Week 4: Chapter 12 (Agreement) & 13 (Consideration)

Legally Sufficient Value

1) A promise to do something that one has no prior legal duty to do. 2) The performance of an action that one is otherwise not obligated to undertake. 3) The refraining from an action that one has a legal right to undertake (called a forbearance).

Exceptions to the Consideration Requirement

1. Promises that induce detrimental reliance, under the doctrine of promissory estoppel 2. Promises to pay debts that are barred by a statute of limitations 3. Promises to make charitable contributions

Requirements to Establish Promissory Estoppel

1. There must be a clear and definite promise. 2. The promisor should have expected that the promisee would rely on the promise. 3. The promisee reasonably relied on the promise by acting or refraining from some act. 4. The promisee's reliance was definite and resulted in substantial detriment. 5. Enforcement of the promise is necessary to avoid injustice.

Provisions to include in online offers

1. acceptance of terms 2. payment 3. return policy 4. disclaimer 5. limitation on remedies 6. privacy policy 7. dispute resolution

Elements of Consideration

1. something of legally sufficient value must be given in exchange for the promise 2. there must be a bargained-for exchange

Requirements contract

A buyer and a seller agree that the buyer will purchase from the seller all of the goods of a designated type that the buyer needs, or requires

Settlement of Claims

A claim may be settled through an accord and satisfaction, a release, or a covenant not to sue.

Release

A contract in which one party forfeits the right to pursue a legal claim against the other party. A release will generally be binding if it meets the following requirements: 1) The agreement is made in good faith (honestly). 2) The release contract is in a signed writing (required in many states). 3) The contract is accompanied by consideration.

Promissory Estoppel

A doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will be better served by the enforcement of the promise.

Moot

A matter is moot if it involves no actual controversy for the court o decide, and federal courts will dismiss moot cases.

Authorized Means of Acceptance

A means of communicating acceptance can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances of the situation. An acceptance sent by means not expressly or impliedly authorized normally is not effective until it is received by the offeror. If the offeror does not expressly authorize a certain mode of acceptance, then acceptance can be made by any reasonable means

Charitable Subscriptions

A promise to make payment to a charitable organization; a pledge; it is enforceable even though the charity gives nothing in exchange by Promissory Estoppel.

Limitation on Remedies in online offers

A provision specifying the remedies available to the buyer if the goods are found to be defective or if the contract is otherwise breached. Any limitation of remedies should be clearly spelled out.

Privacy Policy in online offers

A statement indicating how the seller will use the information gathered about the buyer.

Supervening Illegality

A statute or court decision that makes an offer illegal automatically terminates the offer

Adequacy of Consideration

Considers the fairness of the bargain The General Rule: On the surface, when the items exchanged are of unequal value, fairness would appear to be an issue. Normally, however, a court will not question the adequacy of consideration based solely on the comparative value of the things exchanged.

Contract Law

Developed over time to meet society's need to know with certainty what kind of promises, or contracts, will be enforced and the point at which a valid and binding contract is formed.

Disclaimer in online offers

Disclaimers of liability for certain uses of the goods. For instance, an online seller of business forms may add a disclaimer that the seller does not accept responsibility for the buyer's reliance on the forms rather than on an attorney's advice.

Valid Contract Requirements

For a contract to be considered valid and enforceable, they must have: 1) Agreement 2) Consideration 3) Contractual Capacity 4) legality

Liquidated Debts

If a debt is liquidated, accord and satisfaction cannot take place. A liquidated debt is one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.

Rejection

If the offeree rejects the offer—by words or by conduct—the offer is terminated. Any subsequent attempt by the offeree to accept will be construed as a new offer, giving the original offeror (now the offeree) the power of acceptance. Like a revocation, a rejection of an offer is effective only when it is actually received by the offeror or the offeror's agent.

Preliminary Agreements

Increasingly, the courts are holding that a preliminary agreement constitutes a bind- ing contract if the parties have agreed on all essential terms and no disputed issues remain to be resolved. In contrast, if the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is not binding.

