LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 1 Offer and Acceptance Creation of Offers Termination of Offers Acceptances CHAPTER 7 Lessons

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 2 Creation of Offers List the elements required to form a contract Describe the requirements of an offer LESSON 7-1 GOALS

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 3 WHAT IS A CONTRACT? A contract is an agreement that courts will enforce. Contracts between two parties are the basis for all economic activity. Contracts are the legal links between the individuals and companies producing and consuming goods and services.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 4 CONTRACT REQUIREMENTS There are six major requirements that must be satisfied before courts will treat transactions as contracts. Offer and acceptance Genuine assent Legality Consideration Capacity Writing

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 5 OFFER AND ACCEPTANCE There must be a serious, definite offer to contract. The terms of the offer must be accepted by the party to whom it was communicated.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 6 GENUINE ASSENT The agreement (offer and acceptance) must not be based on one party’s deceiving another, on an important mistake, or on the use of unfair pressure exerted to obtain the offer or acceptance.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 7 LEGALITY What the parties agree to must be legal. An agreement to pay someone to commit a crime or tort cannot be a contract.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 8 CONSIDERATION The agreement must involve both sides receiving something of legal value as a result of the transaction. o Ex – You sign a contract with Directv to access their channels for a monthly fee.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 9 CAPACITY To have a completely enforceable agreement, the parties must be able to contract for themselves rather than being forced to use parents or legal representatives. o Ex – A person must be able to understand the conditions of the contract.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 10 WRITING Some agreements must be placed in writing to be fully enforceable in court.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 11 THE PARTIES INVOLVED Contracts frequently result from the exchange of valuable promises. Offeror – the person who makes an offer to an offeree. Offeree – persons to whom the offer is made. Without both an offer and acceptance, there is no contract.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 12 WHAT’S YOUR VERDICT? (P. 111) Pedro and Seamus were chatting during the break between classes. “Remember “Great Moments in Sports’, the video that I showed you last week?” asked Pedro. “You thought it was great and said you wished it was yours. I’ll let you have it for fifteen bucks. Want it?” “Sure!” Seamus answered. “Bring it to school tomorrow, okay?”

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 13 WHAT’S YOUR VERDICT? (P. 111) (CONT.) Was there a contract created between both Pedro and Seamus? Yes, it was verbal, and there was an offer and an acceptance

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 14 REQUIREMENTS OF AN OFFER Offer – a proposal by an offeror to do something, provided the offeree does something in return Three requirements to make a valid offer: 1.The offeror must appear to intend to create a legal obligation 2.The terms must be definite and complete 3.The offer must be communicated to the offense

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 15 REQUIREMENTS OF AN OFFER (cont.) The law only recognizes an offer when an offeror appears serious about creating a legal obligations. The law is NOT concerned with what is actually in the mind of a person implying an offer, but is rather concerned with the appearance of that person. o Test of the reasonable person - objective legal test used by jurors or judges to determine whether the offeror has shown an intent to contract

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 16 REQUIREMENTS OF AN OFFER (cont.) So what do you think constitutes a ‘reasonable’ person? Reasonable – Of, or relating to sound judgement, thinks logically

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 17 Test of the Reasonable Person Facts and Circumstances The test of the reasonable person examines the offeror’s words and conduct in light of all the relevant facts and circumstances. The words of a person may indictate an offer, but a reasonable person would disregard them due to the facts and circumstances in which they were spoken.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 18 PRELIMINARY NEGOTIATIONS Information is often communicated without indicating an intent to contract. Ex: Would you take $800 for that laptop computer? This statement is trying to determine if the other party is interested in selling the laptop at that price.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 19 SOCIAL AGREEMENTS Social agreements do not create legal obligations. o Ex: You and a friend decide to go to shopping and your friend cuts out on you. It’s offensive but is not a breach of contract because it’s a social agreement.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 20 THE OFFER MUST BE COMPLETE AND CLEAR The terms of an offer must be sufficiently complete and clear to hold up in court to decide each parties’ legal rights and duties.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 21 COMPLETE If an offer is missing essential information, it is incomplete and legally ineffective. Offers must identify directly or indirectly the: o Price o Subject matter o Quantity

