Business Law Chapter 14

The Acceptance

A key factor in the agreement element of a contract; consists of the agreement of one party, the offeree, to the terms of the offer in the contract made by the other party, the offeror.

Authorized Means of Acceptance

A means of communicating acceptance can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances of the situation.

Material Terms

Allow a court to determine damages in the event that one of the parties breaches the contract. They include the subject matter, price, quantity, quality, and parties.

Auctions

Another situation in which what seems to be an offer may not be is the auction. When Alice places a good with an auctioneer for sale by auction, is she making an offer, or is Kevin, who bids on it? It depends on what kind of auction is taking place. If nothing is stated to the contrary in the terms of the auction, an auction is presumed to be *with reserve*, which means that the seller is merely expressing intent to receive offers. The auctioneer may withdraw the item from auction at any time before the hammer falls, signaling the acceptance of the bid. The bidder may also revoke the bid before that point. Legal Principle- If an auction is *without reserve*, the auctioneer must accept the highest bid; if it is *with reserve*, the auctioneer may refuse to sell the item if he or she is not satisfied with the size of the highest bid.

Detrimental Reliance

Detrimental reliance on the offer may also form the basis for the court's not allowing the offeror to revoke an offer. If the offeree had reasonably relied on the offeror's promise to hold the offer open and had taken action in reliance on the offer, the courts may use the doctrine of promissory estoppel to estop, or prevent, the offeror from revoking his offer. Can also prevent a party who made a unilateral offer from revoking the offer once the offeree has begun performance of the action necessary to accept the unilateral offer.

Death or incapacity

If the offeror becomes incapacitated or dies, the offer immediately terminates, even if the offeree does not know of the terminating event. If the parties had already entered into an option contract to hold the offer open for a set period of time, however, the administrator of the offeror's estate or the guardian of the offeror must hold the offer open until it expires in accordance with the option contract.

Destruction or Subsequent Illegality

If the subject matter of the offer is destroyed or becomes illegal, the offer immediately terminates.

Intent

The first element of the offer. The offeror must show intent to be bound by the offeree's acceptance. courts are only concerned with the party's outward manifestations of intent, not internal thought processes. The courts interpret the parties' words and actions the way a reasonable person would interpret them. Example- if Judy is clearly joking or speaking in anger, a reasonable person would not think Judy seriously intended to make an offer and the courts would not treat her words as an offer. But tell a joke too well and you might find yourself in an unwanted contract. Legal Principle- In determining intent to enter into a contract, the courts look at the person's objective manifestation of intent and does not try to interpret what the person may have been secretly thinking. Notes- Remember prof's example, the couple that sold their farm when they were joking but their outward manifestations were that they were serious, even if in their mind's it was a joke, they had to sell the farm.

Rejection

The offeree can reject the offer. Regardless of how long the offer was stated to be open, once the offeree rejects it, it is terminated.

Definite and Certain

The requirement, under common law, that a contract must include and clearly define all material terms.

Termination of the Offer

can occur in one of five ways, revocation by the offeror, rejection or counteroffer by the offeree, death or incapacity of the offeror, destruction or subsequent illegality of the subject matter of the offer, or lapse of time or failure of other conditions stated in the offer. When an offer is terminated, the offeree can no longer accept it to form a binding contract.

Agreement

is the first element of a contract. It is made up of an offer and an acceptance. The elements of an offer are (1) serious intent by the offeror to be bound to an agreement. (2) reasonably definite terms (3) communication to the offeree.

Lapse of time

the offer will expire after a reasonable amount of time, which depends on the subject matter of the offer, unless a specific time condition is given.

Mirror Image Rule

A principle which holds that the terms of an acceptance must mirror the terms of the offer. If the terms of the acceptance do not mirror the terms of the offer, no contract is formed and the attempted acceptance is a counteroffer. When a bilateral contract is being formed under the common law, the mirror-image rule applies to the acceptance.

Mailbox Rule

A rule which holds that an acceptance is valid when it is placed in the mailbox, whereas a revocation is effective only when received by the offeree. In some jurisdictions the mailbox rule has been expanded to faxes. Easier to understand-> provides that an acceptance is valid when the offeree places it in the mailbox, whereas a revocation is effective only when the offeree receives it. The mailbox rule is not applicable when there is instantaneous communication such as over the phone, in person, or by telex.

