Objective:

Understand what must be in a contract.

Know how an offer can be terminated.

Creation of Offers

Contracts: agreements between two or more parties that creates an obligation.

ExamplesAthletes/CelebritiesBuying fast foodFilling your car with gasPublic TransportationEmploymentBuying a HouseLeasing an Apartment

Major Requirements of a Contract:Offer and AcceptanceGenuine AssentLegalityConsiderationCapacityWriting

1. Offer and Acceptance

Offeror: the person who makes the offer. Ex) Phillies Organization

Offeree: the person to whom it is made.Ex) Cliff LeeOffer: A proposal by the

offeror to do something, provided the offeree does or reframes from doing something in return.

2. Genuine Assent

Valid offer is met by a valid acceptance

The agreement must not be based on: FraudMisrepresentationMistakeUndue InfluenceEconomic Duress

Ex) If you were at an auction and the auctioneer said “sold” to you because you were scratching your arm and were not bidding on the item.

3. Legality

An agreement to commit a crime or tort cannot be a legally enforceable contract

Ex) An employment contract for the hiring of a blackjack dealer is illegal if gambling is illegal in that state. This is because the contract would require the employee to perform illegal activities.

4. Consideration

Must involve both sides receiving value in some form as the result of the transactionCash, goods, services, actions

Ex) If Bob signs a contract to buy a car from Hank for $5,000. Bob's consideration is the

$5,000 Hank's consideration is the car.

5. Capacity

Must have the legal ability to contract for themselvesMinimum age to form a contract

is 18Exception – an incapacitated child

Mentally illDrugged or drunk individuals

6. Writing

Some agreements must be placed in writing to be fully enforceable in courtProvides proof that the

agreement was madeAssures that both parties know

the exact termsEx) Letter, fax, email,

newspaper

Most contracts are oral contracts

WHY?

Requirements of an Offer

Offer: a proposal made by one party to another party indicating a willingness to enter a contract.

Ex) “She proposed marriage to the man she had known for only two months”

Offer

Three test that an offer must pass:

1. Contractual intent must be present

2. The offer must be communicated to the offeree.

Ex: (Fax, email, oral agreement, letter, newspaper)

3. The essential terms of the offer must be complete and definite.

Contractual Intent Must Be Present

Although the words themselves may indicate an offer, a reasonable person would disregard them because of the facts and circumstances under which they were spoken.

Ex) Claire says, “I’ve had it with my car. At this point I would sell it for a dollar.” John replies, “Accepted!”

Jests

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.

If you are serious, but a reasonable person would interpret your conduct as a joke, then no legally enforceable offer is made.

Ex) If Charlie agrees to buy Sam's stock at a certain price within a certain time, and Sam accepts such offer, believing that Charlie is in earnest, the fact that Charlie makes such offer as a jest, does not relieve him from liability.

Statements Made in Anger or Terror

It does not have the reasoned basis necessary for enforceable offers.

Ex) “Stop thief – I’ll pay anyone who stops her $100”

It is not looked upon as being a valid offer by the law.

Preliminary Negotiations

Invitations to negotiateNewspapersMagazinesCatalogs

Ex) “Lava Lamps, $49.99” (Limited Merchandise)

Offer – “I would like to buy a Lava Lamp”

Acceptance – The storeowner is free to accept or reject the offer

EXCEPTION – when an ad contains specific promises, uses phrases such as “first come, first served”

Social Agreements

Social agreements do not create legal obligations

Offer Must Be Communicated to the Offeree

A person who is not the intended offeree cannot accept the offer. (Telephone, letter, telegram, fax, email)Nor can a person accept an offer without knowing it has been made.

Ex) Alex found a wallet and returned it to the owner. The owner thanked him. Later in the evening, Alex discovered in the newspaper that the owner offered a reward. However, he cannot claim the reward because the offer was not communicated to him.

Essential Terms Must be Complete and Definite

CompleteIdentify the priceSubject matterQuantity

DefiniteEach essential term must be

identified clearly.

Ex) Landlord agrees to pay “a share” of the cost if the tenant fixes the plumbing.

On May 15th, Melissa offered to sell her collection of baseball cards for $3,000 at anytime before the first of the next month to her friend and fellow collector, Raul. While Raul was trying to raise the money, Melissa had second thoughts. So she called Raul and said, I’ve changed my mind, I’m not interested in selling the cards.” Raul responded, “It’s too late, you said the offer would be open for this whole month. This is just the 20th, and I’ve got the money so I accept.”

Because Melissa revoked first, there was no offer for Raul to accept. The fact that she had promised to keep it open until the end of the month was not legally binding on her. Therefore there was no contract.

WHAT’S YOUR VERDICT?

How Can Offers Be Ended?

Revocation by the Offeror

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

Not effective until communicated to the offeree.

How Can Offers Be Ended?

Rejection by the Offeree

Counteroffer: offeree’s response to an offer which modifies it

Ex) Paul says, “I’ll sell you my camera for $50”Judy says, “I’ll give you $35 for it”

How Can Offers Be Ended?Time Stated in the Offer

The offeror may state how and when the offer must be accepted

Reasonable Length of TimeDepends on the circumstances

Ex) A reasonable time to accept an offer for purchasing a truckload of tomatoes would be different from a reasonable time to accept an offer for purchasing a house

How Can Offers Be Ended?

Death or Insanity of Either the Offeror or Offeree

Destruction of the Specific Subject MatterOffer is automatically

terminated

How Can an Offer be Kept Open?

Option: separate contract arising when the offeree gives the offeror something of value in return for a promise to leave an offer open

Ex) “I will give you $1000 if you keep the offer open for an additional 30 days”

How Can an Offer be Kept Open?

Firm Offer: a written offer containing a term stating how long it is to stay open

Made by a merchantDoes not require any

consideration

Acceptance

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. Come from the person to whom the offer was made

2. Match the terms in the offer3. Be communicated

AcceptanceOnly Offerees May Accept

An offer made to one person cannot be accepted by another

Ex) Reward offered to the general public

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

Acceptance Must Be Communicated

Silence as AcceptanceNo contract will result from silence

Bilateral contracts: one party promises to do something in exchange for the other’s promise to do something else

Unilateral contracts: contains a promise by only one person to do something, if and when the other party performs some act.

Bilateral or Unilateral?

Imagine that you tell your brother that you will pay him $100 if and when he paints your fence. If he agrees, have you formed a bilateral contract or unilateral contract with him?

AcceptanceModes of Contractual

CommunicationOffers, acceptances, rejections,

revocations, and counter-offers

When Acceptances are EffectiveOral acceptance, text, email, fax

Ex) stock-exchange floor