Dispute-Settlement Provisions

Online offers frequently include provisions relating to dispute settlement. For instance, an offer might include an arbitration clause specifying that any dispute arising under the contract will be arbitrated in a designated forum. The parties might also select the forum and the law that will govern any disputes.

Offeror

Party making an offer

Offeree

Party to whom the offer is made

Offer

Promise or commitment to do or refrain from doing some specified action in the future. Under common law three elements are necessary for an offer to be effective: 1) The offeror must have a serious intention to become bound by the offer. 2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. 3) The offer must be communicated to the offeree.

Counteroffer

Rejection of the original offer and the simultaneous making of a new offer.

Online Offers

Sellers doing business via the Internet can protect themselves against contract disputes and legal liability by creating offers that clearly spell out the terms that will govern their transactions if the offers are accepted. All important terms should be conspicuous and easy to view.

Doctrine of Quasi Contract

Similar to the Doctrine of Promissory Estoppel because in both situations, a court, acting in the interests of equity, imposes contract obligations on the parties to prevent unfairness even though no actual contract exists, the difference is that in a quasi contract, no promise was made at all.

Choice-of-Law Clause

Some online contracts may also include a choice-of-law clause, specifying that any contract dispute will be settled according to the law of a particular jurisdiction, such as a state or country. Choice-of-law clauses are particularly common in international contracts, but they may also appear in e-contracts to specify which state's laws will govern in the United States.

Shrink-Wrap Terms That May Not Be Enforced

Some- times, however, the courts have refused to enforce certain terms included in shrink-wrap agreements because the buyer did not expressly consent to them. An important factor is when the parties formed their contract. If a buyer orders a product over the telephone, for instance, and is not informed of an arbitration clause or a forum-selection clause at that time, the buyer clearly has not expressly agreed to these terms. If the buyer discovers the clauses after the parties have entered into a contract, a court may conclude that those terms were proposals for additional terms and were not part of the contract.

Option-to-Cancel Clauses

Sometimes, option-to- cancel clauses in contracts present problems in regard to consideration. When the promisor has the option to can- cel the contract before performance has begun, the promise is illusory. ■ Example 13.7 Abe contracts to hire Chris for one year at $5,000 per month, reserving the right to cancel the contract at any time. On close examination of these words, you can see that Abe has not actually agreed to hire Chris, as Abe could cancel without liability before Chris started performance. This contract is therefore illusory. But if Abe instead reserves the right to cancel the con- tract at any time after Chris has begun performance by giving Chris thirty days' notice, the promise is not illu- sory. Abe, by saying that he will give Chris thirty days' notice, is relinquishing the opportunity (legal right) to hire someone else instead of Chris for a thirty-day period. If Chris works for one month and Abe then gives him thirty days' notice, Chris has an enforceable claim for two months' salary ($10,000). ■

Substitute Method of Acceptance

Sometimes, the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means. In that situation, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means. Acceptance by a substitute method is not effective on dispatch, however. No contract will be formed until the acceptance is received by the offeror.

Promises to Pay Debts Barred by Statute of Limitations

Statuses of limitations in all states require a creditor to sue within a specified period to recover a debt. However, a debtor who promises to pay a previous debt even though recovery is barred by the statute of limitations makes an enforceable promise. The promise needs no consideration.

Click-On Agreements

The courts have concluded that the act of clicking on a box labeled "I accept" or "I agree" can indicate acceptance of an online offer. Generally, the law does not require that the parties read all of the terms in a contract for it to be effective.

Intention

The first requirement for an effective offer is a serious intent on the part of the offeror. Serious intent is not determined by the subjective intentions, beliefs, and assumptions of the offeror. Rather, it is determined by what a reasonable person in the offeree's position would conclude that the offeror's words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet the serious-and-objective-intent test. A reasonable person would realize that such offers were not made seriously. Because these offers are not effective, an offeree's acceptance does not create an agreement.

