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Chapter 7Chapter 7 Slide Slide 11

Offer and Acceptance

7-17-1 Creation of Offers

7-27-2 Termination of Offers

7-37-3 Acceptances

CHAPTER 7

Lessons



Creation of Offers

List the elements required to form a contractDescribe the requirements of an offer

LESSON 7-1

GOALS



Hot Debate – pg. 110

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

1) Argument can be made - should be bound by literal meaning of words

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?

1) Argue - literal meaning of sentences often is quite different from what someone intended



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.



CONTRACT REQUIREMENTS

There are six major requirements that must be satisfied before courts will treat transactions as contracts.Offer and acceptanceGenuine assentLegality

ConsiderationCapacityWriting




Offer and AcceptanceOffer 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 to whom it was communicated communicated




Genuine Assent –

cannot be based on:DeceptionImportant mistakeUse of unfair pressure

to obtain offer/acceptance




Legality - make up of agreement must be legali.e. Cannot create

an agreement to have someone commit a crime for you




Consideration – agreement must involve bothboth sides receiving something of legal value as a result of the transaction




Capacity – parties must be able to contract for themselves




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



Contracts - oral or written

Does it matter if a contract is only oral?



REQUIREMENTS OF AN OFFER

Expression of intent to create a legal obligation

Offer must be complete and clearOffer must be communicated to the

offeree



Contract: Painter ExamplePainter promises to paint house within

30 days for $3,000 (Offer)Homeowner agrees to the time frame

and the $3,000 (Acceptance)

Painter OFFERORHomeowner OFFEREE



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: 1) Offeror must appear to intend to create a legal

obligation (serious)1) Objective test of the reasonable person

1) Not based on what someone was thinking – unreasonable to expect courts to figure out what you were thinking




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 offerOn 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 complete3) Offer must be communicated to the

offeree



Test of Reasonable Person

Examines:

offeror’s words conduct in light of all relevant facts and

circumstances

Words spoken in jest / frenzied terror / anger = no offer intended



Preliminary Negotiations

Tentative terms, inviting others to make offers

i.e. “I think I’m interested in selling my laptop computer for around $1,000. Is anybody interested?”

-- not an offer



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.



Where do you stand?

Lisa agreed.Lisa would have to call in sick to her evening

job as waitress in order to goCalling out sick would cost her more than

$100 in wages & tipsShe still made the callWhen Brent did not show up to get her, she

confronted him



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??



Where do you stand?

Almost every state would NOT allow such a lawsuit

Social invitations do not produce enforceable contracts



Social Arrangements

Friends agreeing to go to movies

Social arrangements = not contracts



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”



Complete Terms

Offers should contain price / subject matter / quantity

Amount of detail depends on complexity of transactioni.e. Real estate sale (identify lot, price,

terms of payment, delivery date)Candy bar sale (price, subject matter,

quantity)



Clear

“In this case” - Delgados agreed on “one lot” – no specification as to which lot.

lacking essential information



READ B E F O R E signing



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



Advertisements

NOT offers - invitationsinvitations to make offersWhat’s Your Verdict – pg. 112Did the Anchors Aweigh advertisement

make offers to the would-be buyers?Customers: made OffersSellers must make reasonable supply

available – no expectation to meet every demand



Advertisements

Can be offers:

1) Written clearly and indicating limited quantities -- book example of selling car to first person

2) Asks offeree to perform an act as a way of accepting -- first person to appear at the main door of a shopping mall on …



Offer Must be Communicated to Offeree

Non-intended offeree cannot accept the offer

Cannot accept if unaware of offer (reward)



What’s your Verdict?

Pg. 111Did the two friends create a contract?Yes – even though delivery and

payment will occur later



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



If you don’t satisfy the law’s requirement for creating an offer, then you usually don’t have a contract.

TRUE / FALSE



TRUE



To be valid, an offer must indicate an intent to create a legal obligation.

TRUE / FALSE



TRUE



Which of the following are reasons why an offer may not be valid?

