Legal Basics of Contracts: Offer and Acceptance Essentials

1. Chapter 7 Offer and Acceptance

2. HOT DEBATE!!! Celia had worked after school since she was 14 to save money for a car. When she turned 18, she bought a VW. Two weeks later she was driving a group of friends to school. The car stalled at a stop light and people behind her began honking. Celia became frustrated when the car wouldn’t start and said, “I’ll sell this thing for $300 right now!” Joan gathered $300 cash from her purse and said, “I accept, here’s your money.” Should Celia be bound because the literal meaning of her words suggests she intended to sell the car?

3. What’s YOUR Verdict? Pedro and Seamus were chatting during the break between classes. “Remember ‘Great Moments in Sports’, the video that I showed you last week?” asked Pedro. “You thought it was great and said you wished it was yours. I’ll let you have it for fifteen bucks. Want it?” “Sure!” Seamus answered. “Bring it to school tomorrow, okay?” Did the two friends create a contract?

4. I. What is a contract??? A. Contract: • An agreement that courts will enforce • Between 2 parties • Basis for ALL economic activity

5. B. 6 requirements of a contract • Offer and acceptance a. Must be serious, definite offer b. The terms of offer must be accepted by party to whom it was communicated • Genuine Assent a. Can not be based on one party deceiving the other b. Must not use unfair practice/pressure • Legality a. What the parties agree to must be legal b. Cannot agree to commit a crime or tort for money

6. 6 requirements of a contract • Consideration a. Both sides must receive something of legal value as a result of transaction • Capacity • Must be able to contract for themselves rather than a parent or legal rep being obligated • Writing • SOME agreements must be in writing to be enforceable in court (ex. real estate) ***Indication of INTENT to contract, not the language used, is most important in a contract***

7. Requirements of an Offer 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 5 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?

8. Requirements of an Offer C. Offeror: • Party who makes an offer to form a contract D. Offeree: • Party to whom an offer is made • A person who is not the intended offeree cannot accept the offer E. Offer: Proposal by an offeror to do something, provided the offeree does something in return

9. 1. Requirements to create a valid offer: a. The offeror must appear to intend to create a legal obligation b. The terms must be definite and complete c. The offer must be communicated to the offeree

10. F. Expression of Legal Intent to Create a Legal Obligation 1. Test of a Reasonable Person • A legal test that will prevent people from lying about what they were thinking • Subjective vs. Objective • Law is concerned with appearance NOT what was in the mind; what you were thinking  WHY????? • EX) If you are joking, but a reasonable person would interpret your conduct as indicating your intent to contract, you have made an offer • EX) BUT, if you are serious, but a reasonable person interprets your conduct as a joke, then no offer is made

11. Expression of Legal Intent to Create a Legal Obligation 2. Facts and Circumstances • Words spoken in jest, in example, in frenzied terror, or in anger would not be offers 3. Preliminary Negotiations • When you try to determine what someone will charge for something without indicating intent to contract • EX) ‘Would you take $5000 for your car?’ • Ex) ‘If I sold my car for $7000, would anybody be interested?’ • Social Agreements – Meeting a friend for dinner • No contract or legal obligation • Break a date  no legal obligation

12. G. Offer Must be Complete and Clear 1. Complete: must include price, subject matter, and quantity 2. Clear specific 3. Implied terms: terms might be implied by law or common business practices - no price specified current market price Ex) Real estate must include (1) identity of specified lot (2) price (3) full terms of payments (4) date for delivery of possession (5) date for delivery of deed * If anything is missing, not valid offer

13. Offer Must be Complete and Clear 4. Advertisements: are treated as invitations to customers to make offers • Statutes prohibit fraud or misleading ads • May be an offer when: a. Ad is clearly worded to address problem of limited stock • ‘Subject to stock on hand’ • ‘Whiles supplies last’ • ‘Only to first person who accepts terms of offer’ b. Asks offeree to perform an act as way of accepting • ‘Will sell to first person to appear at the mall after opening’ EX) VALID OFFER: “New power lawnmower will be sold for $20 to the first person to appear at the main door of shopping mall on Saturday morning after 6:00AM”

14. Which is a valid offer??? • Nick asks Kim to do to dinner at the Sunset Restaurant at 7pm on Sat. • Tim says to Blake, ‘I will buy one of your cars.” • Jane says ‘I will give you $2000 for your fishing boat.’ • Bob says ‘Would you think about selling your fishing boat for $2000’???

