267
Chapter 11
Agreement in
Traditional and E-Contracts
See Separate Lecture Outline System
INTRODUCTION
This chapter explains the nature of the agreement, which forms the basis of a contract. Through a discussion of offer
and acceptance, the chapter helps students to begin to understand how promises become legally binding. The text also
contrasts non-offer situations. Responses to the offer and which acts terminate it are defined and discussed.
An offer must be made and it must be accepted. The parties must manifest their assent to the same bargain. Once
agreement is reached, if the other elements of a contract are present (consideration, capacity, and legality—discussed in
subsequent chapters), a valid contract is formed.
An agreement does not necessarily have to be in writing, but a contract must contain reasonably definite terms to be
enforced. What terms are required depends on the type of contract. Generally, the following terms must be included, either
268 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 269
This chapter also reviews some of the problems that concern e-contracts. E-contracts include any contract entered into
in e-commerce, whether business to business (B2B) or business to consumer (B2C), including licenses, as well as sales and leases
of goods and services. The chapter covers shrink-wrap agreements, click-on agreements, and developments that relate to e-
signatures. This chapter also reviews provisions of the Uniform Electronic Transactions Act.
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 11.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Ask the Instructor
E-Contracts: Agreeing Online—When I’m online and I click on a button that says “I ACCEPT,” are all of those terms
actually enforceable against me, even if I didn‘t read them?—In this regard, contracts online and on paper are the
same. Under ordinary circumstances, one who signs a contract, or otherwise accepts an offer, is generally bound by all
of its terms. However, there are some situations in which the court might be persuaded to invalidate a provision that
the reasonable consumer would not have expected to be there.
• Real World Legal
rights.
CHAPTER OUTLINE
I. Agreement
Essential to any contract is an agreement: an offer must be made and it must be accepted. The parties must manifest
their assent to the same bargain. In interpreting the parties’ words and conduct, the law adheres to the objective
theory of contracts (Chapter 10).
A. REQUIREMENTS OF THE OFFER
270 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
An offer is a promise to do or refrain from doing some specified thing in the future. The elements necessary for
an effective offer are: (1) a serious intent by the offeror; (2) reasonably certain, or definite, terms (so that they
can be ascertained by the parties and a court); and (3) communication of the offer to the offeree.
1. Intention
Serious intent is determined by what a reasonable person in the offeree’s position would conclude the
offeror’s words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet
the test.
CASE SYNOPSIS—
Case 11.1: Lucy v. Zehmer
For eight years, W. O. Lucy had been anxious to buy the Ferguson Farm from J. C. Zehmer, whom he’d known for at
least fifteen years. One night, Lucy said, “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 parties drank whiskey and talked. Eventually,
Zehmer wrote out an agreement to the effect that he and Mrs. Zehmer agreed to sell the farm to Lucy for $50,000.
Lucy sued Zehmer 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. Lucy appealed.
The Supreme Court of Virginia reversed. The Zehmers were ordered to carry through with the sale. Noting that
Lucy attempted to testify in detail as to what was said and done the night of the transaction, the court concluded that
“Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the
Notes and Questions
You might want to review this case when discussing intoxication and contractual capacity. The heart of the
decision in this case appears to be whether Zehmer understood the nature of what was happening. The court believed
that the record showed he did. What made the court believe that Zehmer was not drunk? He testified as to many
details; at the time, they rewrote the agreement, talked about title, discussed what the sale included, and so on. Does
it matter that Lucy supplied the liquor? Should Zehmer have attempted to place emphasis on that point at trial?
Should voluntary intoxication be an excuse for voiding a contract?
Imagine that after winning the case, Lucy celebrates in Zehmer’s restaurant. Suppose that Zehmer remains sober
while Lucy becomes extremely intoxicated and obviously unaware of what he is doing. Late in the evening, Lucy sells
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 271
ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 11.1
Suppose that the day after Lucy signed the purchase agreement for the farm, he decided that he did not want it
after all, and Zehmer sued Lucy to perform the contract. Would this change in the facts alter the court’s decision that
Lucy and Zehmer had created an enforceable contract? Why or why not? No. In fact, this would likely support the
court’s determination that there was an enforceable contract between the parties. In this circumstance, unless Lucy
attempted to void the contract on the ground of intoxication, the court might not have addressed the issue at all.