Unequivocal Acceptance

To exercise the power of acceptance effectively, the offeree must accept unequivocally. An acceptance may be unequivocal even though the offeree expresses dissatisfaction with the contract. For instance, "I accept the offer, but can you give me a better price?" or "I accept, but please send a written contract" is an effective acceptance. (Notice how important each word is!) An acceptance cannot impose new conditions or change the terms of the original offer. If it does, the acceptance may be considered a counteroffer, which is a rejection of the original offer. For instance, the state- ment "I accept the offer but only if I can pay on ninety days' credit" is a counteroffer and not an unequivocal acceptance.

Agreements to Agree

Traditionally, agreements to agree—that is, agreements to agree to the material terms of a contract at some future date—were not considered to be binding contracts. The modern view, however, is that agreements to agree may be enforceable agreements (contracts) if it is clear that the parties intended to be bound by the agreements. In other words, under the modern view the emphasis is on the parties' intent rather than on form.

Preexisting Duty (Agreements that lack consideration)

Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. The preexisting legal duty may be imposed by law or may arise out of a previous con- tract. A sheriff, for instance, has a duty to investigate crime and to arrest criminals. Hence, a sheriff cannot collect a reward for providing information leading to the capture of a criminal.

noncompete agreement (covenant not to compete)

Under such an agreement, the employee agrees not to compete with the employer for a certain period of time after the employment relation- ship ends. When a current employee is required to sign a noncompete agreement, his or her employment is not sufficient consideration for the agreement, because the individual is already employed. To be valid, the agreement requires new consideration.

Objective Theory of Contracts

Under this theory, a party's words and conduct are held to mean whatever a reasonable person in the offeree's position would think they meant.

Covenant Not to Sue

Unlike a release, a covenant not to sue does not always bar further recovery. The parties simply substitute a contractual obligation for some other type of legal action based on a valid claim. Suppose that, in Example 13.9, Lupe agrees with Dexter not to sue for damages in a tort action if he will pay for the damage to her car. If Dexter fails to pay for the repairs, Lupe can bring an action against him for breach of contract.

Rescission

Unmaking of a contract so as to return the parties to the positions they occupied before the contract was made. Sometimes, parties rescind a contract and make a new contract at the same time. When this occurs, it is often difficult to determine whether there was consideration for the new contract, or whether the parties had a preexisting duty under the previous contract. If a court finds there was a preexisting duty, then the new contract will be invalid because there was no consideration.

Acceptance

Voluntary act by the offeree that shows assent (agreement) to the terms of an offer. The offeree's act may consist of words or conduct. The acceptance must be unequivocal and must be communicated to the offeror.

Illusory Promise

When a person expresses contract terms with such uncertainty that the terms are not definite, the promise is illusory.

Past Consideration

When a person makes a promise in return for actions or events that have already taken place, there is no consideration. Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained-for exchange is missing.

When Voluntary Consent May Be Lacking (Consideration)

When there is a large disparity in the amount or value of the consideration exchanged, it may raise a red flag for a court to look more closely at the bargain. Shockingly inadequate consideration can indicate that fraud, duress, or undue influence was involved. Disparity in the consideration exchanged may also cause a judge to question whether the contract is so one sided and unfair that it is unconscionable

Communication of Acceptance

Whether the offeror must be notified of the acceptance depends on the nature of the contract. In a unilateral contract, the full performance of some act is called for. Acceptance is usually evident, and notification is therefore unnecessary (unless the law requires it or the offeror asks for it). In a bilateral contract, in contrast, communication of acceptance is necessary, because acceptance is in the form of a promise. The bilateral contract is formed when the promise is made rather than when the act is performed.

Accord and satisfaction

a debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed. The accord is the agreement. In the accord, one party undertakes to give or perform, and the other to accept, in satisfaction of a claim, some- thing other than that on which the parties originally agreed. Satisfaction is the performance (usually payment) that takes place after the accord is executed. A basic rule is that there can be no satisfaction unless there is first an accord. In addition, for accord and satis- faction to occur, the amount of the debt must be in dispute.