Option Contract

An agreement whereby the offeree gives the offeror a piece of consideration in exchange for the offeror's agreement to hold the offer open for a specified period of time. It could be money. Example- like in real estate, when you want to have the option of purchasing a property, you can give the person selling some money ($1000 or w/e) for a time period option to purchase. If you buy, the money will be deducted from the purchase price. If you don't, the person selling the property keeps the money.

Preliminary Negotiations

An invitation to negotiate or an expression of possible interest in an exchange is not an offer because it does not express any willingness to be bound by an acceptance.

Communication to the offeror

An offerer has the power to control the means by which the acceptance is communicated, so if the offer specifies that only a certain means of communication will be accepted, then only an acceptance by that means forms a valid contract. Ex. If Julia says you can only accept the offer by telephone before midnight on thursday, that's the only by that means results in a valid contract. So if you email, too bad. If no means communicating the acceptance is specified, any reasonable means is generally acceptable.

Advertisements

Another illustration of an offer to make an offer is the advertisement. If a custom furniture maker places an advertisement in the paper that reads, "Old fashioned, hand-crafted cedar rocking chairs only $250 the first week in May," the store is merely inviting potential customers to come to the store and offer $250 for a rocker. Because no reasonable person would expect the store to be able to sell a rocking chair to every person who might see the ad, the courts will interpret the intent of the store as being to invite readers to make an offer. If it appears from the wording that the store did, in fact, intend to make an offer, that is, the ad specifies a limited quantity and provides a specific means by which the offer can be accepted, the courts will treat the ad as an offer.

The Effect of an Acceptance after a Rejection

If rejection is dispatched, but before it is received, the acceptance is communicated to the offeror, then a valid contract has been formed because the rejection is not effective until it is received. Remember, The offeree can reject the offer.

Effect of an Unauthorized Means of Acceptance

If the offer merely authorizes certain modes of acceptance but does not condition acceptance on the use of those modes, use of unauthorized means of acceptance is acceptable; but the contract is not formed until acceptance is received by the offeror. For example, if Beth sends an offer to Joe via a fax, saying in the offer that acceptance may be via fax or e-mail, and Joe accepts her offer by overnight mail, his acceptance is valid but it is effective only on receipt. If the offeree makes a mistake and sends acceptance to the wrong adress, there is no acceptance on dispatch. If a correction is made and the letter eventually reaches the offeror, the acceptance is valid on receipt, assuming the offer was still open.

Counteroffer

If the offeree offers a counteroffer, the original offer is terminated.

Manifestation of intent to be bound to the contract

In general, there are two ways an offeree can manifest intent to enter into the contract: by performance or by a return promise. The offeree must either do or say something to form the contract. If the offer is for a unilateral contract, the offeree can accept only by providing the requested performance. Like if Bill offered to pay $500 to anyone who returned his lost dog to him, Mary could accept the offer only by returning the dog.

Silence as a form of acceptance

Silence as a general rule, cannot be used to form a contract. Like if Marie leaves Lisa a message saying "I can't work my 3 night shifts this week, if you cover them for me, I'll pay you an extra $40 on top of the money you'll receive from the boss. If I don't hear from you by 7pm, I'll assume we have a deal." If Lisa doesn't call back, no contract has been formed because silence under these circumstances will no constitute acceptance. In some cases, silence can mean acceptance. Like if parties, by their previous course of dealing with each other, have established a pattern of behavior whereby it is reasonable to assume silence communicates acceptance. Like if a wholesaler and a retailer have a long standing relationship in which the retailer will reject a shipment that does not meet his needs, when a shipment is not sent back it is reasonable for the wholesaler to assume that the retailer means to accept it. Silence can also be acceptance when the offeree receives the benefits of the offered services with reasonable opportunity to reject them and knowledge that some form of compensation is expected yet remains silent. A third situation occurs when the parties agree that silence will be an acceptance. Like if someone joins a book club whose contract proves that a new book will be sent every month.

Revocation

the offeror can revoke the offer at any time unless the offeree entered into an option contract (offeror holds offer open for a while because offeree gave consideration) with the offeror. As a general rule, revocation is effective when the offeree receives it. The offeror should deliver the revocation personally.

Communication

the third element of an offer. The offer must be communicated to the offeree or to the offeree's agent. Either can accept the offer. *Legal Principle*- To have a valid offer under the common law, you need (1) the intent to be bound by an acceptance, (2) definite and certain terms, and (3) communication to the offeree.