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases in which the intent of the parties to contract was at issue include the following.
• Dickemann v. Millwood Golf & Racquet Club, Inc., 67 S.W.3d 724 (Mo.App. S.D. 2002) (in a golf club member’s
action to rescind a contract with a golf club, one of the questions was whether the member intended to enter into the
contract with the club).
• Tabler v. Industrial Commission of Arizona, 202 Ariz. 518, 47 P.3d 1156 (Div. 1 2002) (the existence or nonexistence
of an oral agreement to settle a workers’ compensation claim requires first a determination of the parties’ intent).
a. Expressions of Opinion
An expression of opinion is not an offer. For example, a doctor’s opinion that a hand will heal within a
few days of an operation is not an offer.
b. Statements Future of Intent
No offer is made when a party says that he or she plans to do something.
c. Preliminary Negotiations
272 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
forty-nine contracts. A price list is not an offer to sell at that price; it invites the buyer to offer to buy
at that price.
ENHANCING YOUR LECTURE—
IS IT A CONTRACT?
Over the past decade, the letter of the law has become clearer on the issue of whether a preliminary agreement,
such as an agreement to agree, constitutes a contract. Increasingly, the courts are holding that a preliminary
agreement constitutes a binding contract if all essential terms have been agreed on 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 binding only in the sense that the parties have committed themselves to negotiate the
undecided terms in good faith in an effort to reach a final agreement.
Fluorogas, Ltd., learned about this distinction, to its dismay, when a federal district court in Texas held that a
preliminary agreement that it had formed with Fluorine On Call, Ltd., was a binding contract. After executives of the
two companies had enjoyed a weekend of yachting in the Florida keys, the executives drew up a brief handwritten
THE BOTTOM LINE
Businesspersons should exercise care when forming preliminary agreements, for they may be bound in contract
without realizing it. Fluorogas learned this lesson the hard way: the jury awarded Fluorine $12 million in punitive
damages, in addition to compensatory damages.
a. Fluorine On Call, Ltd. v. Fluorogas Limited, No. 01-CV-186 (W.D.Tex. 2002). This decision is not published in the Federal Supplement.
e. Auctions
An auction is not an offer—the owner is only expressing a willingness to sell.
ENHANCING YOUR LECTURE—
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 273
CAN AN ONLINE BID CONSTITUTE ACCEPTANCE?
Under the Uniform Commercial Code, or UCC (see Chapter 20), a bid at an auction constitutes an offer. The offer
(the highest bid) is accepted when the auctioneer’s hammer falls. The UCC also states that auctions are “with reserve”
unless the seller specifies otherwise. As noted elsewhere, in an auction with reserve, the seller reserves the right not
to sell the goods to the highest bidder. Hence, even after the hammer falls, the contract for sale remains conditioned
on the seller’s approval. The question of how these rules should be applied to an online auction of a domain name, in
which no hammer falls, came before a California court.
THE BID (OR OFFER?)
The case involved an online auction conducted by The.TV Corporation International (DotTV) on its Web site. DotTV
posted an announcement on its Web site asking for bids for rights to the “Golf.tv” domain name and stating that the
THE COURT’S ANALYSIS
The appellate court first looked at the UCC’s provisions concerning auctions, but noted that the UCC did not apply
in this case because the UCC applies only to “goods,” and domain names are not goods. The court then looked at
common law principles as codified in the Restatement (Second) of Contracts. The rules under the Restatement are
similar to those of the UCC: a bid in an auction is an offer that is accepted when the “hammer falls,” and an auction is
with reserve unless otherwise specified by the seller.
The court also pointed out, however, that DotTV’s charging of the bid price to Lim’s credit card was inconsistent
with DotTV’s claim that it could withdraw the domain name from the bidding because the auction was with reserve.
FOR CRITICAL ANALYSIS
Should the UCC rules governing auctions apply to items sold on online auction sites, such as e-Bay? Why or why
not? How can you know whether e-Bay’s auctions are “with reserve” or “without reserve”?
a. Lim v. The.TV Corp. International, 99 Cal.App.4th 684, 121 Cal.Rptr.2d 333 (2d Dist. 2002).
