Contract Law Offer and Acceptance Ms. Murray Ms. Murray

Contract vs. Agreement Contracts are legally enforceable. Contracts are legally enforceable. Social agreements are not enforceable by law. Social agreements are not enforceable by law. Does there have to be specific language for a contract to be valid? Does there have to be specific language for a contract to be valid? NO... NO...

Contracts A contract is a legally binding document between two or more parties. A contract is a legally binding document between two or more parties. Offeror is the one who makes the offer. Offeror is the one who makes the offer. Offeree is the one who the offer is made to. Offeree is the one who the offer is made to. It must be serious, accepted with mutually satisfactory terms. It must be serious, accepted with mutually satisfactory terms. Often result from the exchange of valuable promises Often result from the exchange of valuable promises

Contracts To be valid, a contract must: To be valid, a contract must: Have offer and acceptance Have offer and acceptance Give genuine assent (no deceptions, etc.) Give genuine assent (no deceptions, etc.) Legality Legality Consideration (both sides get something of legal value) Consideration (both sides get something of legal value) Capacity Capacity Writing – some agreements must be in writing Writing – some agreements must be in writing

Reasonable Person Test The law is not concerned with what is actually in the mind of the person making a purported offer. The law is not concerned with what is actually in the mind of the person making a purported offer. It is concerned with the appearance of this person. It is concerned with the appearance of this person. If a reasonable person would interpret your actions as indicating you were serious, you will be obligated to follow though and vice versa. If a reasonable person would interpret your actions as indicating you were serious, you will be obligated to follow though and vice versa. Legal standard used by judge and jury Legal standard used by judge and jury

Reasonable Person Test Example A man is not really interested in buying his neighbor’s boat (subjective intent). (Would you like to sell your boat?) A man is not really interested in buying his neighbor’s boat (subjective intent). (Would you like to sell your boat?) However, he tries to find out what price the neighbor wants by saying, “I’ll give you $2,000 for your fishing boat.” (objective intent – what a reasonable person would interpret this as an offer). However, he tries to find out what price the neighbor wants by saying, “I’ll give you $2,000 for your fishing boat.” (objective intent – what a reasonable person would interpret this as an offer). How would you word your questions to let the other party know you are not entering into a contract but conducting preliminary negotiations? How would you word your questions to let the other party know you are not entering into a contract but conducting preliminary negotiations?

Contract or Not? Nick asks Kim to go to dinner at the Sunset Restaurant at 7 PM on Saturday. Nick asks Kim to go to dinner at the Sunset Restaurant at 7 PM on Saturday. Social agreement, no contract Social agreement, no contract Tim says to Blake, “I”ll buy one of your cars.” Tim says to Blake, “I”ll buy one of your cars.” Incomplete information, subject matter and price not identified. No contract. Incomplete information, subject matter and price not identified. No contract. Sam tells Brian, “I will buy the female puppy from you for $575.” Sam tells Brian, “I will buy the female puppy from you for $575.”

Example Paul and Sean were chatting between classes. Remember “Great Moments in Sports”, the video I showed you last week asked Paul. You thought it was great and said you wished it was yours. I’ll let you have it for $15. Do you want it? “Sure!” Sean answers. “Bring it to school tomorrow, ok?”. Paul and Sean were chatting between classes. Remember “Great Moments in Sports”, the video I showed you last week asked Paul. You thought it was great and said you wished it was yours. I’ll let you have it for $15. Do you want it? “Sure!” Sean answers. “Bring it to school tomorrow, ok?”. Was a contract created? Was a contract created? YES YES

The offer The offeror must appear to intend to create a legal obligation. The offeror must appear to intend to create a legal obligation. The terms must be definite and complete. The terms must be definite and complete. Complete, clear, implied terms based upon industry standards, advertisements. Complete, clear, implied terms based upon industry standards, advertisements. The offer must be communicated to the offeree. The offer must be communicated to the offeree. Can’t have contract is this does not happen. Can’t have contract is this does not happen.

Expression of intent Reasonable person test Reasonable person test Meets expectations of what a reasonable person would do in similar circumstances. Meets expectations of what a reasonable person would do in similar circumstances. Facts and circumstances Facts and circumstances Preliminary negotiations take place before formal offers (would you take $500 for that ring) Preliminary negotiations take place before formal offers (would you take $500 for that ring) Social agreements to act upon obtained information. Social agreements to act upon obtained information.

Termination of offers Revocation by offeror Revocation by offeror Time stated in offer passes. Time stated in offer passes. Reasonable length of time passes. Reasonable length of time passes. Rejection by offeree. Rejection by offeree. Counteroffer. Counteroffer. Death or insanity of either offeror or offeree. Death or insanity of either offeror or offeree.

Keep offers open Option – offeree gives the offeror something of value to keep an offer open for a period of time. Option – offeree gives the offeror something of value to keep an offer open for a period of time. Firm option – an offer by a merchant for the sale or purchase of goods stating in a signed writing how long it is to stay open. Firm option – an offer by a merchant for the sale or purchase of goods stating in a signed writing how long it is to stay open. The Uniform Commercial Code (UCC) makes firm offers binding for the time stated. The Uniform Commercial Code (UCC) makes firm offers binding for the time stated.

