1. CHAPTERCHAPTER McGraw-Hill/Irwin©2008 The McGraw-Hill Companies, All Rights Reserved Offer ONEONE

2. 1-2 Objectives Chapter Objectives: –Use vocabulary regarding offers properly –Identify the offer as either unilateral or bilateral –Discuss whether all necessary terms are certain in order to be considered a valid offer –Determine whether the offer has been effectively communicated to the intended offeree –Determine the method of creation of the offer –Evaluate when an offer can be or has been terminated –Identify irrevocable offers

3. 1-3 Offer This chapter will explore: Type - unilateral versus bilateral Who – the parties involved What – the subject matter of the offer When – are there time limits? How – methods of creation and termination

4. 1-4 Definitions Offer – A promise made by the offeror to do (or not to do) something provided that the offeree, by accepting, promises or does something in exchange Offeror – The person making the offer to another party Offeree – The person to whom the offer is made

5. 1-5 Mutual Assent Mutuality of Contract –A mutual agreement to be bound by the terms of the offer –A party must reasonably intend to make the offer binding

6. 1-6 Mutual Assent Objectively Reasonable –The standard of behavior that the majority of persons would agree with or how most persons in a community generally act

7. 1-7 Mutual Assent Bilateral Contracts are a contract in which the parties exchange a promise for a promise Unilateral Contracts are in which the parties exchange a promise for a act

8. 1-8 Breach of Contract A breach of contract is a violation of an obligation under a bilateral contract for which a party may pursue legal remedies

9. 1-9 Certainty of Terms Rule of Thumb: The more certain the terms, the more likely it is to be a valid offer

10. 1-10 Certainty of Terms Four elements that must be certain: 1.Parties (who) –The persons involved in making the agreement

11. 1-11 Certainty of Terms Four elements that must be certain: 2.Price (how much) –Monetary value ascribed by the parties to the exchange involved in the contract –Must be specified in the offer to have a “meeting of the minds” and be legally binding

12. 1-12 Certainty of Terms Four elements that must be certain: 3.Subject Matter (what) −The bargained-for exchange that forms the basis for the contract −Quality, quantity and content must be reasonably specified to ascertain what is

13. 1-13 Certainty of Terms Four elements that must be certain: 4.Time for Performance (when) –Determines when the parties must fulfill their obligations made in the contract –Time is of the Essence clause Used when the performance of the contract must occur on or before the specified date

14. 1-14 Certainty of Terms The creation of a contract is entirely up to the parties; within the limit of contract law, a court cannot create a meeting of the minds on the terms. If the terms are uncertain, there is no contract because there is no valid offer.

15. 1-15 Communication to Offeree To have Mutual Assent: –The offeree must have knowledge of the offer –The communication must include all the certain terms –The parties must understand how to accept the offer (bilateral or unilateral contract)

16. 1-16 Express Contract has been expressed in words, either written or oral Implied Contract is created by actions of the parties – the action of the parties indicate the existence of the contract Method of Creation CONTRACT

17. 1-17 Termination of the Contract There are several methods to terminate a contract: 1.Lapse of time 2.Revocation of the offer by offeror 3.Rejection/counteroffer by the offerer 4.Incapacity or death of either party 5.Destruction or loss of the subject matter 6.Supervening illegality

18. 1-18 Revocation can be either a direct statement by the offeror being unwilling to enter into the contract or indirect communication by performing acts known to the offeree that are inconsistent with the offer Termination of the Contract

19. 1-19 Irrevocable Offers Irrevocable offers cannot be terminated by the offeror during a certain time period

20. 1-20 Option Contracts: –Offeror agrees to keep offer open for specified time period during which there is no power to revoke the offer –Supported by separate consideration Irrevocable Offers

21. 1-21 Firm Offers: –Governed by Uniform Commercial Code –An express promise that an offer will not be revoked for a certain time period –Not supported by separate consideration Irrevocable Offers

22. 1-22 Summary The offer, created between the offeror and the offeree may be bilateral or unilateral Offer may be created by express words, or implied by action of the parties

23. 1-23 Summary The offer must be certain in its terms. The offeree must know what he is agreeing to: –Parties –Price –Subject –Time for performance

24. 1-24 Summary The offer may be terminated in a number of ways 1.Lapse of time 2.Revocation of the offer by offeror 3.Rejection/counteroffer by the offerer 4.Incapacity or death of either party 5.Destruction or loss of the subject matter 6.Supervening illegality