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 22 CLEAR Each essential term must be indentified clearly enough for the courts to enforce the agreement.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 23 IMPLIED TERMS Some contracts may include “implied” terms, meaning the term is suggested or assumed. o Ex: When a price on an item is not listed on its packaging, the current market price is the basis for the contract.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 24 ADVERTISEMENTS Advertisements are generally not offers. They are treated as “invitations” to customers to make offers. The business that advertises usually has something for sale and has a limited stock.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 25 ADVERTISEMENTS (cont.) Can occasionally be considered offers. Can occur in two ways: 1.Ad must be clearly worded in so customers know there is a limited quantity. 2.If it asks the offeree to perform an act as a way of accepting. o Ex: The first person to show up at 6AM will win the prize.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 26 WHAT’S YOUR VERDICT? (P. 112) Anchors Aweigh, a boat retailer, placed an ad in a local newspaper announcing a one-day sale of cabin crusiers for the “bargain price” of $22,500 each. The dealer had five cruisers in stock, and they all were sold within one hour. During the rest of the day, seven other would- be buyers came in to purchase a bargain cruiser.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 27 WHAT’S YOUR VERDICT? (P. 112) (CONT.) Did the Anchors Aweigh advertisement make offers to the would-be buyers? Why or why not? Yes, it was verbal, and there was an offer and an acceptance.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 28 OFFER MUST BE COMMUNICATED TO THE OFFEREE A person who is not the intended offeree cannot accept the offer. Nor can a person accept an offer without knowing it has been made. An offer of an award that is made to certain people or the general public cannot be accepted by someone who did not know the offer existed.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 29 A QUESTION OF ETHICS (P.113) Sarah was talking with four friends at the entrance to their community college. When a bell called them to class, she absent-mindedly left her backpack behind. It contained a pocket calculator, her driver’s license, and other items of value only to her. After class, she posted an ad on a student bulletin board, offering $25 to whoever returned her pack. Major, another student, had not seen the advertisement but he found the bag and returned it to Sarah.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 30 A QUESTION OF ETHICS (P.113) Is Major legally entitled to the reward? Technically no, he was unaware of the offer therefore, he is not legally entitled to it. Is Sarah ethically obliged to give him the reward? Ethically, Sarah should give Major the reward for finding her backpack.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 31 Termination of Offers Describe how an offeror can end an offer Tell how an offeree can end an offer Explain how the parties can create offers that cannot be ended by the offeror LESSON 7-2 GOALS

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 32 HOW CAN OFFERS BE ENDED? An offer does not last forever. There are several methods used to terminate offers: o Revocation by the offeror o Time stated in the offer o Reasonable length of time o Rejection by the offeree o Counter offer o Death or Insanity of Either the offeror or Offeree

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 33 REVOCATION BY THE OFFEROR After an offer has been made, the offeror has the right to revoke the offer at anytime before it is accepted by the offeree. This is true even if the offeror promised to keep the offer open for a period of time. Revocation – the right to withdraw an offer before it is accepted.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 34 WHAT’S YOUR VERDICT (P.115) Melissa offered her collection of baseball cards for sale for $3,000 to her friend and fellow collector, Raoul. Raoul asked if he could think it over and Melissa agreed. While Raoul was trying to raise the money, Melissa had second thoughts. So she called Raoul and said, “I’ve changed my mind, I’m not interested in selling the cards.” Raoul responded, “It’s too late, you promised to sell them to me, and I’ve got the money so I accept.”

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 35 WHAT’S YOUR VERDICT? (P. 115) (CONT.) Was Melissa’s offer terminated before Raoul tried to accept? Yes, the offer was terminated before Raoul could accept. The contract was revoked.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 36 TIME STATED IN THE OFFER When making an offer, the offeror may state how and when the offer must be accepted. o Ex: A bank sends out a letter for a credit card offer with terms on when it should be received.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 37 REASONABLE LENGTH OF TIME If a length of time is not stated in the offer, it remains alive for a reasonable length of time. Reasonable lengths of time are determined by surrounding circumstances or conditions. o Ex: Selling a truckbed full of tomatoes which are perishable, verses selling a truck and trailer which are durable equipment.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 38 REJECTION BY THE OFFEREE When an offeree clearly rejects an offer, the offer is terminated. An offer is terminated by an offeree’s rejection even if a time limit set by the offeror has not expired. o Ex: Kempsky offers to sell Del Rey a bicycle for $75, but Del Rey replied “No, too much.” The next day Del Rey called Kempsky and said he changed his mind. The earlier rejection terminated the offer.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 39 COUNTEROFFER Generally offers must be accepted in the terms in which they were made. If an offeree changes the offeror’s terms, a counteroffer is made. A counteroffer terminates the original offer and creates a new offer. Counteroffer - offeree's response to an offer which modifies it.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 40 DEATH OR INSTANITY OF EITHER THE OFFEROR OR OFFEREE Contracts are generally agreements voluntarily entered into by both parties and subject to their control. Once control is lost, the law acts for the party and can terminate an offer.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 41 HOW CAN AN OFFER BE KEPT OPEN? An offeror is not required to keep an offer open for a specified period of time even if the offeror has promised to do so. The offeree has given nothing in exchange for a promise to accept.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 42 OPTIONS If the offeree gives the offeror something of value in return for a promise to accept, the offer remains open to the offeree. Option - separate contract arising when the offeree gives the offeror something of value in return for a promise to leave an offer open