Acceptances Acceptance occurs when a party to whom an offer has been made agrees to the proposal. Acceptance occurs when a party to whom an offer has been made agrees to the proposal. An offer made to one person cannot be accepted by another. An offer made to one person cannot be accepted by another. Acceptance must match offer Acceptance must match offer Mirror image rule: Terms in acceptance must exactly match terms of the offer. Mirror image rule: Terms in acceptance must exactly match terms of the offer. Must be communicated to the offeror. Must be communicated to the offeror. Unilateral acceptance – offeree must do something Unilateral acceptance – offeree must do something Bilateral acceptance – both must do something Bilateral acceptance – both must do something Silent acceptance – silence is approval (book and cd clubs, etc.) Silent acceptance – silence is approval (book and cd clubs, etc.)

Genuine Agreement Agreements to enter into a contract that is evidenced by words or conduct of both parties. Agreements to enter into a contract that is evidenced by words or conduct of both parties. No fraud, threats etc. No fraud, threats etc. Absence of genuine agreement makes contracts voidable. Absence of genuine agreement makes contracts voidable. Injured party can rescind (back out) by asking for the return of what they gave and offering to give back what was received. Rescission must occur before ratification. Injured party can rescind (back out) by asking for the return of what they gave and offering to give back what was received. Rescission must occur before ratification.

Ratification Conduct suggesting you intend to be bound by contract.

Duress One party uses improper threats or acts to get an agreement One party uses improper threats or acts to get an agreement Contract is voidable if it can be proven. Contract is voidable if it can be proven. Threat of illegal act. Threat of illegal act. Threat to report crime. Threat to report crime. Threat to sue. Threat to sue. Economic threats. Economic threats.

Undue Influence One in a trusted position and wrongfully dominates the other. One in a trusted position and wrongfully dominates the other. Two elements: relationship, wrongful persuasion. Two elements: relationship, wrongful persuasion. Relationship is presumed to exist in client/attorney, parent/child, spousal, doctor/patient, minister/parishioner situations. Relationship is presumed to exist in client/attorney, parent/child, spousal, doctor/patient, minister/parishioner situations. Formal relationship is not needed – i.e. a neighbor routinely helps out a disabled person, etc. Formal relationship is not needed – i.e. a neighbor routinely helps out a disabled person, etc.

Unilateral Mistake Occurs when one party holds an incorrect belief about the facts related to a contract. Occurs when one party holds an incorrect belief about the facts related to a contract. Failure to read Failure to read Signing hastily Signing hastily Not understanding Not understanding

Ignorance of law is no excuse Recognized unilateral mistake – major and recognized error Recognized unilateral mistake – major and recognized error Induced unilateral mistake – one party encourages the other to make an error Induced unilateral mistake – one party encourages the other to make an error

Mutual mistakes Both parties have incorrect belief about important fact Both parties have incorrect belief about important fact Subject matter or mistake can be the focus Subject matter or mistake can be the focus

Misrepresentation Innocent misrepresentation Innocent misrepresentation Fraudulent misrepresentation Fraudulent misrepresentation Untrue statement of the facts Untrue statement of the facts Concealment Concealment Silence Silence

Materiality Three ways to determine if untrue statement is material Three ways to determine if untrue statement is material If it would cause a reasonable person to contract If it would cause a reasonable person to contract If defendant knew it would be relied on If defendant knew it would be relied on If defendant knew it was false If defendant knew it was false

Reasonable reliance Even if a statement is material, there is no misrepresentation unless the victim reasonably relied on it to make decision. Even if a statement is material, there is no misrepresentation unless the victim reasonably relied on it to make decision.

Fraud and remedies Fraud Fraud Misrepresentation must be intentional or reckless Misrepresentation must be intentional or reckless Misrepresentation or concealment must injure Misrepresentation or concealment must injure Remedies Remedies Rescission, Damages, Punitive Damages Rescission, Damages, Punitive Damages

Contractual Rights Contractual rights are the rights a person will receive under a contract that they transfer to another. Contractual rights are the rights a person will receive under a contract that they transfer to another. Transfer called assignment. Transfer called assignment. Assignor and assignee Assignor and assignee Assignable rights occur if the performance will not be changed materially. Assignable rights occur if the performance will not be changed materially. Performance is the fulfillment of contractual promise as agreed. Performance is the fulfillment of contractual promise as agreed.

Non-assignable rights – if the performance changes materially, rights are non- assignable. Non-assignable rights – if the performance changes materially, rights are non- assignable. Can’t transfer: Can’t transfer: A right created under a contract that prohibits transfer of the contractual rights A right created under a contract that prohibits transfer of the contractual rights Claims for damages for personal injury. Claims for damages for personal injury. Claims against the US Claims against the US Rights to personal services especially those of skilled nature/when personal trust or confidence is involved. Rights to personal services especially those of skilled nature/when personal trust or confidence is involved. Assignments of future wages, as limited by state statues. Assignments of future wages, as limited by state statues.

Delegating contractual duties Contractual duties are legal obligations created by contract. Contractual duties are legal obligations created by contract. Delegation of duties is created when simple obligations are transferred to another. Delegation of duties is created when simple obligations are transferred to another. Can’t delegate duties that requires personal skill or qualifications. Can’t delegate duties that requires personal skill or qualifications. Think of subcontractors in construction as an example of this. Think of subcontractors in construction as an example of this.

Performance of Duties Discharge of contract is a termination of duties Discharge of contract is a termination of duties Breach of contract is the failure to provide complete performance (can end the contract) Breach of contract is the failure to provide complete performance (can end the contract) Substantial performance is when the majority of the duties have been met but a minor detail remains. Substantial performance is when the majority of the duties have been met but a minor detail remains. Default is failure to perform. Default is failure to perform. Anticipatory breach is when you tell the party ahead of time that you won’t be performing a duty and will be defaulting. Anticipatory breach is when you tell the party ahead of time that you won’t be performing a duty and will be defaulting.