CHAPTER 7Offer and Acceptance

7.1 Creation of Offers

Goals: *List the elements required to form a

contract *Describe the requirements of an offer

What’s Your Verdict?

Mark and Josh were chatting during the break between classes. “Remember ‘Great Moments in Sports’, the video that I showed you last week?” asked Mark. “You thought it was great and said you wished it was yours. I’ll let you have it for fifteen bucks. Want it?” “Sure!” Josh answered. “Bring it to school tomorrow, okay?”

Did the two friends create a contract?

What is a Contract

Contract – agreement that courts will enforce

(must meet 6 requirements)

Foundation of our economic system

6 major requirements to be a contract:

1. Offer and Acceptance – Serious, definite offer to contract. The terms must be accepted by the party to who it was communicated.

2. Genuine Assent – Offer and acceptance 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 or acceptance.

3. Legality – What the parties agree to must be legal. Can’t contract to commit a crime or tort.

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

5. Capacity – Parties must be able to contract for themselves rather than being forced to use parents or legal representatives.

6. Writing – Some agreements must be placed in writing to be fully enforceable in court.

SAMPLE CONTRACT AGREEMENT BETWEEN MALLORY WEST AND LAURA MERSMAN This agreement is made on November 8, 2010 by Mallory West.  AGREEMENT   Parties: Mallory West and Laura Mersman will be the parties in this agreement.   Service Provided: Laura Mersman will wash Mallory West’s car every Thursday afternoon. Washing will

include a soap wash and rinse to the outside. On the inside of the car she will vacuum the floor, clean the windows, and disinfect the cup holders and steering wheel.

The car will be located at 226 W. 12 Ave. in Emporia, Kansas. Laura Mersman will be responsible for providing her own transportation to the location of the car and for providing the cleaning supplies. West’s car is a 2001 Black Pontiac Grand Am with the license plate “Gymnast”. Laura Mersman will clean the car on the property of

226 W. 12 Ave where Mallory West currently resides.   Consideration: Mallory West will pay Laura Mersman a total sum of $20 every Thursday. The $20 will

be paid in a check signed by Mallory West. Laura Mersman will be paid when the service is completed.   Termination: This agreement may be terminated at any point in time with a minimum amount of two

weeks’ notice to the other party.   Liability: Mallory West shall not be responsible for any injury, loss or damage to Laura Mersman as a

result of this agreement. Laura Mersman is not responsible for any damage created by the cleaning efforts.

  This is a valid and binding contract. Each party to the agreement has had the opportunity to read the

entire document before signing.   ___________________________________ __________________________________ Print Name of Party 1 Print Name of Party 2  ___________________________________ __________________________________ Signature of Party 1 Signature of Party 2

Example:A couple may want their house painted. A painter measures the exterior of the house and promises to paint the house 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.

Offeror: The painter. She communicated a serious, definite proposal to the couple.

Offerees: The couple. These were the people the offer was made to.

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

In What’s Your Verdict?

Mark and Josh made a contract, even though delivery and payment will occur later.

What’s Your Verdict?

Anchors Aweigh, a boat retailer, placed an ad in a local newspaper announcing a one-day sale of cabin cruisers for the “bargain price” of $22,500 each. The dealer had five cruisers in stock, and they all were sold within one hour. During the rest of the day, seven other would-be buyers came in to purchase a bargain cruiser.

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

Offer

Offer – proposal by an offeror to do something, provided the offeree does something in return. If the offeree accepts the proposal, a contract arises.

Generally, to create a valid offer:1. The offeror must appear to intend to create

a legal obligation2. The terms must be definite and complete3. The offer must be communicated to the

offeree

1. Expression of Intent to Create a Legal Obligation

Law is not concerned with what is actually in the mind of a person. Rather, it is concerned with the appearance of this person. (You could be joking, but a reasonable person would interpret your conduct as intending to contract, then you have made an offer. Or, the other way around)

This is called the test of the reasonable person. Objective legal test used by jurors or judges Gives a consistent way to determine

when an offer is made. Subjective tests would let people escape

contractual responsibilities by lying about what they were thinking.

Facts and Circumstances

Words spoken in obvious jest, frenzied terror, or anger would not be offers if a reasonable listener would realize that no offer was intended.

Example: BLaw teacher says, “I offer to sell you my new car for $3,000,” this probably isn’t an offer but an example.

Preliminary Negotiations

Information is often indicated without indicating intent to contract. Example: “Would you take $800 for that laptop

computer?” – you probably are trying to determine whether the other party is interested in selling and the ballpark price.

Wording is key. “I’ll give you $2,000 for your fishing boat.” “Would you think about selling your

fishing boat for $2,000?”

Social Agreements

Example: Two friends going to the movies together.

Offer Must Be Complete & Clear

Complete Must include all essential information. Nearly all offers

must identify price, subject matter, and quantity, either directly or indirectly.

Amount of information included depends on the complexity of the transaction.

