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REAL PROPERTY (It’s not personal). Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #1 Beth owns a corporate office park in Ohio. Her ownership.

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Presentation on theme: "REAL PROPERTY (It’s not personal). Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #1 Beth owns a corporate office park in Ohio. Her ownership."— Presentation transcript:

1 REAL PROPERTY (It’s not personal)

2 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #1 Beth owns a corporate office park in Ohio. Her ownership rights include the right to sell or give away the property without restriction, as well as the right to commit waste, if she chooses. Beth’s ownership interest is a.a fee simple absolute. b.a leasehold estate. c.a life estate. d.the power of eminent domain.

3 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #1 ANSWER:A Fee simple owner can do anything they want to, subject to laws or ordinances affecting all other property owners. These would limit ability to commit waste, for instance, if dilapidated buildings were regulated.

4 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #2 With respect to Adam’s land, Bob has an easement, Carol has a profit, and Don has a license. A right to possess the land is owned by a.Adam, Bob, and Carol only. b.Adam and Don only. c.Adam only. d.Bob, Carol, and Don only.

5 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #2 ANSWER:C Nasty question, I agree: What would answer be if Ed had a lease on Adam’s land?

6 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #3 Regional Construction Company has a right to drive its trucks across Standard Business Corporation’s property, which is adjacent to Regional’s office. This right is a.a leasehold estate. b.a license. c.an easement. d.a profit.

7 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #3 ANSWER:C Roads, pipelines, power lines, utility installations, etc. are normally on easement estates.

8 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #4 Wood Products Corporation, which owns no land, has a right to cut trees from Natural Resource Company’s land. Wood’s right is a.a leasehold estate. b.a license. c.an easement. d.a profit.

9 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #4 ANSWER:D Profit is a right to enter and take something away from land. What about a hunting arrangement?

10 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #5 Investment Properties Corporation conveys an office building to Jay with a deed that makes the greatest number of warranties and provides the most extensive protection against defects of title. This deed is a.a grant deed. b.a quitclaim deed. c.a special warranty deed. d.a warranty deed.

11 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #5 ANSWER:D Deed warrants property to grantee as against all claims, whether arising from things that the grantor did or things that others in the chain of title before him did. …and Grantor does hereby bind itself to warrant and forever defend all and singular the Property unto Grantee against every person whomsoever, lawfully claiming or to claim the same or any part thereof.

12 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #6 Opal conveys three acres of wetlands to Pristine Places, Inc., with a deed that warrants only that Opal held good title during her ownership of the property. This deed is a.a grant deed. b.a quitclaim deed. c.a special warranty deed. d.a warranty deed.

13 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #6 ANSWER:C The special warranty deed adds a qualifier at the end of the warranty clause to limit the grantor’s liability: and Grantor does hereby bind itself to warrant and forever defend all and singular the Property unto Grantee against every person whomsoever, lawfully claiming or to claim the same or any part thereof, by through or under Grantor but not otherwise.

14 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #7 Manhattan Developers, Inc., pays Northeast Trust Company to release its claim to a strip of waterfront property. Northeast gives Manhattan a deed that conveys only whatever interest Northeast has in the strip. This deed is a.a grant deed. b.a quitclaim deed. c.a special warranty deed. d.a warranty deed.

15 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #7 ANSWER:B Actually not a conveyance of property, but a relase of any claim to property. Effect is to give the grantee whatever interest, if any, that the grantee may have.

16 Recording Statutes Recording a deed (or any interest in real property) puts the public on notice of the new owner’s interest in the land and prevents the previous owner from fraudulently conveying the same interest to another buyer. Race statute. – Pure notice statute. – Notice-race statute. 16

17 Will or Inheritance Owner of real property dies, his property is transferred by: – Will (testate). – Without Will (intestate). Title is transferred at the time state law so provides in its testate and intestate laws. 17

18 Adverse Possession One person possesses the property of another for a certain statutory period of time, that person automatically acquires title to the land, just as if there had been a conveyance by deed. Must be: Actual and exclusive. Open, visible and notorious. Continuous and peaceable. Hostile and adverse. 18

19 Real Property & Environmental Law TRUE/FALSE QUESTION #3 Adverse possession has the same legal result as a tenancy at sufferance.

