Donald R' Simon, Esq'

1
Business Law I

• Donald R. Simon, Esq.
• Adjunct Faculty
• KCKCC - Leavenworth Center

2
Business Law I

• Week 4
• Acceptance.
• Acceptance problem areas.
• Consideration.
• Exceptions to consideration.
• Quiz Chaps. 11 and 12.

3
Business Law I

• Chap. 11
• The Agreement
• Acceptance

4
Chapter 11

• Review
• A contract (or K) is one of the most common
  legal transactions you will be involved in when
  running a biz.
• E.g., most bills of sale, purchase orders,
  employment agreements, and other common biz
  transactions are legally enforceable Ks.

5
Chapter 11

• Review
• Definition an agreement between two or more
  parties (organizations, individuals, biz, or
  govt agencies) that creates a legally
  enforceable obligation to do or not do something.
• At its most basic level, a K is
• A promise or a set of promises.
• That is legally enforceable.

6
Chapter 11

• Elements of a contract
• In order for a K to be enforceable, there must be
  3 elements present
• Offer
• Acceptance of the offer and
• Consideration (exchange of something of value).
• Once these 3 elements are present, parties have
  entered into a legally binding contract.

7
Chapter 11

• Offer
• An invitation to enter into a K.
• Person making the offer offeror.
• Person receiving the offer offeree.
• Not every proposal qualifies as an offer. Some
  proposals are vague, or made in jest, or thrown
  out merely as a way of opening negotiations.

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Chapter 11

• Offer
• An offer remains in open until
• Accepted
• Rejected
• Retracted prior to acceptance
• Countered or
• Expires by its own terms.

9
Chapter 11

• Acceptance
• When an offer has been made, no K is formed until
  the offeree accepts the offer.
• Must be a clear expression of the accepting
  partys agreement to the terms of the offer.
• Also known as a meeting of the minds.
• An offer can only be accepted by the offeree.

10
Chapter 11

• Acceptance
• Definition a manifestation of assent to the
  terms of the offer made by the offeree in the
  manner invited or required by the offer.
• An offer has 3 elements
• Offeree intended to enter the K
• Offeree accepted on the terms proposed by the
  offeror and
• Offeree communicated his/her acceptance of the
  offer.

11
Chapter 11

• Acceptance
• Intention to accept
• Looking for offerees present intent to contract.
  Same as offeror.
• Offerees intent is judged by the same objective
  standard as the offeror--objective.
• The difference is that the offeree must
  objectively indicate a present intent to contract
  on the terms of offer that is in front of him/her
  for a K to result.
• It is said that the offeree is the master of the
  offer.

12
Chapter 11

• Acceptance
• Acceptance on offerors terms
• Common law liberal interpretation of the mirror
  image rule.
• Only material (important) variance between an
  offer and a purported acceptance result in an
  implied rejection of the offer.
• No rejection seen in questioning terms or
  grumbling acceptance.

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Chapter 11

• Acceptance
• Acceptance on offerors terms
• UCC battle of the forms provision.
• Most commercial transactions use preprinted forms
  traded back and forth between parties. These
  forms rarely agree in every detail.
• Allows for the formation of a K even where there
  is some variance between the terms of the offer
  and the terms of the acceptance.
• A definite and timely acceptance creates a K,
  even if it includes terms different from those in
  the offer or even if it states additional terms
  the offer didnt address.

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Chapter 11

• Acceptance
• Acceptance on offerors terms
• UCC battle of the forms provision.
• Additional terms contained in a offerees form
  are treated as proposals for addition to the K.
• With some exceptions, if both parties are
  merchants these additional terms become part of
  the K.
• When offeree has made his/her acceptance
  expressly conditional on the offerors agreement
  to the new terms or when the offerees response
  to the offer is clearly not an expression of
  acceptance, no K is created.

15
Chapter 11

• Acceptance
• Acceptance on offerors terms
• UCC battle of the forms provision.
• A K will only result in such cases if the parties
  engage in conduct that recognizes the existence
  of a K, such as the exchange of performance.
• Unlike common law, if the offeror accepts
  performance in the face of an express rejection
  or expressly condition acceptance is not bound by
  all the terms contained in the offerees
  response.
• Terms of a K created above are those that the
  parties writings agree plus UCC gap filling
  provisions.

