1. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. Twomey & Jennings BUSINESS LAW Chapter 13 Formation of Contracts: Offer and Acceptance Chapter 13 Formation of Contracts: Offer and Acceptance

2. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 2 Requirements for Contract Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted. If either element is missing, there is no contract. Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted. If either element is missing, there is no contract.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 3 Requirements of an Offer The offer must have contractual intent. –This intent is lacking if the statement is merely an invitation to negotiate, a statement of intention, or an agreement to agree at a later date. –Newspaper ads, price quotations, and catalog prices are ordinarily invitations to negotiate. The offer must have contractual intent. –This intent is lacking if the statement is merely an invitation to negotiate, a statement of intention, or an agreement to agree at a later date. –Newspaper ads, price quotations, and catalog prices are ordinarily invitations to negotiate.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 4 Requirements of an Offer An offer must be definite, with terms that are clear and spelled out. McCarthy v Tobin (1999) Does an Offer to Purchase Control the Legal Document? –Exceptions: good faith performance. Offer must be communicated to Offeree. –Exceptions: good faith performance. Offer must be communicated to Offeree.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 5 Termination of Offer An offer is also terminated by: –the express rejection of the offer or by the making of a counteroffer. –the lapse of the time stated in the offer or of a reasonable time when none is stated. –the death or disability of either party. –a change of law that makes illegal a contract based on the particular offer. An offer is also terminated by: –the express rejection of the offer or by the making of a counteroffer. –the lapse of the time stated in the offer or of a reasonable time when none is stated. –the death or disability of either party. –a change of law that makes illegal a contract based on the particular offer.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 6 Termination of Offer The ordinary offer may be revoked at any time by the offeror. All that is required is the showing of intent to revoke and the communication of that intent to the offeree. By definition, an attempted acceptance made after the offer has been terminated has no effect. The ordinary offer may be revoked at any time by the offeror. All that is required is the showing of intent to revoke and the communication of that intent to the offeree. By definition, an attempted acceptance made after the offer has been terminated has no effect.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 7 Termination of an Offer By Offeree Rejection Counteroffer Death or Incapacity By Offeror Revocation Prior to Acceptance* Death or Incapacity Time Limitations Placed in the Offer *Options and firm offers excepted

8. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 8 Acceptance of an Offer When the offer is accepted, a contract arises. Only the offeree can accept an offer, and the acceptance must be of the offer exactly as made without any qualification or change. The acceptance is any manifestation of intent to agree to the terms of the offer. Ordinarily, silence or failure to act does not constitute acceptance. When the offer is accepted, a contract arises. Only the offeree can accept an offer, and the acceptance must be of the offer exactly as made without any qualification or change. The acceptance is any manifestation of intent to agree to the terms of the offer. Ordinarily, silence or failure to act does not constitute acceptance.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 9 Acceptance of Offer Offeror makes an offer Offeree accepts offer unconditionally Offeree changes or adds terms Offeree rejects offer Contract Arises Counteroffer No contract exists Original offeror accepts counteroffer unconditionally Original offeror changes or adds terms Original offeror rejects counteroffer Counteroffer

10. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 10 Acceptance of an Offer An acceptance does not exist until the words or conduct demonstrating assent to the offer is communicated to the offeror. Mailbox Rule: Acceptance by mail takes effect at the time and place when and where the letter is mailed or the fax is transmitted. RULE: Acceptance upon dispatch, revocation upon receipt.  An acceptance does not exist until the words or conduct demonstrating assent to the offer is communicated to the offeror. Mailbox Rule: Acceptance by mail takes effect at the time and place when and where the letter is mailed or the fax is transmitted. RULE: Acceptance upon dispatch, revocation upon receipt. 

11. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 11 Mailbox Rule: Is there a Contract? FACTS: September 1, 1997Seller mails an offer to Buyer September 2, 1997Buyer receives offer Buyer mails acceptance September 3, 1997Seller calls to revoke offer Buyer says he has already accepted September 4, 1997The acceptance arrives Is there a contract? Yes, in both cases. Proper acceptance is effective when sent, even if never received. Assume the same scenario as above, but the buyer’s acceptance never arrives. Assuming the buyer has adequate proof of mailing the acceptance, is there a contract?

12. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 12 Acceptance of an Offer What method of acceptance is reasonable? Cantu v Central Education Agency (1994) Was the Acceptance by Mail Reasonable? Telephone and Electronic Acceptance. –Telephone: acceptance upon phone call. –Email? Upon dispatch of email (send). Telephone and Electronic Acceptance. –Telephone: acceptance upon phone call. –Email? Upon dispatch of email (send).

13. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 13 AuctionsAuctions In an auction sale, asking for bids is an invitation to negotiate. A person making a bid is making an offer, and the acceptance of the highest bid by the auctioneer is an acceptance of that offer and gives rise to a contract. When the auction sale is without reserve, the auctioneer must accept the highest bid. In an auction sale, asking for bids is an invitation to negotiate. A person making a bid is making an offer, and the acceptance of the highest bid by the auctioneer is an acceptance of that offer and gives rise to a contract. When the auction sale is without reserve, the auctioneer must accept the highest bid.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 14 Review: Is A Contract Formed? Offer Yes Acceptance Offer Acceptance No Yes Counteroffer Offer, No Contractual Intent No AcceptanceOffer Not Definite No AcceptanceOffer No No Acceptance Invitation to Negotiate No AcceptanceTerminated Offer No Post-termination Acceptance