20 Real Property & Environmental Law TRUE/FALSE ANSWER #3 ANSWER:F No, it’s much stronger than that! First, what’s a tenant at sufferance? Adverse possession results in what’s called a “limitations” title which can be a fee simple.

21 Real Property & Environmental Law TRUE/FALSE QUESTION #4 Eminent domain refers to the ultimate right of an owner in fee simple absolute to transfer the property by will to whomever he or she wishes.

22 Real Property & Environmental Law TRUE/FALSE ANSWER #4 ANSWER:F Eminent domain is the right of the government to take property for public use

23 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #8 Bay City wants to acquire undeveloped land within the city limits to convert into a public park. Bay City brings a judicial proceeding to obtain title to the land. This is a.adverse possession. b.an easement. c.constructive eviction. d.the power of eminent domain.

24 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #8 ANSWER:D Where in the constitution does it say the City can do this?

25 Leasehold Estates Anyone who rents housing to the public for commercial purposes subjects herself to various state and federal Landlord-Tenant laws. Owner of the property is the LESSOR and Tenant is LESSEE; the contract is called the LEASE. The property interest is called a leasehold estate. 25

26 Real Property & Environmental Law TRUE/FALSE QUESTION #7 Contract doctrines do not apply to landlord- tenant relationships.

27 Real Property & Environmental Law TRUE/FALSE ANSWER #7 ANSWER:F Leases are heavily governed by contracts…

28 Tenancy Interests Tenancy for Years. – Created by an express contract. – Property is leased for a specified period of time. Periodic Tenancy. – Does not specify how long lease lasts. – But rent paid at certain intervals. Tenancy at Will. – For as long as both agree. Tenancy at Sufferance. – Wrongful possession without the right to possess. 28

29 Real Property & Environmental Law TRUE/FALSE QUESTION #5 A periodic tenancy is created by an express contract under which property is leased for a specified period of time.

30 Real Property & Environmental Law TRUE/FALSE ANSWER #5 ANSWER:False No, what’s described here is a tenancy for years (even if it’s only months). You may think of a periodic tenancy as measured by the rent period, in a sense, since you are entitled to one rent period’s notice to leave.

31 Real Property & Environmental Law TRUE/FALSE QUESTION #6 A tenancy for years is created by a lease that does not specify how long it is to last but does specify that rent is to be paid at certain intervals.

32 Real Property & Environmental Law TRUE/FALSE ANSWER #6 ANSWER:False

33 Landlord-Tenant Relationships Lease Agreement can be oral or written (oral may not be enforceable). Lease gives Tenant the temporary right to exclusively possess the property. Sources of Law: – Common Law. – State and Local Statutes 33

34 Lease Agreement Form of the Lease (required elements): – Must express intent to establish the lease. – Provide for transfer of possession to the Tenant. – Provide for the Landlord’s “reversionary” interest. – Describe the property. – Indicate length of the term, amount of rent, when and where rent paid. – Illegality. 34

35 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #9 Dora leases a house from Evan for a two-year term. To ensure the validity of their lease, it should include a.a description of the premises. b.a due date for the payment of the property taxes. c.a requirement that Dora perform structural repairs to the house. d.a requirement that Evan carry liability insurance.

36 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #9 ANSWER:A Only A is necessary to the validity of the lease; the other things are all very good ideas and examples of the many things that need to be addressed in a lease.

37 Rights and Duties Trend in the law is to curtail, by contract and real estate law, the immense freedom that Landlords had in the past. – Possession. – Using the Premises. – Maintaining the Premises. – Rent. 37

38 Rights and Duties Landlord has a duty to deliver legal right to possession. Tenant’s right to exclusive possession is only subject to Landlord’s limited right to come unto the property. Tenant has a “covenant of quiet enjoyment” by which Landlord promises Tenant’s peace and enjoyment of the property. 38

39 Real Property & Environmental Law TRUE/FALSE QUESTION #8 Under the covenant of quiet enjoyment, a landlord promises that a tenant will not be disturbed in the use of the premises.

