.

o “Standard-form.”o “Take-it-or-leave-it” adhesion contracts.

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Statute of Frauds

o Certain types of contracts must be in writing and signed by the party against whom enforcement is sought to be enforceable.

o To be enforceable, the following types of contracts must be in writing and signed: o Contracts involving interest in land.o Contracts involving “One Year Rule.”o Collateral or Secondary Contracts.o Promise made in consideration of marriage.o Contracts for the sale of goods priced at $500 or

more.

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Statute of Frauds & Parol Evidence Rule

o Can electronic communication meet “writing” requirement of statute of frauds?

o Parol evidence rule says written contract cannot be contradicted by evidence of any prior agreement or contemporaneous oral agreement; PER’s exceptions include ambiguity, course of dealing, mistake, validity of contract in dispute; PER is substantive rule of contract interpretation.

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Electronic Contract/Signature

o Under certain conditions, both federal and state laws permit contracts to be formed electronically and allow electronic signatures to satisfy statute of frauds’ “writing” and “signature” requirements.

o Examples – 15 U.S.C. § 7001 et seq.; California Civil Code § 1633.1 et seq.

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Third Party Rights

o Only the Parties to a contract have rights and liabilities under the contract.

o Exceptions:o Assignment or Delegation.o Third party beneficiary contract.

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Assignments

Transfer of rights in a bilateral contract to 3rd party.

Obligee/Assignor

Obligor

Assignee

Original Contract Formed

Assignment

Duties Owed After Assignment

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Assignments

o Rights cannot be assigned:o If the assignment is contrary to statute.o When a contract is personal in nature.o Assignment materially changes rights or duties of

obligor.o If the contract stipulates the right cannot be

assigned.

o Valid notice must be given to all parties.