16
Chapter 11

• Acceptance

17
Chapter 11

• Acceptance
• Communication of acceptance
• To accept an offer in a bilateral K, the offeree
  must make the promise requested by the offer.
• An offeree must communicate his/her intent to be
  bound by the offer before the K is created.
• To accept an offer in a unilateral K, the offeree
  must perform the requested act.
• No notice is required.

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Chapter 11

• Acceptance
• Communication of acceptance
• The offeror has the power to specify the precise
  time, place, and manner in which acceptance must
  be communicated.
• Any derivation and no K will result.
• If, however, the offeror merely suggests a method
  or place of communication or is silent on such
  matters, the offeree may accept within a
  reasonable time by any reasonable means of
  communication.

19
Chapter 11

• Acceptance
• Communication of acceptance
• Instantaneous forms best manner of acceptance.
• Non-instantaneous forms time lag problems.
• Mailbox rule acceptance effective upon dispatch
  when offeree used a manner of communication
  expressly or impliedly authorized by the offeror.
• Typically, a manner of communication common in
  the parties trade or biz.

20
Chapter 11

• Acceptance
• Communication of acceptance
• Today, courts allow communication by any
  reasonable means of communication.

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Chapter 11

• Acceptance
• Acceptance problem areas
• Unilateral Ks exchange of a promise for an act.
• Offeror may be prevented from withdrawing offer
  once offeree has begun performance.
• Bilaterial Ks exchange of a promise for a
  promise.
• Offeree must make the promise requested by the
  offer.
• Acceptance can be implied from offerees actions.

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Chapter 11

• Acceptance
• Acceptance problem areas
• Silence generally, silence is not acceptance.
• Offeror cannot impose on the offeror a duty to
  respond to the offer.
• Generally not allowed If I dont hear from you
  in 3 days, Ill assume that you have accepted my
  offer.
• However, customary trade practice or prior
  dealings between the parties may indicate that
  silence signals acceptance.
• Offeree can impose silence as acceptance.

23
Chapter 11

• Acceptance
• Acceptance problem areas
• Who can accept?
• The only person with the legal authority to
  accept an offer is the original offeree.
• A third party who may want to get in on an offer
  is treated as an offer themselves.
• Watch out for employees or biz partners who may
  have authority to bind the biz in a K--agency
  principles (discussed later in the semester).

24
Business Law I

• Chap. 12
• Consideration

25
Chapter 12

• Elements of a contract
• In order for a K to be enforceable, there must be
  3 elements present
• Offer
• Acceptance of the offer and
• Consideration (exchange of something of value).
• Once these 3 elements are present, parties have
  entered into a legally binding contract.

26
Chapter 12

• Consideration
• Definition legal value, bargained-for and given
  in exchange for an act or a promise.
• Can take a number of forms money, property, a
  promise, the doing of an act, or even refraining
  from doing an act.
• Giving something up and getting something of
  roughly equal value in return.

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Chapter 12

• Consideration
• Promise generally cannot be enforced against the
  person who made it (the promiser) unless the
  person to whom the promise is made (the
  promisee) has given up something of legal value
  in exchange for the promise.
• A promisee must pay the price that the promisor
  asked to gain the right to enforce the promisors
  promise.

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Chapter 12

• Consideration
• But if the promisor didnt ask for anything in
  exchange for his/her promise, the promise is not
  enforceable against the promisor because it is
  not supported by consideration.
• Lack of consideration gratuitous promise.
• 2 requirements
• Something of legal value.
• Bargained-for exchange.

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Chapter 12

• Consideration
• Legal value
• Can be an act as in the case of a unilateral K.
• Or a promise in the case of a bilateral K.
• If, in exchange for the promisors promise, the
  promisee does, or agrees to do, something he/she
  had no prior legal duty to do, that provides
  legal value.
• If, in exchange for the promisors promise, the
  promisee refrains from doing, or agrees not do,
  something he/she has a legal right to do, that
  also provides legal value.

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Chapter 12

• Consideration
• Legal value
• Watch out for Ks that recite 1 or 1 and
  other valuable consideration.
• Often such agreements are attempts to make
  gratuitous promises look like true bargains by
  reciting nonexistent consideration.
• Most courts refuse to enforce such agreements
  unless they find that the stated consideration
  was truly bargained for.