Partnering Agreements

In a partnering agreement, a seller and a buyer who frequently do business with each other agree in advance on the terms and conditions that will apply to all transactions subsequently conducted electronically. The partnering agreement can also establish special access and identification codes to be used by the parties when transacting business electronically. A partnering agreement reduces the likelihood that contract disputes will arise because the parties have agreed in advance to the terms and conditions that will accompany each sale. Furthermore, if a dispute does arise, a court or arbitration forum will be able to refer to the partnering agreement when determining the parties' intent.

Mode and Timeliness of Acceptance

In bilateral contracts, acceptance must be timely. The general rule is that acceptance in a bilateral contract is timely if it is made before the offer is terminated. Problems may arise, though, when the parties involved are not dealing face to face. In such situations, the offeree should use an authorized mode of communication.

Shrink-Wrap Agreements and Enforceable Contract Terms

In some cases, the courts have enforced the terms of shrink-wrap agreements in the same way as the terms of other contracts. These courts have reasoned that by including the terms with the product, the seller proposed a con- tract. The buyer could accept this contract by using the product after having an opportunity to read the terms. Thus, a buyer's failure to object to terms contained within a shrink- wrapped software package may constitute an acceptance of the terms by conduct.

Mailbox Rule

Acceptance takes effect, thus complet- ing formation of the contract, at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror. Also called the deposited acceptance rule, which the majority of courts follow.

Irrevocable Offers

Although most offers are revocable, some can be made irrevocable—that is, they cannot be revoked. One form of irrevocable offer is an option contract. An option contract is created when an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree. An option contract takes away the offeror's power to revoke the offer for the period of time specified in the option. Option contracts are frequently used in conjunction with the sale or lease of real estate. ■ Example 12.5 Tyler agrees to lease a house from Jackson, the property owner. The lease contract includes a clause stating that Tyler is paying an additional $15,000 for an option to purchase the property within a specified period of time. If Tyler decides not to purchase the house after the specified period has lapsed, he loses the $15,000, and Jackson is free to sell the property to another buyer. ■

Agreement

An essential element for contract formation is agreement—the parties must agree on the terms of the contract and manifest to each other their mutual assent (agreement) to the same bargain. Ordinarily, an agreement is evidenced by two events: an offer and an acceptance. One party offers a certain bargain to another party, who then accepts that bargain. An agreement does not necessarily have to be in writing. Both parties, however, must manifest their assent, or voluntary consent, to the same bargain.

Termination by Action of the Parties

An offer can be terminated by action of the parties in any of three ways: by revocation, by rejection, or by counteroffer.

Destruction, Death, or Incompetence

An offer is automatically terminated if the specific subject matter of the offer (such as a smartphone or a house) is destroyed before the offer is accepted.7 Notice of the destruction is not required for the offer to terminate. An offeree's power of acceptance is also terminated when the offeror or offeree dies or is legally incapacitated— unless the offer is irrevocable.

Lapse of Time

An offer terminates automatically by law when the period of time specified in the offer has passed. If the offer states that it will be left open until a particular date, then the offer will terminate at midnight on that day. If the offer states that it will be open for a number of days, this time period normally begins to run when the offeree receives the offer (not when it is formed or sent).

mirror image rule

At common law, the mirror image rule requires the offeree's acceptance to match the offeror's offer exactly—to mirror the offer. Any change in, or addition to, the terms of the original offer automatically terminates that offer and substitutes the counteroffer. The counteroffer, of course, need not be accepted, but if the original offeror does accept the terms of the counteroffer, a valid contract is created

Hamer v. Sidway (Case 13.1)