40 Real Property & Environmental Law TRUE/FALSE ANSWER #8 ANSWER:True How might a landlord breach this covenant?

41 Rights and Duties Eviction occurs when Landlord: – Deprives Tenant of possession of the leased property; or – Interferes with this use or enjoyment of the property to the extent that Tenant cannot use or enjoy. Constructive eviction occurs when Landlord: – Breaches lease or covenant or quiet enjoyment; and – Makes it impossible for the Tenant to use and enjoy the property. 41

42 Rights and Duties Residential property – More regulated: Landlord may be required to be responsible for higher level of maintenance (particular safety/security related items) and less flexibility to limit tenant remedies. Commercial property – Less regulated: still allows parties to agree for the most part (implied warranty of commercial suitability). 42

43 Rent Rent is Tenant’s payment to the Landlord for the Tenant’s occupancy or use of the Landlord’s real property. – Payment based on agreement, custom, state statute, waiver. Security Deposits. – A deposit by Tenant which Landlord may retain for non-payment of rent or damage to premises. 43

44 Tenant’s Remedies If Landlord breaches the warranty of habitability, depending on state law, Tenant may: – Withhold rent -- put in escrow. – Repair and Deduct -- notify, repair, and deduct repair from rent. – Cancel the Lease -- must be constructive eviction or breach of habitability. – Sue for Damages -- difference between what paid for and what received. 44

45 Real Property & Environmental Law TRUE/FALSE QUESTION #9 When a landlord sells leased premises to a third party, any existing leases terminate automatically.

46 Real Property & Environmental Law TRUE/FALSE ANSWER #9 ANSWER:False Leases usually* are encumbrances that remain in place when property is sold. It is said that the property is sold “subject to” the lease. The buyer simply becomes the landlord. *Depends on the contract, however!

47 Transferring Rights to Leased Property Transferring Landlord's Interest. – Landlord may sell any and all of his rights in the real property. – New owner buys “subject to the lease,” if lease is recorded. Transferring Tenant’s Interest. – Landlord’s consent may or may not be required by statute or the lease itself. 47

48 Transferring Rights Transferring the Tenant’s Interest (cont’d) – Assignments: Tenant transfers his entire interest in the lease to a third person. Original Tenant is not released from liability under the lease. – Subleases: Tenant transfers all or part of his interest in the lease for a shorter period of time than the lease. Original Tenant is not relieved of liability under the lease. 48

49 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #11 Allen owns a duplex that he leases to Brad and Cora. Allen may sell a.the duplex at any time. b.the duplex, but only after the lease term expires and Brad and Cora have moved out. c.the duplex, but only with Brad and Cora’s permission. d.the lease, but not the duplex.

50 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #11 ANSWER:A He can sell the duplex “subject to” the lease. What rights do Brad and Cora have to dispose of the leasehold interests that they have?

51 Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #12 Bill leases an apartment from Cathy. Two months later, Bill moves out, and arranges with Dian to move in and pay the rent to Cathy for the rest of the term. This is a.an assignment. b.an easement. c.an eviction. d.a sublease.

52 Real Property & Environmental Law MULTIPLE-CHOICE ANSWER #12 ANSWER:A How is a sublease different than this?

53 Contracts – Unit 1 Nature, Classification, Offer/Acceptance and Consideration

54 Promises Why are promises important to society? How do markets depend on promises? What would the economy be like without enforceable promises?

55 Promise v. Contract I promise that tomorrow, there will be $10,000 in cash on that table. I promise Francis that tomorrow I’ll pay her $10,000 in cash. I promise Francis that tomorrow I’ll pay her $10,000 in cash if she’ll give me her champion dachshund. Francis gave me the dog today, when I told her that I’d pay her $10,000 in cash tomorrow. Francis said she’d give me the dog tomorrow, and I said I’d pay her $10,000 in cash tomorrow.