274 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
f. Auctions with and without Reserve
In an auction with reserve, the owner may withdraw the goods any time before the auctioneer closes
the sale. An auction is assumed to be with reserve, unless it is stated to be without reserve, in which
case the goods cannot be withdrawn and must be sold to the highest bidder. In an auction with
reserve, the bidder is the offeror. A bidder may revoke his or her bid, or the auctioneer may reject it,
before the auctioneer strikes the hammer, which constitutes acceptance. When a bid is accepted, all
previous bids are rejected.
g. Agreements to Agree
CASE SYNOPSIS—
Case 11.2: Basis Technology Corp. v. Amazon.com, Inc.
Basis Technology Corp. created software and provided technical services for Amazon.com, Inc.’s Japanese–
language Web site. Their agreement allowed for separately negotiated contracts for additional services. Later, Basis
filed a suit in a Massachusetts state court against Amazon in part for nonpayment of services that the initial agreement
did not cover. During the trial, the two parties exchanged e-mail messages that outlined settlement terms. Amazon
reneged on the terms. Basis filed a motion to enforce the settlement. The court granted the motion. Amazon
appealed.
…………………………………………………………..…………………………………………….……………………..
Notes and Questions
The word “correct” has at least two meanings. In one sense, “correct” can express approval and indicate assent. In
another context, the word can be a synonym for “fix,” or “make right,” or “align with a certain standard.” Could
Amazon have successfully argued that its use of the word “correct” in its e-mail followed the sense of this second
meaning? Probably not, because with Basis, Amazon reported to the trial judge that the parties had reached an
agreement for the settlement of their dispute. It would have strained Amazon’s credibility to later claim that that was
not what it meant.
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 275
ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 11.2
Suppose that the attorneys for both sides had simply had a phone conversation that included all of the terms they
actually agreed on in their e-mail exchanges. Would the court have ruled differently? Why or why not? Probably not.
As the court pointed out, “the issues [were] whether the . . . terms were sufficiently complete and definite to form an
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 11.2
What does the result in this case suggest that a businessperson should do before she or he agrees to a settlement
of a legal dispute? The result in this case suggests that a businessperson should determine and negotiate the specific
terms of a settlement before indicating to a court that a settlement has been reached.
ANSWER TO VIDEO QUESTION LTR. A
In regards to the sale of Jack’s Restaurant, Jack (the seller) says that he is going to retain the rights to the
restaurant’s frozen food line. The buyers, however, thought that their sales agreement included the rights to all of the
restaurant’s signature dishes—whether fresh or frozen. Did the parties have an “agreement to agree” on the terms of
the sale of the restaurant? Why or why not? It could be argued that no enforceable agreement to agree exists because
the right to sell the restaurant’s signature dishes is an essential term of the contract, and the parties have already
of a contract at some future date. There is a different argument that might be made, however. In some cases, a
ADDITIONAL BACKGROUND—
Restatement (Second) of Contracts, Section 33
The Restatement (Second) of Contracts is an authoritative source for many of the principles discussed in this
chapter. Specific sections of the Restatement are noted throughout the text. After selected parts of the text in which a
§ 33. Certainty
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to
form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of
intention is not intended to be understood as an offer or as an acceptance.
2. Definiteness of Terms
A contract must have reasonably definite terms so that a court can determine if a breach has occurred and
can give an appropriate remedy. An offer may invite an acceptance to be worded in specific terms so that
the contract is made definite. Courts may supply a missing term when the parties have clearly manifested
an intent to form a contract, but they will not do so if the parties’ expression of intent is too vague or
uncertain.
ANSWER TO VIDEO QUESTION LTR. B
Suppose that Jack previously offered to sell the restaurant to these particular buyers and they had all agreed on
the price and date for delivery. Would such an offer meet the definiteness requirement even if no terms pertained to
the frozen food line? Explain. Probably yes. Even if the offer did not mention the frozen food line, it would be definite
3. Communication
An offer must be communicated to the offeree, so that the offeree knows it. Ordinarily, one cannot agree
to a bargain without knowing that it exists.
