CHAPTER 6: OFFER AND ACCEPTANCE

CHAPTER 6: OFFER AND ACCEPTANCE
Chapter 6 explains how contractual offers are created and ended, and how acceptances are created. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Hot Debate (Page 98—previous edition) Celia had worked after school since she was to save money for a car. When she turned se 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 three hundred dollars from her purse and handed it o Celia stating, “I accept. Here’s your money.” January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Hot Debate (Page 98—previous edition)… Should Celia be bound because the literal meaning of her words suggests she intended to sell the car? Some would say that Celia should be bound by the literal meaning of her words because literal meaning is the only meaning that most people can agree upon; therefore it should be what we look to in deciding whether someone creates a legal obligation. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Hot Debate (Page 98—previous edition)… 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? Yes. Celia should NOT be bound because the literal meaning of sentences is often quite different from what someone obviously intended their words to mean. So words alone, especially those spoken in anger, obvious jest, or frenzied terror, should not be the basis for creating legal obligations. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What’s Your Verdict? (Page 107)… Juan and Susan were talking one day after school. Juan would turn 16 on the upcoming July 13 and wanted to buy Susan’s car. Susan, 17, had been working and saving her money to buy a new car. Selling her old car for 42,800 would give her enough to do so. She offered it to Juan for that amount, and he accepted. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What’s Your Verdict? (Page 107)… Did the two friends create a legally binding contract? If the minimum age to contract (the age of majority) is 18 as it is in almost every state, the courts would not enforce Juan and Susan’s contract if either one later did not want to be bound by it. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Age of majority in the United States Age of majority is a legal definition that means that a person is legally an adult, and responsible for the majority of his or her actions. Arkansas 18 or graduation from high school, whichever is later Mississippi 21 Nebraska 19 Ohio 18 or graduation from high school, whichever comes first Tennessee Utah 18 or graduation from high school, whichever is earlier Virginia 18 or graduation from high school, whichever is latest Wisconsin 18, or if still in high school at 18, 19 or graduation, whichever comes sooner January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Age of majority in the United States If a judge declares a minor emancipated, he or she usually receives majority at the same time. Many areas also give majority to minors who marry or who join the armed forces. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Hot Debate (Page 106)… Trenton and Elisa were students in a class on movie production. Knowing that the final movie in the Alien Cheerleader trilogy was about to come out, Trenton camped out overnight at the theater. He bought two tickets, and then asked Elisa to go with him. Elisa agreed. To be able to go, however, she had to call in sick to her evening job as a waitress. Not working that evening would cost her more than $100 in wages and tips. Nonetheless, she made the call. When Trenton did not show up to get her, she confronted him. He admitted he had sold the tickets to someone else for $50 each. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Hot Debate (Page 106)… Should Elisa be allowed to sue Trenton for not taking her to the movie? Almost every state would not allow such a suit. Social invitations do not produce enforceable contracts. Would your answer change depending upon whether or not Trenton knew Elisa would lose income by going? In most states this would make no difference. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract? A contract is an agreement that courts will enforce; They are the basis for all economic activity. There are 6 major requirements that must be satisfied before courts will treat transactions as contracts: Offer and Acceptance Genuine Assent Legality Consideration Capacity Writing January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 1. Offer and Acceptance There must be a serious, definite offer to contract. The terms of the offer must be accepted by the party to whom it was communicated. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 2. Genuine Assent The agreement (offer and acceptance) must not be based on one party’s deceiving another, on an important mistake, or on the use of unfair pressure exerted to obtain the offer or acceptance. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 3. Legality What the parties agree to must be legal. An agreement to pay someone to commit a crime or tort cannot be a contract. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 4. Consideration The agreement must involve both sides receiving something of legal value as a result of the transaction. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 5. Capacity To have an enforceable agreement, the parties must be able to contract for themselves rather than being obligated to use parents or legal representatives. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

What Is A Contract?... 6. Writing— Some agreements must be placed in writing to be fully enforceable in court: Contracts to pay the debts of others Contracts in which executors and administrators of estates agree to pay the debts of deceased persons Contracts requiring more than a year to perform Contracts in consideration of marriage Contracts for the sale of goods valued Contracts to sell an interest in real property January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Let’s look at What’s Your Verdict? (Page 99—previous ed.): Pedro and Sean 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!” Sean answered. “Bring it to school tomorrow, okay?” Did the two friends create a contract? Yes. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Let’s look at What’s Your Verdict? (Page 99—previous ed.):… Why? Pedro and Sean made a contract, even though payment and delivery will occur later. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

