Offer and Acceptance

Chapter 7

Hot Debate

1. Should Celia be bound because the literal meaning of her words suggests she intended to sell the car?

2. 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?

Hot Debate Answers

1. Yes, Celia should be bound by the literal meaning of her words because literal meaning is the only meaning that most people can agree upon; therefore we look to it in deciding whether someone creates a legal obligation.

2. Yes, Celia should not be bound because the literal meaning of sentences often is quite different from what someone obviously intended their words to mean. So words alone, especially those spoken in anger, should not be the basis for creating legal obligation.

What’s Your Verdict?

Did the 2 friends create a contract?

What’s Your Verdict? Answer

Pedro and Seamus made a contract, even though delivery and payment will occur later.

What is a contract?

A contract is an agreement that courts will enforce.

Contracts are the legal links between individuals and companies.

6 Major Requirements must be satisfied before courts will treat transactions as contracts:

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

2. Genuine Assent: the agreement must not be based on one party’s deceiving another, on an important mistake, or on the use of unfair pressure exerted to obtain the offer and acceptance.

6 Major Requirements must be satisfied before courts will treat transactions as contracts:

3. Legality: what the parties agree to must be legal. So an agreement to pay someone to commit a crime or a tort cannot be a contract.

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

6 Major Requirements must be satisfied before courts will treat transactions as contracts:

5. Capacity: to have a completely enforceable agreement, the parties must be able to contract for themselves rather than being obligated to use parents or legal representation.

6. Writing: some agreements must be placed in writing to be fully enforceable in court.

What is a contract?

Example: A painter comes to your house and gives you a quote for the cost of your home to be painted. He promises that the house will be painted within 30 days for $3,000, this is the offer.

If the couple agrees to the time frame and the $3,000, this is the acceptance.

The offeror is the painter. The couple is the offeree.

What is a contract?

Without both offer and acceptance on mutually agreed terms, there is no contract.

When the offeror communicates an offer to contract, the offeree is not required to accept it, but he or she may chose to do so.

What’s Your Verdict?

Did the Anchors Aweigh advertisement make offers to the would-be buyers?

What’s Your Verdict? Answer

When would-be buyers tendered (presented for acceptance) the purchase price of the cabin cruiser, the would-be-buyers were the ones making an offer.

Anchors Aweigh was not bound by contract to the 7 would-be-buyers who came to purchase the boats after they were out of stock.

Anchors Aweigh may want to offer the deal to the would-be-buyers to promote good customer relations, but are not obligated too.

Requirements of an Offer

An offer is a proposal by an offeror to do something, provided the offeree does something in return.

A valid offer must be…

1. The offeror must appear to intend to create a legal obligation

2. The terms must be definite and complete

3. The offer must be communicated to the offeree

Requirements of an Offer

The test of an reasonable person Facts and circumstances-Example, When your

teacher says to the class, “I will sell you my new car for $3,000.” This probably isn’t an offer but an example.

Preliminary negotiations- Negotiating with someone is not an offer. After negotiating with one another, then a firm offer must be made.

Social arrangements-are not legal obligations http://

abcnews.go.com/Business/jilted-bride-sues-groom-95000/story?id=12403921

http://abcnews.go.com/Business/story?id=5442819

Offer must be complete and clear

Must have complete essential information (identify the price, subject matter, and quantity)

Real estate essential terms: identify the specific lot, price, full terms for payment, date for delivery of possession, and date for delivery of the deed.

Must be clear Implied terms- when the price is not specified

in contracts between merchants for the sale of goods, the current market price is the basis.

Offer must be complete and clear

Advertisements in newspapers and magazines, on radio or TV, or in direct mailings are generally not offers.

Advertisements are considered invitations rather than offers.

Bait and Switch Capacity to contract means that the

person has the ability, according to law, to understand his or her actions and the effect of those actions.

Offer must be communicated to the Offeree

An offer made to one person cannot be accepted by another.

What’s Your Verdict?

Was Melissa’s offer terminated before Raoul tried to accept?

What’s Your Verdict? Answer

Because Melissa revoked first, there was no offer alive when Raoul tried to accept.

Therefore, there was no contract. This is true even of the offeror

promised that the offer would remain open for a particular period.