56 Promise vs. Contract Promise: an assertion that something will or will not happen in the future Contract: an agreement that can be enforced in court

57 Law Governing Common Law Restatement Statutes -Uniform Commercial Code (UCC) -Other statutory provisions

58 Enforcement If the promise is not fulfilled, what can happen? -Party breaching may be required to pay money -In certain circumstances, the breaching party may be required to perform

59 Elements of a Contract Offer and Acceptance (agreement; at least two parties required) Consideration (something of value given in exchange for the other party’s promise or performance) Contractual Capacity (all parties must be legally competent to contract) Legal Object (cannot be for an illegal end)

60 Elements, cont’d If any of those four elements is missing, then there is no contract. In addition, there will be no contract if: -There is not genuine assent (absence of certain mistaken beliefs; a meeting of the minds), or -The contract is in the required form, if there is a required form (in writing, if required to be in writing, for instance)

61 Classification based on Contract Formation Contract Formation Bilateral Promise for promise Unilateral Promise for conduct Formal Special form required Informal No special form needed Express By words (oral or written) Implied in Fact By conduct (in whole or in part)

62 Bilateral and Unilateral Bilateral Offeree must make a return promise in order to accept the offer Unilateral Offeree must perform in order to accept the offer

63 Ardito v. City of Providence Facts: During process of hiring police officers, City of Providence sent letters to best candidates stating that if the recipients successfully completed medical and psychological exams, then they would be allowed to attend the Police Academy. Academy training was the last step to being hired by the city. The letters stated that they were “conditional offers of employment.” New police chief had come in during the middle of the selection process and determined that certain people sent the letter would not be offered a job, even though they had completed the exams. Ardito was one of those. He was one of 14 applicants who got the letter and then were rejected. They sued to have the City stop holding the academy unless they were admitted.

64 Ardito Case, cont’d Question: Was the letter valid contract that was accepted by Ardito and the others when they completed the medical and psych exams? Answer: YES – CLASSIC UNILATERAL CONTRACT. CITY PROMISED THAT IF THEY SUBMITTED TO THE EXAMINATIONS, THEY’D HAVE A SPOT IN THE ACADEMY TRAINING, AND THUS A SHOT AT THE JOB. THEY DID THEIR PART, THE CITY MUST DO ITS PART.

65 Special Problems: Revocation of Offer in Unilateral Contract Roberta offers to buy Ed’s sailboat if he’ll sail it down to Newport Beach from its regular mooring at San Francisco. He leaves; the trip takes three days. While he’s in route, Roberta decides to revoke her offer and notifies him by radio. What result?

66 Revocation of Offer in Unilateral Contract, cont’d Traditional View. No acceptance until the offeree completes performance, so Roberta prevails – she can revoke or withdraw the offer anytime before it is accepted. Modern View. Once performance has been substantially undertaken, then the offer becomes irrevocable. Up to a judge or jury to determine what that means.

67 Formal Contracts Certain contracts require particular forms. Examples: --Contracts under seal --Recognizances --Negotiable instruments --Letters of Credit (Probably others as well) Contracts not requiring a particular form are – you guessed it – informal contracts. Most contracts are informal under this definition

68 Express and Implied Contracts Basic difference is that an express contract is one whose terms are stated in words, whether written or oral. In a contract implied-in-fact some of the terms are established by one or more of the parties’ conduct or actions instead of their words.

69 Requirements for Implied-in-Fact Contract Plaintiff furnished some goods or services Plaintiff expected to be paid, and Defendant knew or should reasonably have expected to pay Defendant had a chance to reject the goods or services, but didn’t

70 Performance Executed Contract – one that has been fully performed by all its parties Executory Contract – one for which performance by some or all of its parties still remains to be completed

71 Contract Enforceability Contract may be: Enforceable Unenforceable Voidable Void

72 Unenforceable Also a valid contract, but one that a party has a defense to. The parties may perform it, but a court will not enforce it. Important thing to remember is that this kind of contract is not unenforceable because one of the four basic elements is missing – that wouldn’t be a contract, would it? It’s not enforceable for some other reason. Example would be an oral lease of real property for more than a year. The statute of frauds requires that such a lease be in writing or it’s not enforceable.

73 Voidable A contract that one or more of the parties can – at its option – either avoid or enforce. An example is a contract made with a minor; the minor has the option to either perform it or not. There’s an element missing – legal capacity, however, one party has waived it but the other is incapable of waiving it.