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 43 WHAT’S YOUR VERDICT (P.116) The Downings had placed their idle factory building on the market for $950,000. Robinson, a developer, was interested in buying it, but she needed time to persuade a group of investors to join her in a syndicate to purchase the building. Robinson offered $10,000 to the Downings to keep the offer open to her alone for 60 days. The Downings accepted the money.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 44 WHAT’S YOUR VERDICT? (P. 116) (CONT.) Are they now legally bound to keep the offer open to Robinson? Yes, because Robinson created an option to buy the factory building when she exchanged the $10,000.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 45 OPTIONS (cont.) If the offeree decides not to purchase, the offeror keeps the option money as payment for the option. If the offer is accepted, the option money is applied to the purchase price.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 46 FIRM OFFERS Firm offer - binding offer stating in writing how long it is to be held open A general rule for merchants who regularly buy and sell goods. Generally, neither death nor insanity of either party terminates an option or firm offer.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 47 Acceptances Discuss the requirements of an effective acceptance Determine at what point in time an acceptance is effective LESSON 7-3 GOALS

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 48 HOW ARE ACCEPTANCES CREATED? Acceptance - occurs when a party to whom an offer has been made agrees to the proposal Three requirements needed to create an enforceable contract: 1.Be made by the person(s) to whom the offer was made 2.Match the terms in the offer 3.Be communicated to the offeror

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 49 WHO CAN ACCEPT AN OFFER? An offer made to one person cannot be accepted by another person. Alternatively, an offer can be made to a specific group or to the public. o Ex: John makes Paul an offer. Paul isn’t interested in the offer but Paul’s friend Sam is. Sam says he accepts. Has a contract been formed? Why or why not?

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 50 WHO MUST MATCH THE OFFER To complete an agreement, the offeree must agree to, and comply with the offeror’s original offer or create a counter offer.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 51 MIRROR IMAGE RULE Mirror Image Rule - requires that the terms in the acceptance must exactly match the terms contained in the offer Applies to contracts for services and realty Some courts apply this rule when the term of the offer is material.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 52 GOODS For the sale of goods, if the offeror requires that acceptance must exactly match the terms made in the offer, any variation is considered a counteroffer.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 53 ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR An acceptance must be more than a mental decision, it must be communicated to the offeror.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 54 SILENCE AS ACCEPTANCE One is not required to reply to offers made by others. In a continuing relationship, the parties may agree in advance that silence is to be regarded as acceptance. o Ex: If you’re in a monthly book club and you fail to say “no” to a proposed shipment, you are technically saying “yes” to the shipment and cost.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 55 UNILATERAL ACCETPANCE Unilateral contract - offeror promises something in return for the offeree's performance and indicates that this performance is the way acceptance must be made Ex: An offeror publicly promises to pay $100 to anyone who returns their lost dog. o There are many people who join the search, but only one who finds the dog and returns it to the offeror to gain the reward.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 56 BILATERAL ACCETPANCE Most offers are considered bilateral. Bilateral contract - offeree can accept offer by giving a promise to the offeror instead of performing the contracted-for act Ex: A seller promises to deliever a load of topsoil in exchange for a homeowner’s promise to pay $65. o This contract is created when the homeowner promises to pay $65 when the topsoil arrives.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 57 WHEN ACCEPTANCE IS EFFECTIVE The acceptance is effective when sent if sent by the required means. If there is no required means, it is effective when sent by the customary means, the same means, or a faster means. A slower means will be effective under the UCC (Uniform Commerical Code) if it is reasonable under the circumstances.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 7Slide 58 SUMMARY VIDEO