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CHAPTER 2 THE AGREEMENT

CHAPTER OBJECTIVES

After studying this chapter you will be able to:

1. Tell whether a statement is an offer.

2. Tell whether an agreement is too indefinite to be enforced.

3. Describe the exceptions that the law makes to the requirement of definiteness.

4. List the ways in which an offer is terminated.

5. Compare offers, firm offers, and option contracts.

As described in Chapter 1, a contract consists of enforceable obliga­tions that have been voluntarily assumed. Thus, one of the essential elements of a contract is an agreement. The importance of requiring an agreement is that it shows that the parties have voluntarily surrendered a part of their free­dom of action — they have bound themselves to act in the manner specified in the contract. Because freedom of action is so essential to the American way of life, society is very careful to be sure that there is a proper agreement when­ever any part of that freedom is surrendered. Therefore, it is necessary to show that there was an offer and that while the offer was still existing it was accepted without any qualification. Only then can it be said that both parties have assented to the terms of the contract and only then is each party bound by the obligations stated in the contract.

A. REQUIREMENTS OF AN OFFER

An offer expresses the willingness of the offeror to enter into a con­tractual agreement regarding a particular subject. It is a promise which is conditional upon an act, a forbearance, or a return promise that is given in exchange for the promise or its performance.

Contractual Intention.

To constitute an offer, the offeror must intend to create a legal obli­gation or must appear to intend to do so. It is not necessary, however, for the parties to expressly state that they are making a contract.

There is no contract when a social invitation is made or when an offer is made in jest or excitement because a reasonable person would not regard such an offer as indicating a willingness to enter into a binding agreement.

(a) Invitation to Negotiate. The first statement made by one of two persons is not necessarily an offer. In many instances there may be a prelimi­nary discussion or an invitation by one party to the other to negotiate or to make an offer.

Ordinarily a seller sending out circulars or catalogs listing prices is not regarded as making an offer to sell at those prices, but as merely indi­cating a willingness to consider an offer made by a buyer on those terms. The reason for this rule is in part the practical consideration that since a seller does not have an unlimited supply of any commodity, the seller cannot possi­bly intend to make a contract with everyone who sees the circular. The same principle is applied to merchandise that is displayed with price tags in stores or store windows and to most advertisements. A "for sale" advertisement in a newspaper is merely an invitation to negotiate and is not an offer which can be accepted by a reader of the paper, even though the seller in fact has only one of the particular item advertised.

The circumstances may be such, however, that even a newspaper advertisement constitutes an offer. Thus the seller may make an offer when the advertisement states that specific items will be sold at a clearance sale at the prices listed and adds the words "first come, first served."

Quotations of prices, even when sent on request, are likewise not offers in the absence of previous dealings between the parties or the existence of a trade custom which would give the recipient of the quotation reason to believe that an offer was being made. Whether a price quotation is to be treated as an offer or merely an invitation to negotiate is a question of the intent of the party making such quotations. Although sellers are not bound by quotations and price tags, they will as a matter of goodwill ordinarily make every effort to deliver the merchandise at those prices.

In some instances, it is apparent that an invitation to negotiate and not an offer has been made. When construction work is done for the national government, for a state government, or for a political subdivision, statutes require that a printed statement of the work to be done be published and cir­culated. Contractors are invited to submit bids on the work, and the statute generally requires that the bid of the lowest responsible bidder be accepted.

Such an invitation for bids, is clearly an invitation to negotiate, both from its nature and from the fact that it does not specify the price to be paid for the work. The bid of each contractor is an offer, and there is no contract until the government accepts one of these bids. This procedure of advertising for bids is also commonly employed by private persons when a large construc­tion project is involved.

FACTS:

The Board of Education decided to con­struct a building. The Board advertised for bids by contractors. Rofra, Inc. submitted a bid. Later the Board of Education entered into a con­tract with Harrison. Rofra sued the Board, claiming that the Board had broken its contract with Rofra.

