Chapter 8 Offer and Acceptance

Reaching Agreement Recall that there are six elements of an enforceable contract. The first of these essential elements is offer and acceptance. For a contract to be valid, there must be a proposal that is both offered by the offeror and accepted by the offeree. Learning Outcome 8-1: Identify the first step in reaching agreement and forming a valid contract. Page: 126

Requirements for a Valid Offer For an offer to be valid, it must be: Definite and certain Communicated to the offeree Made with a serious intention that the offeror will be bound by it. Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 126

An Offer Must Be Definite and Certain To be definite and certain, an offer should specify all the terms and conditions of the contract. A later disagreement can be avoided if the offer is made as specific as possible. Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 126

An Offer Must Be Definite and Certain (cont.) Under the Uniform Commercial Code (UCC) an omission of one or more essential terms does not necessarily make an offer invalid as long as the contract contains sufficient information to suggest that the parties intended to enter into a contract. Therefore, according to the UCC, uncertainty with respect to specific terms does not necessarily invalidate a contract. Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 126

Offer Must Be Communicated An offeror can make the offer known to the offeree in various ways. The usual means of communication are: Oral communication (in person or by telephone, television, or radio) Written communication (letter, fax, e-mail, text message, or other written forms) Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 126

Offer Must Be Communicated Cont.) Businesses frequently use printed or electronic purchase orders containing the terms of an offer. Purchase orders are therefore considered offers to buy. In these cases, the buyer of the goods is the offeror and the seller is the offeree. Communication also may be implied by the actions of the parties. Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 126

An Offer Must Intend an Enforceable Obligation Offers made in anger or jest, or those made under severe emotional strain, are obviously not made with the intent of entering into a valid, enforceable agreement. The lack of serious intent must, however, be apparent to a reasonable person. Learning Outcome 8-2: Explain and provide examples of the three requirements for a valid offer. Page: 127

Bids, Advertising, and Public Offers The requirement of offer and acceptance is usually fairly straightforward in contracts involving few parties. Complications can arise when there is little or no direct contact between the parties E.g., bidding, advertising, and public offers Learning Outcome 8-3: Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. Page: 127

Bids and Estimates A call for a bid or materials/work estimate is a request for an offer, not an offer. May be an invitation to negotiate. Can be accepted or rejected by the person calling for the bid. Such an announcement or solicitation is often called a request for proposal. Learning Outcome 8-3: Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. Page: 127

Advertising Advertisements are generally regarded as an invitation to trade, or an invitation to make an offer, rather than a valid offer because they usually do not contain sufficient words of commitment to sell. If, however, an advertisement contains a positive promise and a positive statement of what the advertiser expects in return, the courts will usually hold that the advertisement is an offer. This is especially true if the word offer is used in the advertisement. Learning Outcome 8-3: Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. Page: 128

Advertising (cont.) Sometimes goods are advertised at an incorrect price. If the error is the merchant’s fault, he or she is required to honor the lower price. If the error is not the merchant’s fault, he or she might decide to honor the lower price, even if not profitable in order to retain public goodwill. Learning Outcome 8-3: Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. Page: 128

Public Offers When an advertisement offers a reward for information that might lead to the arrest of a criminal or for the return of a lost article, it is regarded as a general offer to the public at large. Acceptance of a public offer by anyone, as indicated by the performance of the act, results in an enforceable contract. Example: An advertisement in a local newspaper, offering a $200 reward for a dog’s return, is valid even though it is directed to thousands of readers and only one of whom could accept it. Learning Outcome 8-3: Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. Page: 128

Requirements for a Valid Acceptance In order for an acceptance of an offer to be valid: It must be communicated to the offeror, and It must be unconditional. It is important to determine how an acceptance is communicated and when such acceptance becomes effective. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 129

Acceptance Communication Method of Communication The usual forms of communication (telephone, letter, fax, e-mail, text message) may be used in accepting an offer. Exception - The offer specifies a certain form of communication, such as “Reply by registered mail,” “Reply by return mail,” or “Reply by e-mail.” Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 129