Example 1: Real Estate Lot Sales (in most states) – 1. Identity of the specific lot 2. Price 3. Full terms for payment 4. Date for delivery of possession 5. Date for delivery of the deed

Example 2: Candy bar at local market 1. Price 2. Subject matter 3. Quantity (as many as are on the shelf)

Clear Each essential item must be identified

clearly.

Implied Terms Terms may be implied by law or common

business practice. Example: Contracts between merchants for

the sale of goods, when the price is not specified, current market price is the basis for the contract.

Advertisements

Advertisements in newspapers and magazines, on radio or television, or in direct mailings are generally not offers. Courts treat these as invitations to customers to make offers. This is because a person who advertises something for sale has a limited stock and cannot be expected to sell to the thousands who theoretically might reply to the advertisement.

What’s Your Verdict (Anchors Aweigh) Anchors Aweigh not bound by contract to the

seven would-be-buyers. 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.

To promote good customer relations – some ads state, “subject to stock on hand”, or “sold to first person to accept the terms contained in the offer”

Offer Must be Communicated to the Offeree

A person who is not the intended offeree cannot accept the offer.

A person can’t accept an offer without knowing it has been made.

Tartop Co. advertised a used paving machine. The ad, which was mailed to hundreds of firms, read: ‘Used paving machine. Builds curbs and finishes cement work all in one process. Price $11,250.’

General Paving, Inc., called Tartop and said, ‘We accept your offer.”

Is a contract formed? No, a reasonable person would think Tartop was

not promising to sell the paving machine. Instead, Tartop was seeking offers to buy it. A seller never has an unlimited supply of goods. If advertisements were offers, then everyone who “accepted” after the seller’s supply was gone could claim a contract right.)

Why do the following situations qualify or not qualify as valid offers which could result in contracts if accepted?

Nick asks Kim to go to dinner at the Sunset Restaurant at 7 P.M. on Saturday

Social agreement – No contract Tim says to Blake, “I’ll buy one of your

cars.” Incomplete information – subject matter

& price not identified –no contract

7.2 Termination of Offers

Goals: *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

Once made, an offer does not last forever. Several methods to terminate offers:

Revocation by the Offeror Offeror can revoke it anytime before it is accepted.

Time Stated in the Offer Reasonable Length of Time

Depends on the surrounding circumstances Produce – truckload of tomatoes (maybe a couple hours) Durable equipment (couple days)

Rejection by the Offeree Counteroffer

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

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 control.

How Can An Offer Be Kept Open? -Generally, an offeror is not obligated to keep an

offer open for a specified time even if the offeror has promised to do so. Why? Because the offeror has given nothing in exchange for the promise.

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. It’s called an option. Generally, the original offeror keeps the payment received for the option even if the offeree decides not to exercise the right to buy. Usually, if the original offer is accepted within the span of time allowed, money paid for the option is applied to the purchase price. This must be decided in advance.

How Can An Offer Be Kept Open?

Firm Offers Special rule applies to merchants

(those who regularly deal in the goods bought or sold). An offer by a merchant for the sale of purchase of goods stating in a signed writing how long it is to stay open is a firm offer.

Generally, neither death nor insanity of either party terminates an option contract or a firm offer.

7.3 Acceptance

Goals: *Discuss the requirements of an effective

acceptance *Determine at what point in time an

acceptance is effective

Acceptance occurs when a party to whom an offer has been made agrees to the proposal.

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

Who Can Accept an Offer? -An offer made to one person cannot be

accepted by another. -Sometimes, an offer is made to a

particular group or to the public and not to an individual. Example – a reward. Any member of the general public who knows of the offer may accept it by doing whatever the offer requires.

In this Case: Ring Lost at Zuma Beach in front of beach house. Lady’s yellow-gold band with 12 small diamonds. Inside inscribed: “Like diamonds. Forever. Yours, J.R.J.” $1,000 reward. Call 555-8142.

Dowell saw this newspaper ad 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! I’ve found it!” She promptly returned the ring to its owner. She alone was legally entitled to the reward.

Acceptance Must Match the Offer -Offer may specify terms of acceptance,

such as when and how the acceptance must be made.

-To complete agreement, offeree must comply with such terms. Any changes by the offeree ends the original offer and results in a counteroffer.

Mirror Image Rule – terms in the acceptance must exactly match the terms contained in the offer.

Acceptance Must Be Communicated to the Offeror

-Silence can not be acceptance

-Unilateral Acceptance – the offeror requires that the offeree indicate acceptance by performing his or her obligations under the contract.

Example: Offeror may publicly promise to pay a $100 reward to anyone who returns a lost dog.

  -Bilateral Acceptance – Most offers are bilateral. The

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

Example: Seller promises to deliver a load of topsoil in exchange for a homeowner’s promise to pay $65.

When Acceptance is Effective --All forms of contractual communications but one

take effect only when received. The exception to this is the acceptance, which is often effective when sent.

**Oral (the instant the words are spoken directly to the offeror)

**Mail (when properly posted) **Telegram (when handed to the clerk at the telegraph

office or when telephoned to the telegraph office) **Fax (instantaneous when transmission lines are both

open and working)