74 Void A void contract is no contract at all. No party has any legal obligation at all. Example: a contract to have a romantic rival “eliminated” a la the Sopranos would be a void contract, because it did not have a lawful object.

75 Voidable v. Void In case of voidable agreements there is a contract, though it is marked by a flaw; and the party who has the option may affirm it in spite of the flaw. Where, however, an agreement is void, it falls to the ground as soon as its nullity becomes apparent.

76 Quasi-Contract Quasi-contract = contract implied –in-law Distinguish from a contract implied-in-fact “Quasi” means “as-if.” Quasi-contract is an equitable device. It’s not a real contract; there is no agreement between the parties. It is really a remedy; a fictional contract imposed by the law in order to prevent unjust enrichment.

77 DCB Construction v. Central City Development Co. FACTS oCentral City Development (“Landlord”) leased building to Tenant for 5 years. oTenant (who was responsible for all repairs, maintenance and alterations under the lease) hired DCB Construction to remodel the premises at a cost of about $300M. Landlord told DCB that it would not be responsible for any of those costs. oTenant stopped paying rent and stopped paying DCB. Landlord evicted Tenant.

78 DCB Construction v. Central City Development Co. Tenant went into bankruptcy, so DCB sued the Landlord for the remaining $280,000 that Tenant owed it, saying that the work DCB had done had increased the value Landlord’s property. Unless the Landlord paid DCB for that work, the Landlord would be unjustly enriched. Would Landlord be unjustly enriched?

79 DCB Construction v. Central City Development Co. Court said no, the Landlord was not unjustly enriched. Why not? No fraud or mistake here; DCB did the work for Tenant specifically, and not for the Landlord; and Landlord advised DCB that it would not be responsible for payment. DCB could have protected itself by not doing the work if it didn’t have another responsible party to look to for payment.

80 Offer and Acceptance (Agreement) The agreement of the parties essential to the formation of a contract is composed of: 1. OFFER; and 2. ACCEPTANCE

81 Before we talk about offers – consider: Objective Theory of Contracts Objective v. Subjective When interpreting a contract, court’s will look at a party’s words and conduct from the perspective of a reasonable person in the circumstances of the parties, not the subjective intention of one of the parties.

82 Objective Theory Consider this from Judge Learned Hand in Hotchkiss v. National City Bank of New York, 200 F. 287 (2d Cir. 1911): “A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort. Of course, if it appear by other words, or acts, of the parties, that they attribute a peculiar meaning to such words as they use in the contract, that meaning will prevail, but only by virtue of the other words, and not because of their unexpressed intent.” BOTTOM LINE: "The manifestation of a party's intention, rather than the actual or real intention, is controlling."

83 Three Requirements of a valid Offer Serious objective intention of the offeror – it must be clear (objectively, or to a reasonable person – not subjectively, to him alone) that offeror intends to form a binding contract Terms of the offer must be reasonably definite and certain – It must be clear to the offeree what the contract is going to be if he or she were to accept it. The offer has to be communicated to the offeree. Duh. Once a valid offer is accepted, a contract is formed.

84 Elements of an Offer – Objective Intention to Contract Mr. Martinez drives a $750,000 Ferrari. While it’s indeed awesome when it runs, it is persistently hard to start. After class, in the parking lot it, sure enough, won’t. Out of frustration, Mr. Martinez yells out “Whoever’ll give me $10 can have this son-of-a-Testarossa.” Hilary Clinton, who happened to have a little cash burning a hole in her pocket, immediately says “I accept! Here’s the ten bucks, now hand me the keys and your mechanic’s phone number.” Do we have an offer to contract? What would a reasonable observer think?

85 Elements of an Offer – Objective Intention to Contract Expressions of Opinion Ms. Williams, whose mechanical abilities are legendary, takes a look at Mr. Martinez’s temperamental Ferrari, and makes a few adjustments to the ravioliator for him. She says that it will probably make it start better for him in the future. However, it doesn’t work. Offer to contract?

