Offer and Acceptance
Chapter 6
Because of its limited resources the
court system is very selective in what it
will enforce.
• Criminal laws and laws allowing recover for
certain private injuries (torts) are highest on
the priority list.
• The courts are more selective when it comes to
contracts.
Contracts
• A contract is an agreement between two parties
that creates an obligation.
• For contracts to be enforceable six conditions
need to be met before the courts will treat a
transaction as a legally enforceable contract.
Conditions of contracts
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Offer and acceptance
Genuine Assent
Legality
Consideration
Capacity
Writing
Offer and Acceptance
• There must be an apparently serious offer to
contract.
– Offeror – this is the person who is making the
offer.
– Offeree – the person
• The terms of the offer must be definite and
accepted without change by the party to whom
it was intended to be offered.
Genuine Assent
• The agreement (offer and acceptance) must not
be bases on one party’s:
– Deceiving another.
– An important mistake.
– The use of unfair pressure exerted to obtain the
offer or acceptance.
Legality
• What both parties agree to must be legal.
Consideration
• The agreement must involve both sides
receiving something of legal value as a result o
the transaction.
Capacity
• The parties must be able to contract for
themselves rather than being forced to use
parents or legal representatives.
Writing
• Some agreements must be placed in writing to
be enforceable.
Contractual Intent Must be Present
• Often although the words themselves may
indicate an offer, a reasonable person would
disregard them because of the facts or
circumstances under which they were spoken.
Jests
• The law is concerned with the appearance of
an action.
• If a contract offer would appears to a
reasonable person to be made as a joke then it
is not enforceable.
Statement Made in Anger or Terror
• If an offer is made in a moment of terror or
anger it is not enforceable.
Preliminary Negotiations
• Most offers start with merely an invitation to
initiate bargaining.
• Examples of invitation to initiate barging include:
– Price tags on sale merchandise in stores.
– Advertisements may be on offer however they are an
invitation to negotiate if:
• The advertisement clearly indicates that stock is limited.
• An advertisement may become an offer if it asks
the offeree to perform an act as a way of
acceptance.
– For example: if it states for the first customer.
Social Agreements
• Social agreements are not binding contracts for
no contract is intended.
The Offer Must be Communicated to
the Offeree
• A person who is not the intended offeree
cannot accept the offer.
• A person who has not been notified about an
offer cannot accept the offer.
Essential Terms 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 and
identify the parties’ legal rights and duties.
Complete
• Nearly all offers must at a minimum:
– Identify the price (compensation)
– Subject manner
– Quantity
• Some offers require even more information to
be legally effective.
– Example: The sale of real estate.
Definite
• Each essential term must be identified clearly.
• In cases where price is not specified, current
market price is used for a basis for the
contract.
Revocation by the Offeror
• After an offer has been made, the offeror can
generally revoke it anytime before it is
accepted by the offeree.
• Revocation - the right to withdraw an offer
before it is accepted.
• This is true even if the offeror promised that
the offer would remain open for a particular
period of time.
Time Stated in the Offer
• In making an offer the offeror must state how
and when the offer must be accepted.
• To avoid misunderstanding the time available
for acceptance should be specified at the
outset.
Rejection by the Offeree
• When an offeree clearly rejects the offer, the
offer is terminated, unless renewed by the
original offeror.
• An offer is terminated by an offeree’s rejection
even if a time limit is set by the offer has not
expired.
Counteroffer
• Generally an offeree accepting an offer must
accept the offer exactly as it was made.
• Counteroffer – When an offeree changes the
offeror’s terms in important ways and sends it
back to the offeror.
• The counteroffer becomes a new offer.
Death or Insanity of Either the Offeror
of Offeree.
• Contracts are agreements voluntarily entered
into by the parties and subject to their control.
• Death or insanity eliminates such control.
Destruction of Specific Subject Matter.
• If the offer refers to unique subject matter, and
the subject matter is subsequently destroyed
then the offer is terminated.
Ways an Offer Can be Kept Open
• Since an offeror is not legally obligated to
keep an offer open for a specified time even if
the offeror has promised to do so; this may
cause the offeree not to pursue the offer or to
act without proper consideration to close the
deal.
• There are ways to insure that the offer is kept
open.
Option
• Option – a separate contract arising when the
offeree gives the offeror something of value in
return for a promise to leave an offer open.
Firm Offers
• Firm offer – when written offer contains a term
stating how long it is to remain open.
• The Uniform Commercial Code (UCC) makes
firm offers binding for the time stated but not
more than three months.
– This is true even when nothing is paid to the
offeror.
The Acceptance Must Match the Offer.
• The Mirror Image Rule – requires that acceptance
must exactly match the terms contained in the
offer.
– If the attempted acceptance is not identical to the offer
it is a counteroffer.
• Under the UCC, absent such a requirement for
identity in the offer, an attempted acceptance of
an offer for a contract for a sale of goods can be
valid even if it does include new or conflicting
terms.
Contracts on the Terms Where the
Offer and Acceptance Agree.
• In a counteroffer the new or modified terms are
treated as follows:
– If a party is a consumer not a merchant, then the new
or changes terms are mere proposals and not part of
the contract unless agreed to by the original offeror.
– If both parties are merchants, the new or changes terms
are not a part of the contract if the original offeror
objects, or in the absence of an objection if the terms
are material.
– If the parties are merchants, the new or changed terms
are part of the contract if the original offeror is silent
and the terms are minor (not material).
Acceptance Must be Communicated to
the Offeror
• For a contact to be in effect the acceptance by
the offeree must be communicated to the
offeror.
Silence as Acceptance
• Silence is not considered a form of acceptance.
• An offeror’s attempt to work a contract so that
silence is viewed as acceptance will not work.
Bilaterial Acceptance
• Most offers are bilaterial meaning that the
offer implies that it can be accepted by giving
a promise instead of performing the contracted
for act.
• The promise can be implied by the offeree’s
actions as well as words.
Unilaterial Contracts
• Unilaterial contract – when acceptance of the
contract requires the offeree to indicate
acceptance by performing his or her
obligations under the contract.
• The offeror in a unilaterial contract promises
something in return for the offeree’s
performance and indicates this performance is
the way acceptance is to be made.
Time of Acceptance
• When communication takes time to reach the
offeror, for example when sent through the
mail, can become very important.
• All forms of contractual communication but
one, that one being acceptance, take place only
when they are received.
• However, acceptance is effective from the time
it is sent.
Way of Sending Acceptance
• Often the offeror may require the offeree to
send the acceptance a certain way.
• If the offeree uses a different method then it is
a treaded as a modification to the offer.