An offer is a proposal by an offeror to do something provided the offeree does something in return. Three things are necessary for a valid offer: 1. The offer must appear to intend to create a legal obligation (contractual intent). 2. The terms must be complete and definite. 3. The offer must be communicated to the offeree. 26 January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Contractual Intent How should we express Intent to Create a Legal Obligation (Contractual Intent)? Under the law, the offeror must appear serious. Consider the following factors... a. Test of the Reasonable Person b. Facts and Circumstances c. Preliminary Negotiations d. Social Agreements January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Contractual Intent a. Test of the Reasonable Person The law is not concerned with what is actually in the mind of a person making an offer. The following objective test is used: If you are joking, but a reasonable person would interpret your conduct as indicating that you intend to contract, you have made an offer. Also, if you are serious, but a reasonable person would not think so, there is NO offer. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Contractual Intent b. Facts and Circumstances Words themselves DO NOT constitute an offer if a reasonable person would disregard them due to the facts and circumstances (Consider jests and statements made in anger or terror). Example: Words spoken in obvious jest, frenzied terror, or anger might serve to negate an offer. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Contractual Intent c. Preliminary Negotiations Information can be communicated without an intent to contract. Example: “Would you take $800 for that laptop computer?” “I’ll give you $4,800 today for your laptop computer. Do you agree to my deal?” Which one is a real offer? January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Contractual Intent d. Social Agreements Social agreements do not create legal obligations. Example: If two friends go to the movies, no contract is intended. If either breaks the date, no one can win a suit for breach of contract. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Complete and Definite The terms of an offer must be sufficiently complete and definite to allow a court to determine what the parties intended. Complete: Nearly all offers must identify (at a minimum) a price, subject matter, and quantity. Definite: each essential element must be identified clearly. : In real estate, a legal description of a parcel of land is required. It is not enough to say, “Lot A.” 20 January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Complete and Definite What does a legal Description of a parcel of land look like? A PARCEL OF LAND LOCATED IN THE STATE OF CA, COUNTY OF ORANGE, WITH A SITUS ADDRESS OF BALLARD DR, GARDEN GROVE CA C033 CURRENTLY OWNED BY LAMBIASO GUY & LAMBIASO LINDA HAVING A TAX ASSESSOR NUMBER OF AND BEING THE SAME PROPERTY MORE FULLY DESCRIBED AS N TR 2000 LOT 73 AND DESCRIBED IN DOCUMENT NUMBER DATED 06/17/1998 AND RECORDED 07/06/1998. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Complete and Definite What About Advertisements? Advertisements in newspapers and magazines, on radio or television, or in direct mailings are generally not offers. Why? They are considered to be invitations to the customer to make an offer. The advertiser has a limited stock and cannot be expected to sell to the thousands who might see the ad. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Complete and Definite What’s Your Verdict? (Page 108) 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 $35,500 each. The dealer had five cruisers in stock, and they all were sold in one hour. During the rest of the day, seven other would-be buyers came in to purchase a bargain cruiser. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Complete and Definite What’s Your Verdict? (Page 108) Did the Anchors Aweigh advertisement make offers to the seven would-be buyers? No. When the would-be buyers presented for acceptance the money for the cabin cruiser, they were the ones making the offer. Anchors Aweigh was not bound by contract to the seven would-be buyers who came after the boats were out of stock. The ad was merely an invitation to make an offer. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Communicated to the Offeree A Question of Ethics (Page 110) Sarah was talking with four friends at the entrance to their community college. When a bell called them to class, she absent-mindedly left her backpack behind. It contained a pocket calculator, her driver’s license, and other items of value only to her. After class, she posted an ad on a student bulletin board, offering $25 to whoever returned her pack. Major, another student, had not seen the advertisement but he found the bag and returned it to Sarah. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