DECISION:

Rofra did not have any contract with the Board of Education. The invitation to sub­mit bids was merely an invitation to negotiate. It was not an offer and the making of the bid was not an acceptance. The making of a bid was merely an offer. As the Board never accepted the offer of Rofra, there was no con­tract between the Board and Rofra. [Rofra, Inc. v Board of Education, 28 Md App 538, 346 A2d458 (1975)]

In some cases the fact that material terms are missing serves to indi­cate that the parties are merely negotiating and that an oral contract has not been made. When a letter or printed promotional matter of a party leaves many significant details to be worked out later, the letter or printed matter is merely an invitation to negotiate and is not an offer which may be accepted and a contract thereby formed.

b) Statement of Intention. In some instances a person may make a statement of intention but not intend to be bound by a contract. For ex­ample, when a lease does not expressly allow the tenant to terminate the lease because of a job transfer, the landlord might state that should the tenant be required to leave for that reason, the landlord would try to find a new tenant to take over the lease. This declaration of intention does not give rise to a binding contract, and the landlord cannot be held liable for breach of contract should the landlord fail to obtain a new tenant or not even attempt to obtain a new tenant.

(c) Agreement to Make a Contract at a Future Date. No contract arises when the parties merely agree that at a future date they shall consider making a contract or shall make a contract on terms to be agreed upon at that time. In such a case, neither party is under any obligation until the future contract is made. Similarly there is no contract between the parties if essential terms are left open for future negotiation. Thus, a promise to pay a bonus or compensation to be decided upon after three months of business operation is not binding.

FACTS:

A cable television company, T.V. Trans­mission, Inc., made a contract to use the utility poles of the Lincoln Electric System, a utility owned by the City of Lincoln. The contract was to expire on a specified date but could be ex­tended on such terms as would be agreed to by the parties. A lawsuit was brought to determine the effect of the contract after the specified expi­ration date.

DECISION:

There was no contract after the expira­tion date. There was merely an agreement to agree, which by itself is not a contract. In the absence of the making of a new contract, the contract would expire on the specified date. [T.V. Transmission, Inc. v City of Lincoln, 220 Neb 887, 374 NW2d 49 (1985)]

Definiteness.

An offer, and the resulting contract, must be definite and certain. If an offer is indefinite or vague or if an essential provision is lacking, no con­tract arises from an attempt to accept it. The reason is that the courts cannot tell what the parties are to do. Thus, an offer to conduct a business for such time as should be profitable is too vague to be a valid offer. The "accep­tance" of such an offer does not result in a contract that can be enforced. Likewise, a promise to give an injured employee "suitable" employment that the employee was "able to do" is too vague to be a binding contract. Like­wise a statement by a landlord to the tenant that "some day it [the rented land] will be your own" is too indefinite to be an offer and no contract for the sale of the land arises when the tenant agrees to the statement.

FACTS:

Fearless Farris Wholesale, Inc. agreed to supply gas to Harvey who ran a service station. The agreement left the price open. It was agreed that if Farris did not give the lowest price, Harvey could buy where he could get the lowest price. Was there a contract?

DECISION:

No. There was no obligation on the part of the buyer to purchase from the seller if the buyer could get the gas from another source at a better price than that offered by the seller, The agreement in effect only required the buyer to purchase from the seller when it was to his advantage to do so. As there was no fixed or definite obligation on the buyer to purchase there was no contract. [Harvey v Fearless Farris Wholesale, Inc. (CA9 Idaho) 589 F2d 451 (1979)]

(a) Definite by Incorporation. An offer and the resulting contract which by themselves may appear "too indefinite" may be made definite by reference to another writing. For example, an agreement to lease property which was too vague by itself was made definite because the parties agreed that the lease should follow the standard form with which both were famil­iar. An agreement may also be made definite by reference to the prior deal­ings of the parties and to trade practices.