CASE SYNOPSIS—
Case 11.3: Alexander v. Lafayette Crime Stoppers, Inc.
The Baton Rouge Crime Stoppers (BCS) and the Lafayette Crime Stoppers (LCS) offered rewards regarding the
“South Louisiana Serial Killer” for information provided via a hotline. Dianne Alexander—one of the killer’s victims who
survived because her son interrupted the attack and chased the attacker—identified a suspect in a police photo line-up
and sought to collect the rewards. BCS and LCS refused to pay, arguing that Alexander did not comply with the terms of
their offers because she did not provide information to the two organizations via the hotline. She filed a suit in a
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 277
Louisiana state court against BCS and LCS. The court issued a judgment in the defendants’ favor. Alexander appealed.
A state intermediate appellate court affirmed. Alexander argued that she accepted the reward offers by providing
information about the killer to the police. “While the plaintiff may have provided information related to the arrest or
…………………………………………………………..……………………………………………………………………
Notes and Questions
Assuming that the offerors had not included an expiration date for their offers and could revoke them at any time,
what actions would be required for an effective revocation? In these circumstances, to revoke the offer the offerors
would have to notify the public of the revocation in the same way that the offer was originally communicated. In other
words, BCS and LCS would have to publish the revocation in all of the newspapers, television stations, other media, and
billboards around the Baton Rouge area in which the reward had been published.
ANSWER TO QUESTIONS AT THE END OF CASE 11.3
1. Suppose that the plaintiffs had learned about the offer after the killer had been already been found and arrested
due to the their assistance but before the August 1, 2003, deadline? Would they be legally entitled to claim the reward
in this circumstance if they then called the tipline and provided the information? Explain. Probably not. The offers
circumstances under other laws or public policies.
2. The plaintiffs argued that “providing information to law enforcement is a customary manner of accepting reward
offers from Crime Stoppers.” How did the court respond to this argument? The court stated that under Louisiana law,
278 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
The Guide “presents in one reference set a panorama of the American legal system, which while comprehensive in
scope is specific in its explanations of a cornucopia of legal topics.” The following is the text of the discussion in The
Guide of rewards.
REWARD A sum of money or other compensation offered to the public in general, or to a class of persons, for the
performance of a special service.
When an offer of a reward is accepted by performance, a binding contract, based on and governed by the law of
contracts, exists.
Offer There must be an actual, valid offer to create a contract of reward. An offer or promise to pay a reward,
however, is merely a proposal or a conditional promise by the offeror; it is not a consummated contract.
person.
performance in a tournament, the suggestion of a name, or the achievement of the best time in a race.
The offer must be made with the intent to form a contract. It is not necessary for the offeror to have any
personal interest in the subject, and the motive in making the offer is immaterial.
Any person capable of making a contract can bind himself or herself by an offer of a reward. A private
corporation can offer a reward for the arrest and conviction of persons who have acted unlawfully against it.
Legislatures have the power to offer rewards for acts that will be of public benefit. It can also empower
designated officers, such as the Governor, the U.S. attorney general, or a Federal marshal, to offer rewards for
certain purposes, such as the apprehension of criminals. Ordinarily municipal corporations cannot offer rewards
for criminal offenders against state law.
made by a private contract with a particular person or by an advertisement or public statement in a newspaper,
Revocation Since an unaccepted offer of a reward grants no contractual rights, the offer can be revoked or
canceled at any time prior to its acceptance by performance. Personal notice of revocation is not necessary. An
offer, however, is only revocable either in the manner in which it was made, or in a manner that gives the
revocation the same publicity as the offer. A later offer, in different terms from the first, and made in another
place. does not revoke the first offer.
A few courts treat the discontinuance of an advertisement offering a reward as a revocation of the offer, but this
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 279
is not the usual case.
An offer of a reward cannot be revoked so as to deprive a person of any compensation he or she has earned by
the performance, or partial performance, of its conditions.