86 Elements of an Offer – Objective Intention to Contract Statements of Future Intent Ms. Williams, seeking to capitalize on her mechanical abilities, announces that she’s thinking about opening her own garage (which will only work on Ferraris) and she tells Ms. Canales that she will need some first class talent to schmooze her uppity clientele. Ms. Canales, quits her lucrative position as Lindsey Lohan’s bail bondsman and tells Ms. Williams that she’s ready to start work for her in the new job. Did Ms. Williams make an offer that Ms. Canales could accept?

87 Elements of an Offer – Objective Intention to Contract Preliminary Negotiations If Ms. Krenek asks Mr. Martinez if “he’d consider” selling his Ferrari for $700,000 and he says “yes,” is there a contract formed? No, an invitation to negotiate is not an offer.

88 Elements of an Offer – Objective Intention to Contract Advertisements, Catalogs and Circulars The general rule is that an advertisement does not constitute an offer. The Restatement (Second) of Contracts explains that: Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public, but there must ordinarily be some language of commitment or some invitation to take action without further communication. The exception to the rule that advertisements do not create any power of acceptance in potential offerees is where the advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” in that circumstance, “it constitutes an offer, acceptance of which will complete the contract.”

89 Leonard v. Pepsico – The Commercial The commercial opens upon an idyllic, suburban morning, where the chirping of birds in sun-dappled trees welcomes a paperboy on his morning route. As the newspaper hits the stoop of a conventional two- story house, the tattoo of a military drum introduces the subtitle, “MONDAY 7:58 AM.” The stirring strains of a martial air mark the appearance of a well-coiffed teenager preparing to leave for school, dressed in a shirt emblazoned with the Pepsi logo, a red-white-and-blue ball. While the teenager confidently preens, the military drumroll again sounds as the subtitle “T-SHIRT 75 PEPSI POINTS” scrolls across the screen. Bursting from his room, the teenager strides down the hallway wearing a leather jacket. The drumroll sounds again, as the subtitle “LEATHER JACKET 1450 PEPSI POINTS” appears. The teenager opens the door of his house and, unfazed by the glare of the early morning sunshine, puts on a pair of sunglasses. The drumroll then accompanies the subtitle “SHADES 175 PEPSI POINTS.” A voiceover then intones, “Introducing the new Pepsi Stuff catalog,” as the camera focuses on the cover of the catalog.

90 The scene then shifts to three young boys sitting in front of a high school building. The boy in the middle is intent on his Pepsi Stuff Catalog, while the boys on either side are each drinking Pepsi. The three boys gaze in awe at an object rushing overhead, as the military march builds to a crescendo. The Harrier Jet is not yet visible, but the observer senses the presence of a mighty plane as the extreme winds generated by its flight create a paper maelstrom in a classroom devoted to an otherwise dull physics lesson. Finally, the Harrier Jet swings into view and lands by the side of the school building, next to a bicycle rack. Several students run for cover, and the velocity of the wind strips one hapless faculty member down to his underwear. While the faculty member is being deprived of his dignity, the voiceover announces: “Now the more Pepsi you drink, the more great stuff you're gonna get.”

91 The teenager opens the cockpit of the fighter and can be seen, helmetless, holding a Pepsi. “[L]ooking very pleased with himself,” the teenager exclaims, “Sure beats the bus,” and chortles. The military drumroll sounds a final time, as the following words appear: “HARRIER FIGHTER 7,000,000 PEPSI POINTS.” A few seconds later, the following appears in more stylized script: “Drink Pepsi-Get Stuff.” With that message, the music and the commercial end with a triumphant flourish.

92 Elements of an Offer – Objective Intention to Contract Auctions In an auction, a seller “offers” items for sale via an auctioneer. However, this is not an “offer” for purposes of contract formation. For contract formation purposes, an auction is considered an invitation to submit offers to buy. The bidder is the offeror; the offer is accepted only when the bid is struck off. At any time before that, the bid can be revoked or the auctioneer can reject any bid received.

