Chapter 10

Agreement
and
Consideration

Copyright © 2016 Pearson Education, Ltd.

Learning Objectives Copyright © 2016 Pearson Education, Ltd.

● Define agreement, offer, and acceptance

● Define counteroffer and describe the effects of a
counteroffer
● Describe how offers are terminated by acts of the parties
and by operation of law
● Define consideration and analyze whether agreements
are lacking consideration
● Apply the equity doctrine of promissory estoppel
 Copyright © 2016 Pearson Education, Ltd.

Agreement Contract
 Voluntary exchange of  Agreement that meets
promises between two or
certain additional legal
more legally competent
persons to do, or refrain criteria and is
from doing an act enforceable in a court
 Requires mutual assent of law
to perform current or
future contractual duties Requires an offer and an
acceptance
Mutual assent: Agreement
from both parties
Offer
The offer sets forth the terms under
which the offeror is willing to enter
into the contract.

Copyright © 2016 Pearson Education, Ltd.

Figure 10.1 - Offer

Copyright © 2016 Pearson Education, Ltd.

Offer Copyright © 2016 Pearson Education, Ltd.

Offeror Offeree An offer is

not effective
Person who Person to until it is
makes an whom the actually
offer offer is received by
made the offeree.
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Requirements for an Effective Offer

Offeror must Terms of the Offer must be

objectively offer must be communicated
intend to be definite to the offeree
bound by the
offer
Terms of an Offer
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1. Express Terms [Definite]

Time of Consideration to
Identifies parties Subject matter
Performance be paid

Complex terms?
[no exact specification of contract terms]

2. Implied Terms
Terms that can be reasonably Ascertain appropriate remedy for
supplied by the courts breach
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CASE 10.1 FEDERAL COURT CASE - Contract

Marder v. Lopez
450 F.3d 445 Web 2006 U.S. App. Lexis 14330 (2006)
United United States Court of Appeals for the Ninth Circuit
HELD: The U.S. court of appeals held that the general release Marder
signed was an enforceable contract affirming the judgement of the district
court, dismissing Marder’s complaint against Paramount.

1. Issue: Enforceability of the General Release (physical circumstances

surrounding contracts)
2. Rule: Requirements for an effective offer (objective intent – definite –
communicated)
3. Analysis: Offer Terms [Express terms] even if unfair.
4. Conclusion: Important dynamics to contracts that give effect to
agreements [existence of contract] – no duress, fraud or
incapacitation.

 Did Marder act unethically in bringing this lawsuit?

 Did Paramount owe an ethical duty to pay Marder more money after
the movie Flashdance became a success??
 Copyright © 2016 Pearson Education, Ltd.

Special Offers
Advertisement: Could be an invitation to
make an offer OR an actual offer

 Considered an offer if it is definite and it

is apparent that the advertiser has the
intent to bind himself to the terms of the
advertisement
Special Offers Copyright © 2016 Pearson Education, Ltd.

Reward: Award given for performance

of some service or attainment. To collect
it, the offeree must:

 Have knowledge of it prior to

completing the act

 Perform the requested act

Termination of an Offer (4 ways) Copyright © 2016 Pearson Education, Ltd.

1 2 3

Revocation Rejection Counteroffer

Response by an
Withdrawal Express words
offeree that contains
of an offer by the or conduct by
terms and conditions
offeror the offeree to
different from or in
reject an offer
addition to those of
the offer
4. Termination by Operation of Law Copyright © 2016 Pearson Education,
Ltd.

a. Destruction of the b. Death or incompetency of either

subject matter party

The subject matter of the offer

is destroyed through no fault NB: if an Option
of either party prior to its Contract doesn’t exist.
acceptance
4. Termination by Operation of Law Copyright © 2016 Pearson Education,
Ltd.

c. Supervening
illegality d. Lapse of time

If no time is stated, an
Enactment of a statute, offer terminates after a
regulation, or court reasonable time
decision that makes the
object of an offer illegal
Stated time period after
which an offer terminates
 Copyright © 2016 Pearson Education,

Option Contracts Ltd.

Preventing the offeror from revoking an offer by paying the

offeror compensation
Keep the offer open for an agreed period of time

Death or incompetency does not terminate an option

contract

unless the contract is for the performance of a personal service.

Acceptance
The offeree has the power to create an
agreement by accepting the offer.

Copyright © 2016 Pearson Education, Ltd.

Exhibit 10.2 - Acceptance of an Offer Copyright © 2016 Pearson Education, Ltd.
 Acceptance
Copyright © 2016 Pearson Education,
Ltd.

● Manifestation of assent by the offeree to the terms of the offer in

a manner invited or required by the offer as measured by the
objective theory of contracts

● Unequivocal acceptance: Is unambiguous, and has only one

possible meaning

● Equivocal response: Does not create a contract (conditions)

● Mirror image rule: Requires the offeree to accept the offeror’s

terms without modification
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Time of Acceptance; when?

 Acceptance-upon-dispatch or Mailbox rule:

 Acceptance is effective when it is dispatched, even if

it is lost in transmission

 Not applicable when, an offeree first dispatches a

rejection and then sends an acceptanceX
 Acceptance-upon-dispatch/Mailbox Rule??

The time at which an offer is accepted.

An offer is considered accepted at the time

that the acceptance is communicated – i.e.
reaches the mailbox.
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Mode of Acceptance: Requirements

 Proper dispatch:
 Proper addressing, packaging, and posting of an
acceptance

 Authorized means of communication

 Use of an unauthorized means of communication
make acceptance not effective X
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Mode of Acceptance

Express Implied
authorization authorization
Mode of acceptance
Stipulation in the offer that is implied from
that says the what is customary in
acceptance must be similar transactions,
by a specified means usage of trade, or prior
of communication dealings between the
parties
Consideration
Consideration Copyright © 2016 Pearson Education, Ltd.

 Something of legal value given in exchange for a

promise

 Necessary element for the existence of a contract

 Common types 25%

10%
 Tangible payment (money or property)
 Performance of an act (services)
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Requirements of Consideration
1. Something of legal value must be given
 Legal value: Support for a contract in either of the
following cases
- Promisee suffers a legal detriment
- Promisor receives a legal benefit

2. There must be a bargained-for exchange

 Bargained-for exchange: Exchange that parties
engage in that leads to an enforceable contract
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 Cause considerable trouble

for persons who do not
Gift or Gratuitous understand the importance
Promises of consideration

 Are unenforceable because

they lack consideration
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Promises that Lack Consideration (unenforceable)

Type of consideration Description of promise

Illegal consideration • Contract supported by promise to refrain from

doing an illegal act
Pre-existing duty • Something a person is already under an
obligation to do
• A promise lacks consideration if a person
promises to perform a preexisting duty

Past consideration • Promise based on the past performance of

the promise
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Promissory Estoppel or Detrimental Reliance

1 2

Equity doctrine that Prevents the

permits a court to promisor from
order enforcement revoking a promise
of a contract that based on lack of
lacks consideration consideration
One last thing…

● Reading:
Contemporary Business Law, Cheeseman. 8th Edition. Pearson. 2016
Ch. 10 [Agreement and Consideration]

● There is a handout for this lecture