Background and Facts: - William E. Story, Sr., was the uncle of William E. Story II. In the presence of family members and others, the uncle promised to pay his nephew $5,000 ($76,000 in today's dollars) if he would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he reached the age of twenty-one. - Nephew agreed and performed his part of the bargain. When he was 21, he wrote to his uncle and uncle wrote back pleased with his nephew's performance, thus he left $5000 in the bank for his nephew to earn interest under the terms and conditions of the letter. - uncle died without paying nephew $5000 and interest, the executor of uncle's state claimed that there had been no valid consideration for the promise. Sidway refused to pay the $5,000 (plus interest) to Hamer, a third party to whom the nephew had transferred his rights in the note. - The court reviewed the case to determine whether the nephew had given valid consideration under the law. In the Language of the Court: Now, applying this rule to the facts before us, the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator [his uncle] that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement Decision and remedy: The court ruled that the nephew had provided legally sufficient consideration by giving up smoking, drinking, swearing, and playing cards or billiards for money until he reached the age of twenty-one. Therefore, he was entitled to the funds.

Lucy V. Zehmer

Lucy v. Zehmer Supreme Court of Appeals of Virginia, 196 Va. 493, 84 S.E.2d 516 (1954). Background and Facts W. O. Lucy, the plaintiff, filed a suit against A. H. and Ida Zehmer, the defendants, to compel the Zehmers to transfer title of their property, known as the Ferguson Farm, to the Lucys (W. O. and his wife) for $50,000, as the Zehmers had allegedly agreed to do. Lucy had known A. H. Zehmer for fifteen or twenty years and for the last eight years or so had been anxious to buy the Ferguson Farm from him. One night, Lucy stopped to visit the Zehmers in the combina- tion restaurant, filling station, and motor court they operated. While there, Lucy tried to buy the Ferguson Farm once again. This time he tried a new approach. According to the trial court transcript, Lucy said to Zehmer, "I bet you wouldn't take $50,000 for that place." Zehmer replied, "Yes, I would too; you wouldn't give fifty." Throughout the evening, the conversation returned to the sale of the Ferguson Farm for $50,000. All the while, the men continued to drink whiskey and engage in light conversation. Eventually, Lucy enticed Zehmer to write up an agreement to the effect that the Zehmers would sell the Ferguson Farm to Lucy for $50,000. Later, Lucy sued Zehmer to compel him to go through with the sale. Zehmer argued that he had been drunk and that the offer had been made in jest and hence was unenforceable. The trial court agreed with Zehmer, and Lucy appealed. Opinion: "The appearance of the contract, the fact that it was under discussion for forty minutes or more before it was signed; Lucy's objection to the first draft because it was written in the singular, and he wanted Mrs. Zehmer to sign it also; the rewriting to meet that objection and the signing by Mrs. Zehmer;the discussion of what was to be included in the sale, the provision for the examination of the title, the completeness of the instrument that was executed, the taking possession of it by Lucy with no request or suggestion by either of the defendants that he give it back, are facts which furnish persuasive evidence that the execution of the contract was a serious business transaction rather than a casual, jesting matter as defendants now contend." Decision and Remedy: The Supreme Court of Appeals of Virginia determined that the writing was an enforceable contract and reversed the ruling of the lower court. The Zehmers were required by court order to follow through with the sale of the Ferguson Farm to Lucy.

Forum-Selection Clause

Many online contracts contain a forum-selection clause indicating the forum, or location (such as a court or jurisdiction), in which contract disputes will be resolved. Significant jurisdictional issues may arise when parties are at a great distance, as they often are when they form contracts via the Internet. A forum- selection clause will help to avert future jurisdictional problems and also help to ensure that the seller will not be required to appear in court in a distant state.

Silence as Acceptance

Not usually an acceptance, but in some instances, the offeree does have a duty to speak, and her or his silence or inaction will operate as an acceptance. Silence can constitute an acceptance when the offeree has had prior dealings with the offeror.

Agreement in E-Contracts

Numerous contracts are formed online. Electronic contracts, or e-contracts, must meet the same basic requirements (agreement, consideration, contractual capacity, and legality) as paper contracts. Disputes concerning e-contracts, however, tend to center on contract terms and whether the parties voluntarily agreed to those terms. As you read through the following subsections, you will see that we typically refer to the offeror and the offeree as a seller and a buyer. Keep in mind, though, that in many online transactions these parties would be more accurately described as a licensor and a licensee.

