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Chapter 13: The Agreement. Requirements for Contract. Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted. If either element is missing, there is no contract. Requirements of an Offer.
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Requirements for Contract • Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted. • If either element is missing, there is no contract.
Requirements of an Offer • The offer must have contractual intent. • This intent is lacking if the statement is merely an invitation to negotiate, a statement of intention, or an agreement to agree at a later date. • Newspaper ads, price quotations, and catalog prices are ordinarily invitations to negotiate. • An offer must be definite, with terms that are clear and spelled out. • The offer must be communicated to the offeree.
Acceptance Yes Offer No Offer Counteroffer Yes Acceptance No Offer, No Contractual Intent Acceptance No Offer Not Definite Acceptance No Offer No Acceptance No Invitation to Negotiate Acceptance No Terminated Offer Post-termination Acceptance Is A Contract Formed?
Acceptance of an Offer • When the offer is accepted, a contract arises. • Only the offeree can accept an offer, and the acceptance must be of the offer exactly as made without any qualification or change. • The acceptance is any manifestation of intent to agree to the terms of the offer. • Ordinarily, silence or failure to act does not constitute acceptance.
Offeror makes an offer Offeree accepts offer unconditionally Offeree changes or adds terms Offeree rejects offer Contract Arises No contract exists Counteroffer Original offeror accepts counteroffer unconditionally Original offeror changes or adds terms Original offeror rejects counteroffer Counteroffer Acceptance of Offer
Acceptance of an Offer • An acceptance does not exist until the words or conduct demonstrating assent to the offer is communicated to the offeror. • Acceptance by mail takes effect at the time and place when and where the letter is mailed or the fax is transmitted. • A telephoned acceptance is effective when and where spoken into the phone.
The Mailbox Rule September 1, 1997 Seller mails an offer to Buyer September 2, 1997 Buyer receives offer Buyer mails acceptance September 3, 1997 Seller calls to revoke offer Buyer says he has already accepted September 4, 1997 The acceptance arrives Is there a contract? Assume the same scenario as above, but the buyer’s acceptance never arrives. Assuming the buyer has adequate proof of mailing the acceptance, is there a contract? Yes, in both cases. Proper acceptance is effective when sent, even if never received.
The Mailbox Rule September 1, 1997 Seller mails an offer to Buyer September 2, 1997 Buyer receives offer Buyer mails acceptance September 3, 1997 Buyer mails rejection September 4, 1997 Seller receives rejection September 5, 1997 Seller receives acceptance Is there a contract? Why or why not? Again, Yes, because the acceptance is effective upon dispatch – or as soon as it was mailed.
Termination of Offer • The ordinary offer may be revoked at any time by the offeror. All that is required is the showing of intent to revoke and the communication of that intent to the offeree. • By definition, an attempted acceptance made after the offer has been terminated has no effect.
Termination of Offer • An offer is also terminated by: • the express rejection of the offer or by the making of a counteroffer • the lapse of the time stated in the offer or of a reasonable time when none is stated • the death or disability of either party • a change of law that makes illegal a contract based on the particular offer
Revocation Prior to Acceptance* By Offeror Death or Incapacity Time Limitations Placed in the Offer Rejection By Offeree Counteroffer Death or Incapacity Termination of an Offer *Options and firm offers excepted
Auctions • In an auction sale, asking for bids is an invitation to negotiate. • A person making a bid is making an offer, and the acceptance of the highest bid by the auctioneer is an acceptance of that offer and gives rise to a contract. • When the auction sale is without reserve, the auctioneer must accept the highest bid.