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Chapter 12
Agreement in Traditional and E-Contracts
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.
This chapter also reviews some of the problems that concern e-contracts. E-contracts include any contract
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.
2 UNIT THREE: CONTRACTS AND E-CONTRACTS
A. REQUIREMENTS OF THE OFFER
An offer is a promise to do or refrain from doing some specified thing in the future. The elements nec-
essary for an effective offer are—
• A serious intent by the offeror.
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 12.1: 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.
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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?
CHAPTER 12: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 3
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 the farm back to Zehmer for $10,000. The next day, Lucy cannot remember the
In part because intoxication is usually self-induced, there is sometimes a different emphasis in the cases
that concern lack of capacity on the ground of intoxication than in the cases that concern lack of capacity on
other grounds. Particularly in older cases, there is often a discussion of the parties’ morals. It has been
suggested that the motivation for enforcing a contract made by an intoxicated person is not that the person
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Intention
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. Situations In Which Intent May Be Lacking
1) Expressions of Opinion
An expression of opinion is not an offer. For example, a doctor’s opinion that a hand will
2) Statements Future of Intent
3) Preliminary Negotiations
A request or invitation to negotiate is not an offer. (This includes statements such as “Will
you sell your estate?” and “I wouldn’t sell my car for less than $1,000.”)
4) Invitation to Bid
An invitation to submit bids is not an offer. Thus, when contractors are invited to bid on a
4 UNIT THREE: CONTRACTS AND E-CONTRACTS
5) Advertisements and Price Lists
• In general, ads, catalogues, price lists, and circular letters are treated as invitations
to negotiate. If an ad to sell a single item was interpreted as an offer, and fifty peo-
6) Live and Online Auctions
• “Offers” to sell items on eBay and other sites are treated as invitations to negotiate.
ENHANCING YOUR LECTURE—
CAN AN ONLINE BID CONSTITUTE ACCEPTANCE?
Under the Uniform Commercial Code, or UCC, 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 name would go to the highest bidder. Je Ho Lim submitted a bid for $1,010 and
CHAPTER 12: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 5
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.
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”?
7) Agreements to Agree
Agreements to agree serve valid commercial purposes and can be enforced if the parties
8) Preliminary Agreements
If all of the essential terms have been agreed to and no disputed issues remain, it is more
CASE SYNOPSIS—
Case 12.2: 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.
6 UNIT THREE: CONTRACTS AND E-CONTRACTS
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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
Under what circumstances could Amazon justify its “about face” after having agreed in an e-mail
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
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.
CHAPTER 12: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 7
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. Generally, expressed or inferable contract
terms include—
• Identification of the parties.
ADDITIONAL BACKGROUND—
Definiteness
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 section is noted, the full text of that section is set out. The following is the section that relates
to and is cited in this part of the text—Restatement (Second) of Contracts, Section 33.
§ 33. Certainty
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a
breach and for giving an appropriate remedy.
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.
ADDITIONAL BACKGROUND—
Rewards
Rewards are discussed briefly in the text. Rewards are also discussed in The Guide to American Law:
8 UNIT THREE: CONTRACTS AND E-CONTRACTS
Everyone’s Legal Encyclopedia, a multivolume reference work published by West Publishing Company. In
the words of its editors, 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 per-
sons, for the performance of a special service.
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.
The person offering the reward can do so on any terms he or she wishes, and the terms must be met
before the reward can be recovered. The subject matter of the offer can entail the discovery of informa-
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.
Unless a statute requires the offer to be in writing, the offer of a reward can be made orally. An offer
can be made by a private contract with a particular person or by an advertisement or public statement in a
newspaper, handbill, circular, postcard, or telegram.
Consideration A contract of reward must be supported by consideration, something of value. The con-
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
Lapse Generally an offer of a reward that is not limited in duration by its own terms is considered to have
Performance A reward can be claimed only by a person who has complied with the conditions of the of-
fer before it expires or is revoked. Performance can be completed by a third person, such as an agent or
a servant, who is acting on behalf of the claimant’s interest.
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 prop-
erty.
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.
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 the offender’s decision to surrender.
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.
10 UNIT THREE: CONTRACTS AND E-CONTRACTS
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.
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
Persons entitled When a reward is offered to the public, anyone who performs the required services can
claim and accept the reward, except for persons who are under a duty to perform such services, such as
law enforcement officers.