A) It is apparent that the speaker is jokingB) 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



D - all of the above



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



Objective



Which of the following is evidence showing an intent to contract

A) spoken or written wordsB) conduct other than speaking or writingC) other facts and circumstancesD) all of the above



D – all of the above



Advertisements can be offers whenA) they are completeB) they are clearC) they address the problem of

numerous recipients and a limited supply of the advertised product

D) all of the above






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

TRUE / FALSE



FALSE



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



TRUE



To meet the contract requirement of genuine assent, the agreement must not be based on

A) deceptionB) an important mistakeC) using unfair pressureD) all of the above






Termination of Offers

Describe how an offeror can end an offerTell how an offeree can end an offerExplain how the parties can create offers that

cannot be ended by the offeror

LESSON 7-2

GOALS



HOW CAN OFFERS BE ENDED?Revocation by the offeror – can be

revoked anytime before it is accepted by the offereeREVOCATION - right to withdraw an offer before it is accepted

Not effective until communicated to the offeree



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




Reasonable length of time – amount of time depends on surrounding circumstances

Rejection by the offeree – offer is terminated by the offeree’s rejection



Negotiation Terms

JOE BOBOffer Accept or

Reject or

Accept or Counteroffer

Reject or

Counteroffer




Counteroffer – offeree must accept offer exactly as it was made (no changes) – otherwise, it becomes a counteroffer

In this Case – pg. 116Haviland submitted written offer to sell to Ping a luxury apt. bldg in San Fran.Property Price $15.5 million cashPing replied (certified mail) offering to pay $14.4 million cashHaviland 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 cashWas a contract formed?No, Ping’s $14.4 m price was a counteroffer eliminated Haviland’s offer at $15.5




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



What’s 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 “I’ve changed my mind, I’m not interested in selling the cards.”

Raoul – “It’s too late, you promised to sell them to me, and I’ve got the money so I accept.”



What’s your Verdict?

Pg. 115Was Melissa’s offer terminated before

Raoul tried to accept?Because Melissa revoked first, there

was no offer alive when Raoul tried to accept



The Mailbox Rule



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



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 monthsTrue even when nothing is paid by offereeDeath/Insanity do not terminate option contracts or firm

offers



Offers expire at the time stated in the offer.

TRUE / FALSE



T R U E



If an offeree clearly rejects the offer, the offer is said to be:

a) Counteroffered

b) Revoked

c) Expired

d) Terminated



d) Terminated



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



Counteroffer



Which of the following does not describe a method used to terminate offers?

a) Revocation by the offeror

b) Offeror is admitted to the hospital for tests

c) Counteroffer

d) Death of the offeree



B) Offeror is admitted to the hospital for tests



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

TRUE / FALSE



F A L S E



Which of the following will cause an offer to end?a) Occurrence of an event, such as the passage

of time, which the offer said would cause it to end

b) Passage of a reasonable time if nothing is said in the offer about the length of its life

c) Revocation by the offerord) Counteroffer by the offereee) All of the above



E) All of the above



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



Counteroffer



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 ?



NO



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



Y E S



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



N O



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



Y E S



Acceptances

Discuss the requirements of an effective acceptance

Determine at what point in time an acceptance is effective

LESSON 7-3

GOALS



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:

1) Be made by the person or persons to whom the offer was made

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




Who can accept an offer? – can only be accepted by person to whom offer was madeWhat’s 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 Schorling’s statement?Only Monette, not Schorling, could accept Darrow’s offer




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



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.” $1,00 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! 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

Mirror image rule – terms in the acceptance must exactly match the terms contained in the offer

If it varies any term, it is a counterofferCourts 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



ACCEPTANCE MUST MATCH THE OFFER

Goods – if offeror requires acceptance must exactly match terms set forth in the offer, than any variation is a counterofferAbsent 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



G O O D SIn This Case - On Thursday, the manager of Volume Value

Vacuum, Inc. (VVV), offered by mail to sell model 234A vacuum cleaners to Susan’s 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



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. I’ll 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



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



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



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.



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.



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.



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."