93 Mr. Martinez puts up his Ferrari for sale at auction. Mr. Fastalker is the auctioneer. The price has quickly risen from an initial bid of $500 up to well over $500,000. Expecting that her bid will easily be surpassed, but being a friend and wanting to give Mr. Martinez a hand, Ms. Moody bids $600,000. Shortly after, Mr. Moya bids $625,000, a bid Mr. Fastalker takes. The momentum subsides, however, and while Mr. Fastalker is looking around the now silent room for other bids, Mr. Moya realizes that his wife will kill him if he came home in that thing, so he withdraws his bid. Mr. Fastalker looks at Ms. Moody and says “SOLD, for $500,000. Does Ms. Moody have a new car?

94 Elements of an Offer – Objective Intention to Contract Agreements to Agree Because the auction was such a disaster, Mr. Martinez and Mr. Parker enter into a valid written agreement for Mr. Parker to lease the car for one year. The lease provides that Mr. Parker has the option to renew the lease at the end of it’s term, for a lease payment to be mutually agreed to by he and Mr. Martinez at that time. Is Mr. Dunn’s option worth the paper it’s written on? NOPE – an agreement to agree won’t be enforced as a contract. The lease may be valid, but the option to renew is not enforceable.

95 Elements of an Offer – Definiteness An offer must have reasonably definite terms; if not, a court cannot determine if a breach has occurred nor can it give an appropriate remedy. The UCC relaxes the requirements for definiteness in some areas, calling for the court to supply certain missing or indefinite terms with “reasonable” terms. The UCC is intended to govern commercial relationships involving the sale of goods, often among merchants, and has as a primary purpose the facilitation of commerce

96 Elements of an Offer –Communication of Offer If we don’t tell the offeree how are we going to have a contract? One type of advertisement that is often held to be an offer is one offering a reward for, say the return of a lost pet. Suppose Mr. Black places an ad offering a $100 reward for his lost cat. Mr. White, not seeing the ad, but recognizing the cat as Mr. Black’s, finds it wandering around and returns it to Mr. Black. The offer has not been communicated to Mr. White. Is there a valid unilateral contract? Does he get the reward? No, there’s no contract…but Mr. White may still get the reward in some jurisdictions based on equity, but not on contract theory.

97 Termination of Offers A valid offer is made but not yet accepted; what can happen to the offer before acceptance, and prevent a contract from coming into existence? Termination by Act of the Parties  Revoked by Offeror (unless irrevocable)  Rejected by Offeree  Counteroffer by Offeree Terminated by operation of law  Lapse of time  Destruction of subject matter  Death or incompetence of a party  Supervening illegality of the object of the contract

98 Termination of Offers Revocation by Offeror Generally, offers are revocable as long as the revocation is communicated to the offeree before he or she accepts. If before accepting, offeree learns from another source information indicating the offer has been revoked, what happens? Generally revocation can be communicated in the same way the offer was communicated. Now that Mr. White had reunited Mr. Black with his cat, how might he communicate that the reward is no longer being offered?

99 Termination of Offers Irrevocable Offers – some offers can be made irrevocable If offeree has substantially changed position in reliance on an offer (for example, the guy who began sailing his boat from San Francisco) it may be held to be irrevocable. Option Contracts are irrevocable; offeror has received payment or consideration in exchange for giving up his right to revoke for a specified time.

100 Termination of Offers Rejection by Offeree If an offeree rejects an offer, it is terminated; the offeree cannot thereafter change his mind. Rejection is effective when received by the offeror. Merely inquiring about an offer doesn’t constitute a rejection Now that the lease on Mr. Martinez’s Ferrari is up, Kobe Bryant makes an offer of $600,000. Mr. Martinez asks, “is that the best you can do?” Is the offer rejected? What if he says “I was really looking for $650,000”? How about “I’ll take $650,000”?

101 Termination of Offers Counteroffer Now, Mr. Martinez has made a counteroffer. A counteroffer is a rejection of the first offer and a new offer by the former offerree. If Kobe Bryant says no, Mr. Martinez cannot then take him up on his first offer…that offer was terminated by the counteroffer. Common law employs “mirror image” rule: if the acceptance doesn’t match the offer exactly, it’s a counteroffer, and the original offer is terminated.

