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P A R T
3
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.
P A R T
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.
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

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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

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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:


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Would a reasonable person judge the offeror’s words
and acts in the context of the circumstances to signify
intent?
Definiteness of Terms

Offer and resulting contract must be definite
and certain


Offer cannot be vague about major points
Example:


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“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.
Armstrong v. Rohm and Haas
Company, Inc.

Facts:



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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
Armstrong v. Rohm and Haas
Company, Inc.

Court’s Decision:



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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
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

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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

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Example: Leonard v. Pepsico, Inc. (the Harrier
jet case)
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

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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 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

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Test Your Knowledge

True=A, False = B
 Courts apply the subjective theory of
contracts when determining whether
intent to contract existed


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The UCC often creates contractual liability
where no contract would result under
common law
Sales puffery may be deemed to be a valid
offer
Test Your Knowledge

Multiple Choice

An offer requires:






intent and communication to offeree
motive
definiteness of terms
all of the above
all of the above except (b)
Which is not an invitation to negotiate:



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(a)
(b)
(c)
(d)
(e)
(a) Advertisement of sale
(b) Offer of Reward
(c) Auction
Thought Question

When you go to a
department store and
purchase an item,
what have you done
according to contract
law?
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