1. Contract Law
Chapter 6

2. What Must be in a Contract?
Offer and acceptance
Genuine assent
Legality
Consideration
capacity
Writing

3. Offer and Acceptance Three tests that a valid offer must pass:
Contractual intent must be present
Offers made in jest, in extreme terror or anger, or as a preliminary negotiation or social agreement ARE NOT OFFERS
The offer must be communicated to the offeree
A person who is not the intended offeree cannot accept the offer
The essential terms of the offer must be complete and definite
Must, at minimum, include price, subject matter, and quantity
Term must be identified clearly

4. Offer and Acceptance
To create an enforceable contract the acceptance must:
Come from the person or persons to whom the offer is made
Offer made to one person cannot be accepted by another
Match the terms of the offer
Mirror image rule—acceptance must exactly match the terms contained in the offer
Be communicated to the offeror
Silence is not acceptance
Bilateral contracts—offer implies that it can be accepted by giving a promise instead of performing the contracted- for act
Unilateral contracts—offeror promises something in return for the offeree’s performance and indicates that this performance is the way acceptance is to be made

5. Offer and Acceptance Modes of Contractual Communication
Offers, acceptances, rejections, revocations, and counteroffers may generally be communicated in person or other effective means
Telephone
Mail
Delivery service
Fax

6. Offer and Acceptance When Acceptances are Effective
All forms of contractual communications but one take effect only when received
Acceptance takes effect when it is sent
The offeror may require the offeree to use a certain communication method
If a different communication method is used then it is treated as a modification to the offer
Business custom often implies a method to be used in an acceptance
Most courts say the acceptance is effective when sent by the same means used for the offer, or by faster means

7. Offer and Acceptance When Acceptances are Effective
Oral acceptances are effective at the moment the words are spoken directly to the offeror
Acceptances sent by mail generally take effect when properly posted
Placed with correct address and proper postage under the control of the U.S. postal service
Telegram takes effect as an acceptance when it is handed to the clerk at the telegraph office or telephoned to a telegraph office
Fax transmission is instantaneous when the transmission lines are open and both sending and receiving equipment work properly
The offeror may specify that an acceptance will not be binding until it is actually received
Avoids confusion

8. Genuine Assent
The agreement (offer and acceptance) must not be based on:
One party’s deceiving another
on an important mistake
on the use of unfair pressure exerted to obtain the offer or acceptance

9. Legality What the parties agree to must be legal
An agreement to pay someone to commit a crime or a tort cannot be a contract

10. Consideration
The agreement must involve both sides receiving something of legal value as a result of the transaction
Requirements:
Each party must give an act, forbearance, or promise to the other party
Each party must trade what they contribute to the transaction for the other party’s contribution
What each party trades must have legal value— must be worth something in the eyes of the law

11. Capacity
The parties must be able to contract for themselves rather than being forced to use parents or legal representatives
Those who lack capacity:
Minors
Mentally incapacitated
Intoxicated – drugs or alcohol
Minimum age to contract is 18

12. Writing
Some agreements must be placed in writing to be fully enforceable

13. How can offers be ended? Revocation by the Offerer
The offeror can generally revoke an offer anytime before it is accepted by the offeree
Not effective until it is communicated to the offeree
Time Stated in the Offer
The offeror may state how and when the offer must be accepted

14. How can offers be ended? Reasonable Length of Time Counteroffer
When nothing is said in the offer about how long it will remain open, it will end after a reasonable length of time
To avoid misunderstandings, the time available for acceptance should be specified at the outset
Counteroffer
The offeree changes the offeror’s terms in important ways and sends it back to the offeror
The counteroffer terminates the original offer-- Becomes the new offer

15. How can offers be ended?
Death or Insanity of either the offeror or the offeree
The law acts for these parties when they can no longer act and terminates the offer
Destruction of the Specific Subject Matter
If the offer refers to specific subject matter and it is subsequently destroyed, the offer is automatically terminated

16. How can an offer be kept open?
Options
If the offeree gives the offeror something of value in return for a promise to keep the offer open
This agreement in itself is a binding offer
The offer may not be withdrawn during the period of the option
Firm Offers
Works the same way as an option
Applies to merchants who make offers in writing
Contains terms stating how long the offer is to stay open
The Uniform Commercial Code makes firm offers binding for the time stated, but not more than 3 months
Applies even if nothing is paid by the offeree