(Case 12.2) Basis Technology Corp. v. Amazon.com, Inc.

Substance: a dispute arose over an agreement to settle a case during the trial. One party claimed that the agreement, which was formed via e-mail, was binding. The other party claimed that the e-mail exchange was merely an agreement to work out the terms of a settlement in the future. Background and Facts Basis Technology Corporation created software and provided technical services for a Japanese-language website belonging to Amazon.com, Inc. The agreement between the two companies allowed for separately negotiated contracts for additional services that Basis might provide to Amazon. At the end of 1999, Basis and Amazon entered into stock-purchase agreements. Later, Basis sued Amazon for various claims involving these securities and for failure to pay for services performed by Basis that were not included in the original agreement. During the trial, the two parties appeared to reach an agreement to settle out of court via a series of e-mail exchanges outlining the settlement. When Amazon reneged, Basis served a motion to enforce the proposed settlement. The trial judge entered a judgment against Amazon, which appealed. In the Language of the court: "We must interpret the document as a whole. In the preface to the enumerated terms, Basis counsel stated that the "e-mail confirms the essential business terms of the settlement between our respective clients," and that the parties "agree that they promptly will take all reasonable steps to memorialize" those terms. Amazon counsel concisely responded, "correct." Thus the "essential business terms" were resolved. The parties were proceeding to "memorialize" or record the settlement terms, not to create them." To ascertain intent, a court considers the words used by the parties, the agreement taken as a whole, and surrounding facts and circumstances. The essential circumstance of this disputed agreement is that it concluded a trial. * * * As the trial judge explained in her memorandum of decision, she "terminated" the trial; she did not suspend it for exploratory negotiations. She did so in reliance upon the parties' report of an accomplished agreement for the settlement of their dispute. *** * In sum, the deliberateness and the gravity attributable to a report of a settlement, especially during the progress of a trial, weigh heavily as circumstantial evidence of the intention of a party such as Amazon to be bound by its communication to the opposing party and to the court. Decision and Remedy The Appeals Court of Massachusetts affirmed the trial court's finding that Amazon intended to be bound by the terms of the March 23 e-mail. That e-mail constituted a complete and unambiguous statement of the parties' desire to be bound by the settlement terms.

Browse-Wrap Terms

Terms and conditions of use that are presented to an Internet user at the time certain products, such as software, are being downloaded but that need not be agreed to (by clicking "I agree," for example) before being able to install or use the product.

Online Acceptances

The Restatement (Second) of Contracts, which is a compilation of common law contract principles, states that par- ties may agree to a contract "by written or spoken words or by other acts or by failure to act."14 The Uniform Com- mercial Code (UCC), which governs sales contracts, has a similar provision. Section 2-204 of the UCC states that any contract for the sale of goods "may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." The courts have used these provisions in deter- mining what constitutes an online acceptance.

Unliquidated Debts

The amount of the debt is not settled, fixed, agreed on, ascertained, or determined, and reasonable persons may differ over the amount owed. In these circumstances, acceptance of a lesser sum operates as satisfaction, or discharge, of the debt because there is valid consideration. The parties give up a legal right to contest the amount in dispute.

Output Contract

The buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller's output.

Termination of the Offer

The communication of an effective offer to an offeree gives the offeree the power to transform the offer into a binding legal obligation (a contract) by an acceptance. This power of acceptance does not continue forever, though. It can be terminated either by action of the par- ties or by operation of law.