15. H. Offer Must be Communicated to the Offeree • Person who is not the intended offeree CANNOT accept the offer • Person cannot accept offer without knowing it has been made • READ, A Question of Ethics, pg 101 • Is Major legally entitled to the reward? • Is Sarah ethically obliged to give him the reward?

16. Your assignment…Due NOW!!! • RE-READ Chapter 7-1 - NOTHING BUT READING FOR THE NEXT 6 MINUTES. • Crossword Puzzle 7-1 • ON BACK of Puzzle: pg 102 (1-13)

17. Chapter 7-2: Termination of Offers • What’s your verdict, pg 103

18. II. How can offers be ended?? A. Right of Revocation: Offer is revoked by offeror before it is accepted • REVOCATION: the right to withdraw an offer BEFORE it is accepted B. Time stated in offer – how long you have to decide and when the decision is needed by C. Reasonable length of time- depends on circumstances (should specify w/ offer) D. Rejection by offeree E. Counteroffer – if the offeree changes the offeror’s terms in important (material) ways – the ORIGINAL offer is terminated F. Death or insanity of either the offeror or the offeree

19. Reasonable time Which offer should be terminated first? • Offer to deliver bricks • Offer to deliver fresh cream • Read In this case, page 104 • Was a contract formed????

20. III. 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) Down payment on a car B. Firm offers: binding offer stated in writing how long it is to be held open • UCC makes some firm offers binding for a stated time (no more than 3 months) • READ In this case..., pg 104

21. Assignment: Chapter 7-2 Review, p. 105 • Complete 1-15 • 2-sided worksheet • Practice Activity • Puzzle

22. Chapter 7-3: Acceptances • What’s your verdict? Pg 106

23. IV. How are Acceptances Created? A. Acceptance: occurs when a party to whom an offer has been made agrees to the proposal • If mailing, faxing, etc. it is USUALLY effective when SENT (NOT received) • In this case, pg 106

24. B. Acceptance MUST... 1. Be made by the person or persons to whom the offer was made 2. Match the terms of the offer • Mirror Image Rule: requires that terms of acceptance must exactly match the terms contained in the offer • Variation = counteroffer • Applies to services and realty • Goods: sometimes an ‘unequivocal acceptance’ emerges, terms don’t match exactly but contract is valid • If party is a consumer, then new terms are PROPOSALS, not part of the contract • If party is a merchant, new/changed terms are NOT a part of the contract if the offeror objects • If party is a merchant, new/changed terms ARE part of the contract if offeror is silent and terms are minor • In this case, 107

25. Acceptance MUST... 3. Be communicated to the offeror: • Silence as acceptance??? - Only in a continuing relationship, the parties can agree to silence = acceptance • Ie: Grocery store ordering fresh produce daily until silence is broken • Ie: Order coffee/medication/makeup comes monthly until silence is broken a. Unilateral contract: promises something in return for the offeree’s performance (1 party) • Ex) promise of pymt for finding a lost dog • Performance = acceptance b. Bilateral contract: (most contracts) – offer is accepted by communicating a promise (2 specific parties) • Ex) promise of pymt in exchange for promise to paint fence both need to perform obligations • In this case, pg 107

26. When is acceptance effective??? • Orally, by phone, in person, writing, email, fax • “The Mailbox Rule” • ALMOST all forms of contractual communication take effect when received, EXCEPT ONE ACCEPTANCE • Most take effect when SENT unless otherwise specified • UCC provides acceptance of an offer to buy goods may be made ‘in any manner and by any medium reasonable in the circumstances’ unless otherwise clearly ‘indicated by the language or circumstances’

27. ASSIGNMENT: • Type the following into your notes: ‘When you enter into a contract’ - pg 109 • Questions 1-10, pg 108-109 • 2-sided Review worksheet

28. Chapter 7 Review: • Legal vocab, pg 110, 1-10 • Think Critically, 17 • Analyze Real Cases, 20, 22 • Case for Legal Thinking, pg 113 • Chapter 7 Review worksheet • Test – MONDAY!!!