How can offers be ended? Revocation by the Offeror

Revocation is the right to withdraw an offer before it’s accepted .

After an offer has been made, the offeror can generally revoke it any time before it’s accepted by the offeree.

Time stated in the Offer

In making an offer, the offeror may state how and when the offer must be accepted.

Example: On October 10th, Phenix Girard Bank sent a letter to Davis, who applied for a loan. In the letter PGB offered to lend $50,000 on specified terms and stated that the acceptance of the letter must be received no later than October 18th. Davis mailed the letter on October 17th, but the bank didn’t receive it until October 20th. Therefore the offer evaporated and there was no contract.

Reasonable length of time

If the length of time is not specified, a reasonable amount of time is applied.

Reasonable length of time depends on all the surrounding circumstances.

Example: Truckload of tomatoes

Rejection by the Offeree

When an offeree clearly rejects the offer, the offer is terminated.

Daniel offers to sell Ray a bike for $75. Ray rejects the offer, “Saying that’s too much.” The next day, Ray called Daniel and says, “I’ll take the bike for $75.” But since Ray rejected the offer the day before, no offer exist. However, Daniel could offer him the deal again.

Counteroffer

Generally an offeree accepting an offer must accept it exactly as made.

If the offeree changes the offeror’s terms in important ways then a counteroffer results.

To be legal an offeree must say, “I refuse your offer; here is my proposal.”

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An Unacceptable Offer

An unacceptable offer may be terminated by a counteroffer, a reasonable length of time, and the rejection of the offeree.

Death or Insanity of Either the Offeror or Offeree

Death or insanity eliminates control of a contract.

Meaning that the law acts for those parties when they can no longer act and terminates their offers.

What’s Your Verdict?

Are they now legally bound to keep the offer open to Robinson?

What’s Your Verdict? Answer

Robinson held an option to buy the factory building.

The Downings could not legally withdraw the offer.

If they sold to a 3rd party (who was unaware of the option) during the 60 day period, the Downings would be liable to Robinson for damages.

How can an offer be kept open? Options

If the offeree gives the offeror something of value in return for a promise to keep the offer open, this agreement is itself a binding contract known as an option.

The original offeror keeps the payment received for the option even if the offeree decides not to exercise the right to buy.

Usually, money paid for the option is applied to the purchase price.

Earnest Money

Firm Offers

An offer by a merchant for the sale of purchase of goods stating in a signed writing how long it’s to stay open is called a firm offer.

A firm offer is binding for a stated time, for no more than 3 months, and even when nothing is paid by the offeree.

Even though the offeree has given nothing of value in exchange, a merchant who makes a firm offer may not revoke it.

What’s Your Verdict?

Did a contract result from Schorling’s statement?

What’s Your Verdict? Answer

No contract resulted

Only Monette, not Schorling, could have accepted Darrow’s offer.

How are acceptances 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

1. Be made by the person(s) to whom the offer was made

2. Match the terms in the offer3. Be communicated to the offeror

Who can accept an offer?

An offer made to one person cannot be accepted by another.

Sometimes an offer can be made to the public, such as a reward.

Acceptance must match the offer

The offeror may specify the terms of the acceptance, such as when and how the acceptance must be made.

Mirror image rule requires that the terms in the acceptance must match the terms contained in the offer.

Acceptance must be communicated to the Offeror

One is not obliged to reply to offers made to others.

An offeror’s attempt to word the offer so that silence would appear to be an acceptance is invalid.

In unilateral contracts the offeror requires that the offeree indicate acceptance by performing his or her obligations under the contract.

When the offeree has begun performance of the act requested, the offer cannot be revoked until the offeree has had a reasonable amount of time to complete performance.

Acceptance must be communicated to the Offeror

When an offer implies that it can be accepted by giving a promise instead of performing the contracted-for act is a bilateral acceptance.

Example: A seller promises to deliver a load of topsoil in exchange for the homeowner’s promise to pay $65. Until it’s delivered there is no contract.

When Acceptance is Effective

Offers, acceptance, rejections, revocations, and counteroffers may be communicated orally, in person, by telephone, in writing, sent by mail, delivery service, email, or fax.