Situations in Which Intent May Be Lacking

The concept of intention can be further clarified by looking at statements that are not offers and situations in which the parties intent to be bound might be questionable. 1) Expressions of opinion. An expression of opinion is not an offer. It does not indicate an intention to enter into a binding agreement. 2) Statements of future intent. A statement of an intention to do something in the future (such as "I plan to sell my Verizon stock") is not an offer. 3) Preliminary negotiations. A request or invitation to negotiate is not an offer. It only expresses a willingness to discuss the possibility of entering into a contract. Statements such as "Will you sell your farm?" or "I wouldn't sell my car for less than $8,000" are examples. 4) Invitations to bid. When a government entity or private firm needs to have construction work done, contractors are invited to submit bids. The invitation to submit bids is not an offer. The bids that contractors submit are offers, however, and the government entity or private firm can bind the contractor by accepting the bid. 5) Advertisements and price lists. In general, representations made in advertisements and price lists are treated not as offers to contract but as invitations to negotiate.1 6) Live and online auctions. In a live auction, a seller "offers" goods for sale through an auctioneer, but this is not an offer to form a contract. Rather, it is an invitation asking bidders to submit offers. In the context of an auction, a bidder is the offeror, and the auctioneer is the offeree. The offer is accepted when the auctioneer strikes the hammer.

Revocation

The offeror's act of revoking, or withdrawing, an offer is known as a revocation. Unless an offer is irrevocable, the offeror usually can revoke the offer, as long as the revocation is communicated to the offeree before the offeree accepts. A revocation may be accomplished by either of the following: 1) Express repudiation of the offer (such as "I withdraw my previous offer of October 17"). 2) Performance of acts that are inconsistent with the existence of the offer and are made known to the offeree (for instance, selling the offered property to another person in the offeree's presence). In most states, a revocation becomes effective when the offeree or the offeree's agent (a person acting on behalf of the offeree) actually receives it. Therefore, a revocation sent via FedEx on April 1 and delivered at the offeree's residence or place of business on April 3 becomes effective on April 3.

Termination by Operation of Law

The power of the offeree to transform the offer into a binding legal obligation can be terminated by operation of law through the occurrence of any of the following events: 1) Lapse of time. 2) Destruction of the specific subject matter of the offer. 3) Death or incompetence of the offeror or the offeree. 4) Supervening illegality of the proposed contract.

Unforeseen Circumstances (Agreements that lack consideration)

The rule regarding pre- existing duty is meant to prevent extortion and the so-called holdup game. Nonetheless, if, during performance of a contract, extraordinary difficulties arise that were totally unforeseen at the time the contract was formed, a court may allow an exception to the rule. The key is whether the court finds that the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made

Bargained-for Exchange

The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. That is, the item of value must be given or promised by the promisor (offeror) in return for the promisee's promise, performance, or promise of performance. This element of bargained-for exchange distinguishes contracts from gifts.

Definiteness of Terms

The second requirement for an effective offer involves the definiteness of its terms. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy.3 The specific terms required depend, of course, on the type of contract. Generally, a contract must include the following terms, either expressed in the contract or capable of being reasonably inferred from it: 1) The identification of the parties. 2) The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land. 3) The consideration to be paid. 4) The time of payment, delivery, or performance. An offer may invite an acceptance to be worded in such specific terms that the contract is made definite.

Displaying the Offer

The seller's website should include a hypertext link to a page containing the full contract so that potential buyers are made aware of the terms to which they are assenting. The contract generally must be displayed online in a readable format, such as a twelve-point typeface. All provisions should be reasonably clear.

shrink-wrap agreement (or shrink-wrap license)

The terms are expressed inside the box in which the goods are packaged. Usually, the party who opens the box is told that she or he agrees to the terms by keeping whatever is in the box. Similarly, when a purchaser opens a software package, he or she agrees to abide by the terms of the limited license agreement. In most instances, a shrink-wrap agreement is not between a retailer and a buyer but is between the man- ufacturer of the hardware or software and the ultimate buyer-user of the product. The terms generally concern warranties, remedies, and other issues associated with the use of the product.

Communication

The third requirement for an effective offer is communication—the offer must be communicated to the offeree. Ordinarily, one cannot agree to a bargain without knowing that it exists.

Consideration

The value given in return for a promise (bilateral contract) or performance (unilateral contract) in a contractual agreement. It is the inducement, price, or motive that causes a party to enter into an agreement