102 Termination by Operation of Law Termination by Lapse of Time An offer may specify that it expires after a given period of time. If a number of days is specified, but the specific starting date is not, it will normally be held to start on the day the offer is received, and terminate at midnight on the expiration date. If not specified, then an offer will expire after a “reasonable” time.

103 Termination by Operation of Law Other ways offers can be terminated: Destruction of Subject Matter – A offers to sell B a cow; before B accepts, cow struck by lightning Death or Incompetence of Party. Unless irrevocable, an offer terminates if the offeror or offeree dies or becomes incompetent. Supervening Illegality. A bank offers to loan A money at 17% interest. Before A accepts, the legislature passes a law limiting interest rates to 10%. The law terminates the offer.

104 Acceptance A voluntary act by the offeree that shows assent to the terms of the offer. Must be unequivocal Must be communicated to the Offeror

105 Acceptance  Mr. Martinez offers to sell his Ferrari to Kobe Bryant for $600,000. If Kobe Bryant doesn’t respond right away, can Ms. Williams accept the offer?  No…Only an offeree – the person or one of the persons to whom the offer was intended to be made – may accept (their agents may also accept)

106 Acceptance  Kobe Bryant is considering Mr. Martinez’s offer to sell the Ferrari. He decides to accept, but wants Mr. Martinez to put a trailer hitch on it so he can pull his cutting horse trailer behind it. Has he accepted?  No…this is the other half of the “mirror-image” rule we talked about earlier. By adding terms, Kobe Bryant has made a counteroffer. If Mr. Martinez refuses to add the trailer hitch, can Kobe Bryant back-up and say, “well, OK I’ll take it without the trailer hitch”?

107 Acceptance  Let’s say that Mr. Martinez transmits his offer to sell the Ferrari to Kobe Bryant and the offer says “unless I hear from you within 10 days, I’ll assume that you have accepted my offer.” Kobe Bryant remains silent. We got a deal?  No – generally, silence cannot be an acceptance. However, in what circumstances might silence operate as an acceptance?  (1) where the parties have an established course of dealing between them, there can be a duty to speak, and (2) where the circumstances are such that silence can create an implied-in-fact contract

108 Acceptance Communication of Acceptance  In a unilateral contract, acceptance is communicated by performance  In a bilateral contract, it has to be communicated separately from performance (unless the offer itself dispenses with the requirement of communication of the acceptance).  If the offer specifies how acceptance is to be made, then that’s how it has to be accepted

109 Acceptance Communication of Acceptance  George Bush sends a letter to Mr. Martinez offering $700,000 for his Ferrari, but stating that his offer expires on October 15. Mr. Martinez writes a letter back, saying “I accept your offer.” He puts it in the mail on October 12 (properly addressed and with proper postage). It doesn’t arrive until the 17 th. Meanwhile, George Bush has heard about the starting problem, and has found a nice cherry Yugo that he’d rather spend his money on. Has George Bush bought the Ferrari?  Yup…’fraid so. This is the “mailbox rule.” What if Mr. Martinez used the wrong address or didn’t use enough postage on his letter? Different result?

110 Acceptance Communication of Acceptance Mailbox Rule: Revocation of an Offer is effective when actually received; but acceptance of an offer is effective when placed in the mail (assuming it’s properly addressed and posted). WHY? It’s to prevent confusion that can occur when revocations and acceptances cross each other in the mail – If the revocation were effective when mailed, then the offeree could accept it without knowing it had been revoked. It’s a rule that is designed to facilitate the formation of contracts.

111 Acceptance Communication of Acceptance  Authorized means of communication of acceptance – Can be expressly stated or implied by the facts or implied by law  If the offeror chooses one means (say mail) to transmit the offer, then the offeree may accept in the same way or by a faster means.  When the parties are at a distance, mailing is impliedly authorized.  Exceptions: (1) If not properly addressed or posted or (2) if the offer explicitly says it won’t be effective until received.

112 Acceptance Communication of Acceptance So what happens if an offeree screws up the mailbox rule – for instance, he sends a rejection first, but then transmits an acceptance? Here, the law cancels the rule that says the acceptance is valid on deposit in the mail, and whichever is first received by the offeror is effective.


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