Acceptance Communication(cont.) When Acceptance Becomes Effective - General rule is that an acceptance becomes effective when the parties so intend. The offer may explicitly state whether acceptance effective when it is sent by offeree or when it is received by offeror. Mailbox Rule: If the offer is silent as to time acceptance is effective, the mailbox rule states that an acceptance sent by mail or courier is effective when sent. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 129

Acceptance Communication(cont.) When Acceptance Becomes Effective - An acceptance communicated by telephone, fax, or telex is effective when received. Courts have been divided on whether an acceptance sent via e-mail or text message is effective when sent or received. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 129

Acceptance Communication (cont.) Silence as Acceptance - A person cannot be compelled to speak or to write to avoid a binding agreement. A persona is under no obligation to reply to an offer. However, silence may indicate assent to an offer when both parties have agreed in advance that this is to be the means of acceptance. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 129

Example: Silence as Acceptance Facts: Jimmy has to board the local train to get to his destination. He approaches the teller at the train station and hands her the correct amount required for his travel. The teller, without making conversation, hands him a pass in exchange for the money. The UCC 2-204 provides that a “contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” Thus, in the above scenario, the conduct of the parties binds this into a contract. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 130

Acceptance Must Be Unconditional A counteroffer that is conditional, or a qualified acceptance of an offer, is generally interpreted as a rejection and is not binding on the parties. The general rule of contract: The acceptance of an offer must be the same as the offer If there are any material (important) differences between the offer and the acceptance, the acceptance is regarded as a rejection of the offer. Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 130

Acceptance Must Be Unconditional (Cont.) The UCC provides an exception to the unconditional acceptance rule: Between merchants, “a definite and reasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.” Learning Outcome 8-4: Explain and provide examples of the two requirements for a valid acceptance. Page: 130

Termination of an Offer Offers are terminated by: Lapse of time Revocation Rejection Death or incapacity Destruction or illegality Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 131

Termination of an Offer (cont.) Termination by Lapse of Time - When offeree fails to accept an offer within the time specified, the opportunity to form a contract ends because of a termination by lapse of time. When no definite time for acceptance is stated in an offer, it terminates after a reasonable time. What is considered a reasonable time can vary according to the circumstances. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 131

Termination of an Offer (cont.) Termination by Revocation An offer that has been neither accepted nor rejected by the offeree can be revoked, or withdrawn, by the offeror. The offeror may communicate the revocation to the offeree in either spoken or written words. However, according to the UCC, an offer that includes specific time limits expires automatically when the time is up, unless the offeror chooses to extend the offer. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 131

Termination of an Offer (cont.) Termination by Rejection A direct, unqualified rejection, or a refusal to accept, terminates an offer. The offer, once rejected by the offeree, cannot be revived or made into a counteroffer once the communication of the rejection has been received by the offeror. However, If the offeror acknowledges the rejection but restates the offer, the offeree still has the opportunity to accept, or reject, or make a counteroffer. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 132

Termination of an Offer (cont.) Termination by Death or Incapacity Mutual agreement cannot occur if either the offeror or the offeree die or become incompetent. An offer is immediately terminated as a result of the death or legal incapacity of either the offeror or the offeree. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 132

Termination of an Offer (cont.) Termination by Death or Incapacity (cont.) - Although an offer is terminated as a result of the death of either the offeror or the offeree, if either the offeror or the offeree are bound by an option contract the surviving party may still be obligated to the contract. An option contract has a provision to keep an offer open for a certain period of time. In the event of death, the estate of the deceased is responsible to carry out the provisions of a the options contract. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 132

Termination of an offer (cont.) Termination by Destruction or Illegality If the subject matter of the contract is destroyed or declared illegal after the offer has been made but before it has been accepted, the contract is terminated. Example – Gipson offered to sell Ramirez her boat for $8,000. While the boat was docked, a storm damaged the boat, causing it to sink. Because the boat was destroyed. Gipson’s offer to sell Ramirez the boat would thereafter be terminated. Learning Outcome: 8-5: Identify the five ways in which an offer may be terminated. Page: 132