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Chapter 12

• Consideration
• Bargained-for exchange
• Goes to the notion of freedom of K.
• A promisees act or promise must have been
  bargained for and given in exchange for the
  promisors promise.

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Chapter 12

• Consideration
• Bargained-for exchange
• E.g., if a hot dog vendor says that hot dogs
  cost 1 and a customer pays 1, the law will
  consider that to be a bargained-for exchange,
  even though the two did not actually haggle over
  the price.
• The vendor promised to trade a hot dog for 1,
  and the customer was induced to pay 1 because
  the vendor promised to make the exchange.
• Customer suffered a legal detriment (loss of 1)
  and hot dog vendor gained a legal benefit (gain
  of 1).

33
Chapter 12

• Consideration
• Exchanges that are not consideration
• Illusory promises
• Pre-existing duties
• Past consideration

34
Chapter 12

• Consideration
• Illusory promises
• If promisees promise really does not bind
  promisee to do or refrain from doing something,
  the promise is illusory and cannot serve as
  consideration.
• Statement appears to assure a performance but,
  when leaves to the promisor the choice of
  performance or non-performance, which means that
  the promisor does not legally bind himself or
  herself to act.
• E.g., I will give you 10 if I feel like it, is
  purely illusory and will not be enforced as a K.

35
Chapter 12

• Consideration
• Illusory promises
• Cancellation or termination clauses
• Do not necessarily mean that promises are
  illusory.
• As long as these provisions have certain defined
  limitations, their promises will not be
  considered illusory.

36
Chapter 12

• Consideration
• Pre-existing duties
• As a general rule, performing or agreeing to
  perform a preexisting duty is not consideration.
• Every member of society has a duty to obey the
  law, so a promise to refrain from breaking the
  law would not be valid consideration.

37
Chapter 12

• Consideration
• Pre-existing duties and K modification
• Occasionally, during the performance of a K,
  parties find it necessary to modify the terms of
  a K.
• General rule an agreement to modify an existing
  K requires mutual assent and new consideration.
• Exceptions made for modifications due to
  unforeseen circumstances that a party could not
  reasonably foresee.

38
Chapter 12

• Consideration
• Pre-existing duties and settlements
• Liquidated debts debts in which parties have no
  dispute about the existence or amount of the
  debt.
• Creditors promise to discharge a liquidated debt
  for part payment of the debt at or after its due
  date is unenforceable for lack of consideration.
• However, if the party seeking to enforce the new
  promise does something that he/she had no
  pre-existing duty to that new action could be
  considered new consideration.

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Chapter 12

• Consideration
• Pre-existing duties and settlements
• Unliquidated debts debts in which parties have a
  good faith dispute about the existence or amount
  of the debt.
• Settlement agreements are enforceable--called
  accord and satisfaction.
• Once parties have agreed to settle an
  unliquidated debt, the creditor cannot later
  maintain an action to recover the remainder of
  the debt.

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Chapter 12

• Consideration
• Pre-existing duties and settlements
• Unliquidated debts debts in which parties have a
  good faith dispute about the existence or amount
  of the debt.
• Settlement agreements are enforceable--called
  accord and satisfaction.
• Once parties have agreed to settle an
  unliquidated debt, the creditor cannot later
  maintain an action to recover the remainder of
  the debt.

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Chapter 12

• Consideration
• Past consideration
• An act or benefit given in the past that was not
  given in exchange for the promise in question,
  thus it cannot be consideration.
• E.g., if Tom really likes the new paint job on
  his house and he promises to tip the painter an
  extra 200, that promise wont be enforced
  because the consideration (the painting of the
  house) occurred before the promise was made.

42
Chapter 12

• Consideration
• Gifts and charitable contributions
• Generally, a promise to make a gift is not
  enforceable because it is not supported by
  consideration.
• Some gift promises may become enforceable if the
  promisor attaches a condition as part of the
  bargain for an otherwise gratuitous promise.
• E.g., Tom promises his grandson 1,000 if
  grandson finishes business school. Grandson
  does. This promise is enforceable because the
  grandson incurred a legal detriment in an effort
  to collect the 1,000.

43
Chapter 12

• Consideration

44
Business Law I

• Week 5
• Misrepresentation and fraud.
• Mistake.
• Duress and undue influence.
• Capacity to contract.