A promise by a private individual to reward a public officer for doing something that is his or her duty is
B. TERMINATION OF THE OFFER
An offeree can transform an offer into a contract by acceptance. This power of acceptance can be termi-
nated, however, by action of the parties or operation of law.
1. Termination by Action of the Parties
a. Revocation
• An offer may be revoked any time before acceptance, even if the offeror agreed to hold it
open. Revocation can be by express repudiation or implied by conduct inconsistent with
the offer.
b. Irrevocable Offers
• Detrimental reliance on an offer by the offeree can make the offer irrevocable. A
merchant’s firm offer may be irrevocable.
CHAPTER 12: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 11
by the offeree.
c. Rejection
• An offeree may reject an offer. A subsequent attempt to accept constitutes a new offer.
• Rejection is effective only on receipt. Asking about an offer is not rejection.
d. Counteroffer
2. Termination by Operation of Law
a. Lapse of Time
• An offer terminates automatically when the time specified in the offer has passed. The
specified time begins to run when the offeree receives the offer, not when it is sent. If the
b. Destruction, Death, or Illegality
• An offer terminates if the subject matter is destroyed before the offer is accepted.
c. Supervening Illegality of the Proposed Contract
A statute or court decision that makes an offer illegal automatically terminates the offer.
C. ACCEPTANCE
Acceptance is a voluntary act (either words or conduct) by the offeree that shows assent to the terms of
an offer. Except in special circumstances, only the person to whom the offer is made can accept.
1. Unequivocal Acceptance
• Unequivocal acceptance is required by the mirror image rule. An acceptance subject to new
conditions or with terms that materially change the offer may be considered a counteroffer.
2. Silence as Acceptance
12 UNIT THREE: CONTRACTS AND E-CONTRACTS
Ordinarily, silence cannot be acceptance. Silence can operate as acceptance when—
3. Communication of Acceptance
• Bilateral contract—communication of acceptance is necessary because acceptance is in the
form of a promise, and the contract is formed when the promise is made. Communication is
not necessary if the offer dispenses with it or the offer can be accepted by silence.
CASE SYNOPSIS—
Case 12.3: Hinkal v. Pardoe
Melinda Hinkal signed a membership agreement at Gold’s Gym, Inc. that stated, on the front, immediately
above the line for her signature, “Do not sign this Agreement until you have read both sides. The terms on
each side of this form are a part of this Agreement.” On the back, a “Waiver of Liability” paragraph provided
that “Member voluntarily agrees to assume all risks of personal injury.” Hinkal later alleged that while using
exercise equipment at the direction of personal trainer Gavin Pardoe she sustained a neck injury requiring two
surgeries. Hinkal filed a suit in a Pennsylvania state court against Pardoe and Gold’s to recover. The
defendants filed a motion for summary judgment. The court concluded that the waiver in Gold’s membership
agreement was valid and enforceable, and issued a judgment in the defendants’ favor. Hinkal appealed.
A state intermediate appellate court affirmed the lower court’s judgment in the defendants’ favor. Hinkal
argued that the waiver was invalid because it appeared on the back of the document, she was not told to read
it, it was not otherwise “brought home” to her in a way that would make her aware of it, and she did not read
it. The appellate court pointed out that a party who is about to sign a contract has a duty to read it. The failure
to read a contract before signing it does not invalidate it
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Notes and Questions
In arguing that the waiver of liability was not “brought home” to her, Hinkal contended that it was
not sufficiently conspicuous. Is this an element of contract formation? If not, should it be? Why or
CHAPTER 12: AGREEMENT IN TRADITIONAL AND E-CONTRACTS 13
Suppose that instead of a gym membership, the agreement in this case had been to rent an
apartment and the waiver had purported to exempt the landlord from any liability. Should the result in
4. Mode and Timeliness of Acceptance
An acceptance is timely if it is made before the offer is terminated.
a. The Mailbox Rule
Acceptance is effective when it is sent by whatever means is authorized by the offeror. This is
the mailbox rule.
b. Authorized Means of Acceptance
• Specific means can be stated in the offer or authorized by facts or by law. If an offeror
specifies an exclusive means, the contract is not formed unless the offeree uses it.
c. Substitute Method of Acceptance
An acceptance sent by unauthorized means is effective on receipt.
ENHANCING YOUR LECTURE—