Lapse Generally an offer of a reward that is not limited in duration by its own terms is considered to have been
withdrawn after a reasonable time. What constitutes a reasonable period of time depends largely on the
circumstances under which the offer was made. In some jurisdictions, a reward for the discovery of past offenders
is not barred by a lapse of time but continues until the statute of limitations has expired against the crime.
The information must be adequate and timely. It is untimely when it is given or acted upon after the criminal
has surrendered, or if the information was already known when the informant provided it. It is inadequate if it
does not lead to the desired end, such as an arrest and conviction or the recovery of property.
When the reward is for the detection or discovery of an offender, a conviction is not necessary, as long as a
discovery or an arrest occurs.
When a reward is offered for the apprehension or arrest of a criminal, a personal arrest by the claimant is
usually not necessary. A few jurisdictions, however, hold that merely giving information that leads to an arrest
made by others is not a performance of an offer of a reward, and that the reward belongs to those who assume
the personal danger and responsibility of making the arrest.
If the offender voluntarily surrenders or is enroute to surrender, the captors have not earned the reward.
Persons who have taken the accused into custody are, however, entitled to the reward if they were instrumental in
Generally when a reward is offered for the arrest and conviction of an offender, the claimant must have caused
both the arrest and subsequent conviction, since both are conditions precedent to the recovery. The reward in
such a case cannot be apportioned between what is due for the arrest and what is due for the conviction.
Return of lost property Some statutes provide for a reward for the finder of lost property or for compensation for
the expense of recovering and preserving it. Apart from statute, a finder has no right to a reward for the return of
property to its owner if none has been offered. If only a proportionate part of the lost property is returned, the
finder is entitled to a proportionate part of the reward.
280 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
If the offered reward is definite and certain, the finder has a lien, a charge against property to secure the
payment of a debt or the performance of an obligation, on the property in the amount of the reward until it is
paid. If the offer is indefinite, such as one that states “liberal reward,” there is no lien on the property.
Performance without knowledge Except in the case of statutory rewards, the general rule is that the claimant
must have performed the services knowing of the offer and for the purpose of collecting the reward. This rule is
based on the theory that without such knowledge, there can be no meeting of the minds and, consequently, no
contract. Knowledge of a statutory reward is not necessary to entitle the claimant to recover it.
who purchases stolen property with reasonable grounds for believing it has been stolen cannot receive the reward
offered for its return.
B. TERMINATION OF THE OFFER
An offeree can transform an offer into a contract by acceptance. This power of acceptance can be terminated,
however, by action of the parties or operation of law.
1. Termination by Action of the Parties
a. Revocation of the Offer by the Offeror
Generally, an offer may be revoked any time before acceptance, even if the offeror agreed to hold it
open, but revocation is effective only on receipt. Revocation can be express or implied by conduct
inconsistent with the offer. Revocation of an offer made to the general public must be communicated
in the same manner in which the offer was communicated.
ANSWER TO VIDEO QUESTION LTR. C
Does Jack’s statement that he intended to retain his rights to the frozen food line revoke any earlier offer he made
to sell the restaurant to these individuals? Why or why not? Jack’s statement that he intended to retain the frozen food
CHAPTER 11: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 281
b. Irrevocable Offers
One form of irrevocable offer is an option contract, which is created when an offeror promises to hold
an offer open for a specified period of time in exchange for a payment by the offeree. Detrimental
reliance on an offer by the offeree can make the offer irrevocable (Chapter 12). A merchant’s firm
offer may be irrevocable (Chapter 19).
2. Termination by Operation of Law
An offeree’s power to accept can be terminated by the destruction of the subject matter of the offer, by the
death or incompetence of either party (whether or not the other party has notice), by a statute or court
decision that makes the offer illegal, or by a lapse of time.
a. Lapse of Time
An offer terminates automatically when the time specified in the offer has passed (“This offer is good
until 5:00 P.M. on Monday, July 15” or “This offer expires in two months”). The specified time begins
ADDITIONAL BACKGROUND—
Restatement (Second) of Contracts, Section 49
§ 49. Effect of Delay in Communication of Offer
If communication of an offer to the offeree is delayed, the period within which a contract can be created by acceptance
is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the
b. Destruction of the Subject Matter
282 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION