Offer and Acceptance

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Offer and Acceptance
CHAPTER 7

• 7-1 Creation of Offers
• 7-2 Termination of Offers
• 7-3 Acceptances

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Creation of Offers
LESSON 7-1

• List the elements required to form a contract
• Describe the requirements of an offer

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Hot Debate pg. 110

• Should Celia be bound because the literal meaning
  of her words suggests she intended to sell the
  car?
• Argument can be made - should be bound by
  literal meaning of words
• Should Celia not be bound to sell the car because
  the circumstances (new car stalls and people are
  honking) suggest that she did not intend to sell?
• Argue - literal meaning of sentences often is
  quite different from what someone intended

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WHAT IS A CONTRACT?

• A contract is an agreement that courts will
  enforce.
• Contracts between two parties are the basis for
  all economic activity.
• Contracts are the legal links between the
  individuals and companies producing and consuming
  goods and services.

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CONTRACT REQUIREMENTS

• There are six major requirements that must be
  satisfied before courts will treat transactions
  as contracts.

• Offer and acceptance
• Genuine assent
• Legality

• Consideration
• Capacity
• Writing

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CONTRACT REQUIREMENTS

• Offer and Acceptance there must be a serious,
  definite offer to contract.
• And the terms of the offer must be accepted by
  the party to whom it was communicated

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CONTRACT REQUIREMENTS

• Genuine Assent
• cannot be based on
• Deception
• Important mistake
• Use of unfair pressure to obtain offer/acceptance

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CONTRACT REQUIREMENTS

• Legality - make up of agreement must be legal
• i.e. Cannot create an agreement to have someone
  commit a crime for you

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CONTRACT REQUIREMENTS

• Consideration agreement must involve both sides
  receiving something of legal value as a result of
  the transaction

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CONTRACT REQUIREMENTS

• Capacity parties must be able to contract for
  themselves

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CONTRACT REQUIREMENTS

• Writing - some agreements must be placed in
  writing to be fully enforceable in court

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Contracts - oral or written

• Does it matter if a contract is only oral?

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REQUIREMENTS OF AN OFFER

• Expression of intent to create a legal obligation
• Offer must be complete and clear
• Offer must be communicated to the offeree

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Contract Painter Example

• Painter promises to paint house within 30 days
  for 3,000 (Offer)
• Homeowner agrees to the time frame and the 3,000
  (Acceptance)
• Painter ? OFFEROR
• Homeowner ? OFFEREE

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CONTRACT REQUIREMENTS

• Offer proposal by an offeror to do something,
  provided the offeree does something in return
• If the offeree accepts the proposal, a contract
  arises
• Valid Offer
• Offeror must appear to intend to create a legal
  obligation (serious)
• Objective test of the reasonable person
• Not based on what someone was thinking
  unreasonable to expect courts to figure out what
  you were thinking

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CONTRACT REQUIREMENTS

• 2) Appearance counts If you think you are
  joking, but a reasonable person would interpret
  your conduct as indicating that you intend to
  contract you have made an offer
• On the other hand, if you are serious, but a
  reasonable person would interpret your conduct as
  a joke, then no legally enforceable offer is made
• 2) terms must be definite and complete
• 3) Offer must be communicated to the offeree

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Test of Reasonable Person

• Examines
• ? offerors words
• conduct in light of all relevant facts and
  circumstances
• Words spoken in jest / frenzied terror / anger
  no offer intended

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Preliminary Negotiations

• Tentative terms, inviting others to make offers
• i.e. I think Im interested in selling my
  laptop computer for around 1,000. Is anybody
  interested?
• -- not an offer

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Where do you stand?

• Brent and Lisa were students in a class on movie
  production.
• Knowing that the final movie in the Alien
  Cheerleader trilogy was about to come out, Brent
  camped out overnight at the theater. He bought
  two tickets, and then asked Lisa to go with him.

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Where do you stand?

• Lisa agreed.
• Lisa would have to call in sick to her evening
  job as waitress in order to go
• Calling out sick would cost her more than 100 in
  wages tips
• She still made the call
• When Brent did not show up to get her, she
  confronted him

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Where do you stand?

• Brent admitted he sold the tickets to someone
  else for 50 each
• Should Lisa be allowed to sue Brent for not
  taking her to the movie??

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Where do you stand?

• Almost every state would NOT allow such a lawsuit
• Social invitations do not produce enforceable
  contracts

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Social Arrangements

• Friends agreeing to go to movies
• Social arrangements not contracts

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Offer Must be Complete Clear

• terms must be sufficiently complete and clear to
  allow a court to determine what the parties
  intended
• Pg. 112 In this case

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Complete Terms

• Offers should contain price / subject matter /
  quantity
• Amount of detail depends on complexity of
  transaction
• i.e. Real estate sale (identify lot, price,
  terms of payment, delivery date)
• Candy bar sale (price, subject matter, quantity)

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Clear

• In this case - Delgados agreed on one lot
  no specification as to which lot.
• lacking essential information

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• READ B E F O R E signing

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Implied Terms

• Terms can be implied by law or common business
  practice
• i.e. Merchants and customers - price is not
  specified current market price is the basis for
  the contract

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Advertisements

• NOT offers - invitations to make offers
• Whats Your Verdict pg. 112
• Did the Anchors Aweigh advertisement make offers
  to the would-be buyers?
• Customers made Offers
• Sellers must make reasonable supply available
  no expectation to meet every demand

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Advertisements

• Can be offers
• Written clearly and indicating limited quantities
  -- book example of selling car to first person
• Asks offeree to perform an act as a way of
  accepting -- first person to appear at the main
  door of a shopping mall on

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Offer Must be Communicated to Offeree

• Non-intended offeree cannot accept the offer
• Cannot accept if unaware of offer (reward)

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Whats your Verdict?

• Pg. 111
• Did the two friends create a contract?
• Yes even though delivery and payment will occur
  later

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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?
• West's Digital Video Library video 23

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• If you dont satisfy the laws requirement for
  creating an offer, then you usually dont have a
  contract.
• TRUE / FALSE

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• TRUE

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• To be valid, an offer must indicate an intent to
  create a legal obligation.
• TRUE / FALSE

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• TRUE

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• Which of the following are reasons why an offer
  may not be valid?
• A) It is apparent that the speaker is joking
• B) It is clear that the speaker is trying to
  obtain additional information rather than commit
  to an agreement
• C) The subject of the agreement is only social
• D) all of the above

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• D - all of the above

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• The requirement that an offeror show an intent to
  contract is a(n) ______ test rather than a test
  which focuses on the purported offerors actual
  thoughts.

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• Objective

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• Which of the following is evidence showing an
  intent to contract
• A) spoken or written words
• B) conduct other than speaking or writing
• C) other facts and circumstances
• D) all of the above

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• D all of the above

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• Advertisements can be offers when
• A) they are complete
• B) they are clear
• C) they address the problem of numerous
  recipients and a limited supply of the advertised
  product
• D) all of the above

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• D - all of the above

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• If an offer is made, it can be accepted by anyone
  who learns of it.
• TRUE / FALSE

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• FALSE

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• The test of the reasonable person is used by a
  jury or judge to evaluate all the relevant
  evidence to determine whether there has been a
  manifestation of an intent to contract.
• TRUE / FALSE

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• TRUE

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• To meet the contract requirement of genuine
  assent, the agreement must not be based on
• A) deception
• B) an important mistake
• C) using unfair pressure
• D) all of the above

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• D - all of the above

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Termination of Offers
LESSON 7-2

• Describe how an offeror can end an offer
• Tell how an offeree can end an offer
• Explain how the parties can create offers that
  cannot be ended by the offeror

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HOW CAN OFFERS BE ENDED?

• Revocation by the offeror can be revoked
  anytime before it is accepted by the offeree
• REVOCATION - right to withdraw an offer before
  it is accepted
• Not effective until communicated to the offeree

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HOW CAN OFFERS BE ENDED?

• Time stated in the offer offeror may state how
  and when the offer must be completed
• i.e. Bank agrees to give loan but specifies
  acceptance must be received by Oct. 18
• Boggs mails acceptance on Oct. 17 -- arrives
  Oct. 20 at bank
• ? offer NOT received by time specified
• ? Offer E-X-P-I-R-E-D

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HOW CAN OFFERS BE ENDED?

• Reasonable length of time amount of time
  depends on surrounding circumstances
• Rejection by the offeree offer is terminated by
  the offerees rejection

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Negotiation Terms

• JOE BOB
• Offer Accept or Reject or
• Accept or Counteroffer
• Reject or
• Counteroffer

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HOW CAN OFFERS BE ENDED?

• Counteroffer offeree must accept offer exactly
  as it was made (no changes) otherwise, it
  becomes a counteroffer
• In this Case pg. 116
• Haviland submitted written offer to sell to Ping
  a luxury apt. bldg in San Fran.
• Property Price ? 15.5 million cash
• Ping replied (certified mail) offering to pay
  14.4 million cash
• Haviland rejected price.
• Ping writes I am shocked by your price but feel
  it is urgent to invest in San Fran. Therefore, I
  accept your offer and will pay 15.5 million cash
• Was a contract formed?
• No, Pings 14.4 m price was a counteroffer ?
  eliminated Havilands offer at 15.5

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HOW CAN OFFERS BE ENDED?

• Death or insanity of either the offeror or
  offeree
• Contracts are agreements voluntarily entered into
  by the parties and subject to their control
• Death or insanity eliminates such control ?
  terminating their offers

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Whats Your Verdict?

• Melissa offered her collection of baseball cards
  to Raoul for 3,0000.
• Raoul requested time to think it over Melissa
  agreed
• Melissa changed her mind, called Raoul and said
  Ive changed my mind, Im not interested in
  selling the cards.
• Raoul Its too late, you promised to sell them
  to me, and Ive got the money so I accept.

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Whats your Verdict?

• Pg. 115
• Was Melissas offer terminated before Raoul tried
  to accept?
• Because Melissa revoked first, there was no offer
  alive when Raoul tried to accept

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The Mailbox Rule
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HOW CAN AN OFFER BE KEPT OPEN?

• Generally, offeror is NOT obliged to keep offers
  open even if offeror agreed to do so IF OFFEREE
  HAS GIVEN NOTHING IN EXCHANGE FOR THE PROMISE

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HOW CAN AN OFFER BE KEPT OPEN?

• Options offeree gives the offeror something of
  value in return for a promise to keep the offer
  open
• Firm offers special rule that applies to
  merchants for sale of goods/services stating in a
  signed writing how long it is to stay open
• Not open more than three months
• True even when nothing is paid by offeree
• Death/Insanity do not terminate option contracts
  or firm offers

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• Offers expire at the time stated in the offer.
• TRUE / FALSE

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• T R U E

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• If an offeree clearly rejects the offer, the
  offer is said to be
• Counteroffered
• Revoked
• Expired
• Terminated

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• d) Terminated

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• When an offeree changes the offerors terms in
  important ways, the offeror makes a(n)
  ________________

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• Counteroffer

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• Which of the following does not describe a method
  used to terminate offers?
• Revocation by the offeror
• Offeror is admitted to the hospital for tests
• Counteroffer
• Death of the offeree

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• B) Offeror is admitted to the hospital for tests

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• An offeree who rejects an offer can later accept
  it if the acceptance occurs within a reasonable
  time after the rejection.
• TRUE / FALSE

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• F A L S E

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• Which of the following will cause an offer to
  end?
• Occurrence of an event, such as the passage of
  time, which the offer said would cause it to end
• Passage of a reasonable time if nothing is said
  in the offer about the length of its life
• Revocation by the offeror
• Counteroffer by the offeree
• All of the above

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• All of the above

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• If an offeree gives the offeror something of
  value to keep an offer open, this is called a(n)
  ________________

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• Counteroffer

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• A barber, speaking to a longtime customer said,
  I promise not to raise my prices for you this
  year.
• Is this offer binding?
• YES / NO ?

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• NO

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• A barber said, I promise not to raise my prices
  for you this year if you pay me 10 today. If
  this offer binding if you pay the ten dollars?
• Y E S / N O

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• Y E S

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• If a hardware store salesman said, This price on
  the lawnmowers is good for 30 days, would this
  be a firm offer?
• Y E S / N O

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• N O

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• If a beauty salon hair designer said, This price
  on the cut and dry is good for 30 days, then
  wrote it down on a piece of paper and signed it,
  would this be a firm offer?
• Y E S / N O

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• Y E S

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Acceptances
LESSON 7-3

• Discuss the requirements of an effective
  acceptance
• Determine at what point in time an acceptance is
  effective

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HOW AREACCEPTANCES CREATED?

• ACCEPTANCE occurs when a party to whom an offer
  has been made agrees to the proposal
• To create an enforceable contract the acceptance
  must
• Be made by the person or persons to whom the
  offer was made
• Match the terms in the offer
• Be communicated to the offeror

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HOW AREACCEPTANCES CREATED?

• Who can accept an offer? can only be accepted
  by person to whom offer was made
• Whats Your Verdict? ? Darrow offered to trade
  his digital camera to Monette in exchange for her
  camcorder. Schorling, who had a camcorder of the
  same make and model, overheard the offer and said
  she would make the swap
• Did a contract result from Schorlings statement?
• Only Monette, not Schorling, could accept
  Darrows offer

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HOW AREACCEPTANCES CREATED?

• Acceptance must match the offer offeror may
  specify the terms of acceptance
• Acceptance must be communicated to the offeror
  must be more than a mental decision

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In This Case

• RING LOST at Zuma Beach in front of beach house.
  Ladys yellow-gold band with 12 small diamonds.
  Inside inscribed Like diamonds. Forever Yours,
  J.R.J. 1,00 reward. Call 555-8142
• Dowell saw this newspaper advertisement and
  rushed to the beach with a homemade sand sifter.
  About ten other people were also searching, using
  various devices. After four hours, Dowell
  shouted. Eureka! Ive found it! She promptly
  returned the ring to its owner. She alone was
  legally entitled to the reward.

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ACCEPTANCE MUST MATCH THE OFFER

• Mirror image rule terms in the acceptance must
  exactly match the terms contained in the offer
• If it varies any term, it is a counteroffer
• Courts in some states apply this rule only when
  the term in the offer is material (important)
• By statute (UCC) the rule has been changed in
  contracts for sale of goods such as books,
  computers, clothing, and food

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ACCEPTANCE MUST MATCH THE OFFER

• Goods if offeror requires acceptance must
  exactly match terms set forth in the offer, than
  any variation is a counteroffer
• Absent this requirement in the offer, an
  unequivocal acceptance of an offer for a contract
  for a sale of goods can be valid even if it
  includes new or conflicting terms

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G O O D S

• In This Case - On Thursday, the manager of
  Volume Value Vacuum, Inc. (VVV), offered by mail
  to sell model 234A vacuum cleaners to Susans
  Shops, a retailer, at the bargain price of 129
  each, with payment to be made on delivery. Susan
  accepted in writing but stated, payment due 30
  days after delivery.
• VVV said nothing in reply. A contract resulted
  on the area of agreement (model 234A at 129).
  Because both parties are merchants and VVV did
  not object to the modification, it will become a
  part of the contract if it is not material.
  Because an extension of credit is probably
  material, it does not become a part of the
  contract

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ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR

• Silence as acceptance one is not obliged to
  reply to offers made by others
• In This Case Kulich, an art dealer, wrote
  Chang, I understand you are interested in
  selling your four-panel Chinese lacquer screen.
  I sold it to you in 1997 for 500 and said it
  would go up in value. Now I offer to buy it back
  for 3,000. Unless I hear from you to the
  contrary. Ill treat your silence as acceptance
  and send my truck to pick it up next Monday
  morning. The driver will bring my certified
  check for the full amount.
• Chang did not reply
• Chang would not be bound to sell the screen

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Silence as acceptance

• You receive by mail a calculator. The sender
  states that if you wish to keep it, you must send
  in a check for 40, otherwise send it back.
• What does the law require you to do?
• Nothing

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ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR

• Unilateral acceptance offeror requires that the
  offeree indicate acceptance by performing his or
  her obligations under the contract
• Bilateral acceptance require that the offeree
  accept by communicating the requested promise to
  the offeror
• When acceptance is effective may be
  communicated orally, in person, or by telephone

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Will Your Contract Be Enforced Under the Law?

• The unconscionability defense is concerned with
  the fairness of both the process of contract
  formation and the substantive terms of the
  contract. When the terms of a contract are
  oppressive or when the bargaining process or
  resulting terms shock the conscience of the
  court, the court may strike down the contract as
  unconscionable. 

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• The unconscionability defense applies to a wide
  variety of types of conduct, so a court will look
  at a number of factors in determining if a
  contract is unconscionable. 
• If there is a gross inequality of bargaining
  power, so the weaker party to the contract has no
  meaningful choice as to the terms, and the
  resulting contract is unreasonably favorable to
  the stronger party, there may be a valid claim of
  unconscionability. 

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• A court will also look at whether one party is
  uneducated or illiterate, whether that party had
  the opportunity to ask questions or consult an
  attorney, and whether the price of the goods or
  services under the contract is excessive. 

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How much consideration, or payment, must there be
for a contract to be valid?

• There is no minimum amount. A price is only how
  people agree to value something, so there's no
  absolute standard of whether a price is fair or
  reasonable. The courts presume that people will
  only make deals that they consider worthwhile. So
  if you want to sell your car to your friend for
  1 instead of 1,000, you can do it
• An exception may be found if the consideration
  given is so out of line with what is being
  received that it would "shock the conscience of
  the court."