(b) Implied Terms. Although an offer must be definite and certain, not all of its terms need be expressed. Some of the omitted terms may be implied by law. For example, an offer "to pay $50 for a watch" does not state the terms of payment. A court, however, would not condemn this provi­sion as too vague but would hold that it required that cash be paid and that the payment be made upon delivery of the watch. Likewise terms may be implied from conduct. As an illustration, where the borrowed money was given to the borrower by a check on which there was written the word "loan," the act of the borrower in indorsing the check constituted an agree­ment to repay the amount of the check.

(c) Divisible Contracts. When the agreement consists of two or more parts and calls for corresponding performances of each part by the parties, the agreement is a divisible contract. Thus, in a promise to buy several sepa­rate articles at different prices at the same time, the agreement may be re­garded as separate or divisible promises for the articles. When a contract contains a number of provisions or performances to be rendered, the question arises whether the parties intended merely a group of separate, divisible con­tracts or whether it was to be a "package deal" so that complete performance by each party is essential.

FACTS:

Fincher was employed by Belk-Sawyer Co. as fashion coordinator for the latter's retail stores. The contract of employment also pro­vided for additional services of Fincher to be thereafter agreed upon in connection with beauty consultation and shopping services to be estab­lished at the stores. After Fincher had been em­ployed as fashion coordinator for several months, Belk-Sawyer Co. refused to be bound by thecontract on the ground that it was indefinite.

DECISION:

Judgment for Fincher. The contract was sufficiently definite as to the present employ­ment, and the intention of the parties to have a present contract on that subject was not to be defeated because they recognized thai an addi­tional agreement might be made by them as to other work. [Fincher v Belk-Sawyer Co. (Fla App) 127So2d 130 (1961)]

(d) Unimportant Vague Details Ignored. If the term of an agreement which is too vague is not important, it may sometimes be ignored. If the bal­ance of the agreement is definite, there can then be a binding contract. For example, where the parties agreed that one of them would manage a motel which was being constructed for the other and it was agreed that the contract would begin to run before the completion of the construction, the manage­ment contract did not fail because it did not specify any date on which it was to commence, as it was apparent that the exact date was not essential and could not be determined at the time when the contract was made.

(e) Exceptions to Definiteness. As exceptions to the requirement of definiteness, the law has come to recognize certain situations where the prac­tical necessity of doing business makes it desirable to have a "contract," yet the situation is such that it is either impossible or undesirable to adopt defi­nite terms in advance. In these cases, the indefinite term is often tied to the concept of good faith performance or to some independent factor that will be definitely ascertainable at some time in the future, for example, market price, cost to complete, or production requirements. Thus, the law recognizes bind­ing contracts in the case of a contract to buy all requirements of the buyer from the seller and the contract of a producer to sell the entite production or output to a given buyer. These are binding contracts although they do not state the exact quantity of goods that are to be bought or sold. Contracts are also binding although they run for an indefinite period of time; ot require a buyer to pay the "costs" plus a percentage of costs as profit; or require one person to supply professional services as needed.

FACTS:

Heat Incorporated made an agreement with Griswold, an accountant, by which it agreed to pay him $200 a month for rendering such accounting services "as he, in sole dis­cretion, may render." Griswold had done the accounting work of the corporation for the pre­ceding six years, and it was desired that he should continue to render the services as in the past. When the corporation refused to pay on the ground that the agreement was so indefi­nite that it was not binding, Griswold sued for damages.

DECISION:

Judgment for Griswold. The parties to the contract had had six years experience with the rendering of services by Griswold. It wa1. their intention that such pattern of rendering service should continue in the future. Because or uncertainties of the future and possible changes in the law, it was obvious that the parties coulJ not specify in precise detail the services which were to be rendered. The law should therefore allow them to make a vague contract if the) so desire, and the duty to perform contracts in good faith would be a sufficient protection for the corporation. [Griswold v Heat Inc. 108 NH 119, 229 A2d 183 (1967)]

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