Presentation on theme: "Objective: Understand what must be in a contract. Know how an offer can be terminated."— Presentation transcript:
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. Examples Athletes/Celebrities Buying fast food Filling your car with gas Public Transportation Employment Buying a House Leasing an Apartment
Major Requirements of a Contract: Offer and Acceptance Genuine Assent Legality Consideration Capacity Writing
1. Offer and Acceptance Offeror: the person who makes the offer. Ex) Phillies Organization Offeree: the person to whom it is made. Ex) Cliff Lee Offer: A proposal by the offeror to do something, provided the offeree does or reframes from doing something in return.
Three tests an offer must pass to be legally enforceable: Contractual intent must be present in the offer. The offer must be communicated to the offeree. The essential terms of the offer must be complete and defined.
2. Genuine Assent Valid offer is met by a valid acceptance The agreement must not be based on: Fraud Misrepresentation Mistake Undue Influence Economic 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 transaction Cash, 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 themselves Minimum age to form a contract is 18 Exception – an incapacitated child Mentally ill Drugged or drunk individuals
6. Writing Some agreements must be placed in writing to be fully enforceable in court Provides proof that the agreement was made Assures that both parties know the exact terms Ex) 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 negotiate Newspapers Magazines Catalogs 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 Complete Identify the price Subject matter Quantity Definite Each essential term must be identified clearly. Ex) Landlord agrees to pay “a share” of the cost if the tenant fixes the plumbing.
On May 15 th, 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 20 th, 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 Time Depends 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 Matter Offer 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 merchant Does 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 offer 3. Be communicated
Acceptance Only 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 Acceptance No 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?
Acceptance Modes of Contractual Communication Offers, acceptances, rejections, revocations, and counter-offers When Acceptances are Effective Oral acceptance, text, email, fax Ex) stock-exchange floor
Book Work P113 #1-4, 6-8 P117 #1-10, 13,14 P121 #1-5, 7