Offer… Must Be Communicated to the Offeree A Question of Ethics (Page 110) Is Major legally entitled to the reward? Legally, Sarah is not required to pay the reward to major as her unilateral offer was not conveyed to him. A person who is not the intended offeree cannot accept. Is Sarah ethically obliged to give him the reward? Ethically, it is a question of what behavior Sarah sought to induce by her reward offer. If she wanted people to search for the backpack, then she does not owe him the reward. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Once made, an offer does not last forever. Revocation by the Offeror Time Stated in the Offer Reasonable Length of Time Rejection by the Offeree Counteroffer Death or Insanity of Either the Offeror or Offeree January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Revocation by the Offeror The Offeror can generally revoke the offer at any time BEFORE acceptance. What’s Your Verdict? (Page 103—previous edition) Melissa offered her collection of baseball cards for sale for $3,000 to her friend and fellow collector, Raoul. Raoul asked if he could think it over and Melissa agreed. While Raoul was trying to raise the money, Melissa had second thoughts. So she called Raoul and said, “I’ve changed my mind, I’m not interested in selling the cards.” Raoul responded, “It’s too late, you promised to sell them to me, and I’ve got the money so I accept.” Was Melissa’s offer terminated before Raoul tried to accept? January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Time Stated in the Offer In making the offer, the offeror may state how and when the offer must be accepted. Example: (Page 103—previous edition) On October 10, the Mercantile Bank sent a letter to Boggs, who had applied for a loan. In the letter, Mercantile offered to lend $50,000 on specified terms and stated that the acceptance had to be received NLT October 18. Boggs mailed an acceptance on October 17, but the letter did not arrive until October 20. Mercantile did not receive Bogg’s reply by the time specified. Was there a contract? January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Reasonable Length of Time When nothing is said in the offer about the length of its life, it is alive for a reasonable length of time. This is determined by the surrounding circumstances. Offers to sell perishables would terminate sooner than offers to sell durable equipment. Advice: specify the time available for acceptance. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Rejection by the Offeree When an offeree clearly rejects the offer, the offer is terminated. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? Counteroffer An offeree accepting an offer must accept it exactly as the offer is made. If the offeree changes the offeror’s terms, this is a counteroffer. In making a counteroffer, one terminates the original offer. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can Offers Be Ended? 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. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can An Offer Be Kept Open? In general an offeror is not obliged to keep an offer open for a specified amount of time, even when the offeror has promised to do so. Why? The offeree has to give something in exchange for the promise. Here are two examples: Options Firm Offers January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can An Offer Be Kept Open?. Options If the offeree gives the offeror something of value in return for a promise to keep an offer open, this agreement is a binding contract called an option. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Can An Offer Be Kept Open? Firm Offers A special rule applies to merchants (those who regularly deal in the goods bought or sold). An offer by a merchant stating in a signed writing how long the offer is to stay open is called a firm offer. The Uniform Commercial Code (UCC) makes firm offers binding for the time stated (but not more than 3 months). January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance occurs when the party to whom an offer has been made agrees to the proposal. To create an enforceable contract, the acceptance must: Be made by the person(s) to whom the offer was made Match the terms in the offer Be communicated to the offeror January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Let’s Look at three areas… Who Can Accept? Acceptance Must Match the Offer Acceptance Must Be Communicated to the Offeror January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Who Can Accept? Again, an offer made to one person cannot be accepted by another. Sometimes an offer is made to a particular group or to the public, and not to an individual. Any member of the public who knows of the offer may accept (e.g., rewards). January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Match the Offer To complete the agreement, the offeree must comply with terms specified in the offer. Mirror Image Rule: the terms of acceptance must match the offer exactly, or you have a counteroffer. Goods: If the offeror requires that acceptance must exactly match the terms of the offer, then any variation is a counteroffer. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be Communicated to the Offeror Acceptance must be more than a mental decision. Silence as Acceptance: this can be valid in a continuing relationship (e.g., monthly book club) Unilateral Acceptance: Here the offeror requires that the offeree accept by performing obligations under the contract. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be Communicated to the Offeror… Bilateral Acceptance: Most offers are bilateral—it can be accepted by a promise, which promise must be communicated to the offeror (can be implied by conduct or words—tricky!!!) Example: A seller promises to deliver a load of topsoil in exchange for a homeowner’s promise to pay $65. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be Communicated to the Offeror… When Acceptance is Effective: Contractual communications such as offers, acceptances, rejections, revocations, and counteroffers may be communicated: orally, in person, by telephone, or in writing (mail, delivery service, , fax). All forms of contractual communications are effective only when received, EXCEPT for acceptance. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be communicated to the Offeror… When Acceptance is Effective:… Acceptance is effective when sent by the same means used by the offer (unless otherwise specified). January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be communicated to the Offeror… When Acceptance is Effective:… Oral acceptances are effective at the moment the words are spoken to the offeror. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be communicated to the Offeror… When Acceptance is Effective:… Acceptances sent by mail are effective “when properly posted” under the control of the U.S. Post Office (postmark date). January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be communicated to the Offeror… When Acceptance is Effective:… Acceptances sent by telegram are effective when handed to the clerk. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

How Are Acceptances Created? Acceptance Must Be communicated to the Offeror… When Acceptance is Effective:… Acceptances sent by fax are effective instantly. January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

The End! January 9, 2006 BUSINESS LAW (Ms. Hawkins) BUSINESS LAW (Ms. Hawkins)

CHAPTER 6: OFFER AND ACCEPTANCE

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