Business Law Chapter 10

3 Elements of an Offer

The offer must be communicated to the offeree. If I place reward offers in my neighborhood for the return of my lost cat, and you find and return my cat but do not see any reward signs, I have not made an offer to you.

3 Elements of an Offer

The terms of the offer must be reasonably certain or definite so that the parties and the court can ascertain the terms of the contract. All material terms of the contract must be definite (subject matter, price, payment terms, quantity, quality, etc.).

4 Types of Acceptance

Unequivocal Acceptance, Silence as Acceptance, Communication of Acceptance, Mode and Timeliness of Acceptance

Recession

a remedy in which a contract is cancelled and both parties are returned to their positions before the contract was made. When recission and the making of a new contract occur at the same time, the courts frequently are given a choice of applying the pre-existing duty rule or allowing the recission and new contract to stand (depends on the facts).

Supervening Illegality of the Proposed Contract

a statute or court decision that makes an offer illegal will automatically terminate the offer.

Termination by Action of the Parties

Revocation, Rejection, Counteroffer

Acceptance

a voluntary act by the offeree that shows agreement to the terms of an offer.

Communication of Acceptance

a) Bilateral contract: communication is necessary because the acceptance is in the form of a promise. b) Communication of acceptance is not necessary if the offer takes away the requirement. c) If an offer can be accepted by silence, no communication is necessary. d) Unilateral contract: because performance of an act is called for, notification is unnecessary unless: 1. offeror requests notice of acceptance; 2. offeror has no adequate means of determining when the requested act has been performed; or 3. when the law requires notice of acceptance.

Mode and Timeliness of Acceptance

a) general rule: acceptance in a bilateral contract is timely if it is effected within the duration of the offer. b) mailbox rule: if an authorized mode of communication is the mails, then an acceptance becomes valid when it is dispatched (placed in the mail), not when it is received by the offeror. c) express authorization: when an offer specifies how acceptance should be made, both the offeror and offeree are bound in contract the moment the means of acceptance are used. d) implied authorization: when the mode of acceptance is not stated in the offer, whatever means the offeror used in communicating the offer to the offeree implies that the offeree can use the same or a faster means for acceptance. When the parties are at a distance, mailing is impliedly authorized. e) 3 exceptions to the rule that a contract is formed when the acceptance is sent by authorized means: 1) if the acceptance is not properly dispatched (insufficient postage for example), acceptance is not valid until actually received by the offeror. 2) if the offer specifies that the acceptance must be received by the offeror within a time period, to be effective the acceptance must be actually received by offeror within the time period.

3 Elements of an Offer

1) A serious, objective intention by the offeror. The intention of the offeror is determined by what a reasonable person in the offeree's position would conclude the offeror's words and action meant. a: Offers made in anger, jest. or undue excitement do not constitute valid offers. b: Expressions of opinion are generally not offers. c: Statements of intention to do something in the future are not offers. d: Preliminary negotiations are not offers. e: Advetisements, catalogues, and circulars are genarlly treatred not as offers but as invitaions to negotiate. A few ads, such as reward offers are valid offers. f: Auctions a seller offers goods for sale, but this itself is not an offer but a seller expressing a willingness to sell. In a reserve auction, the seller may withdraw the goods at any time prior to the close of the auction. Further, in a reserve auction, the seller can reject the highest bid even if the reserve is met if the seller communicates this fact to the potential bidders g: Agreements to agree are generally not binding contracts, unless it is clear that the parties intend to be bound by the agreement to agree

Accord and Satisfaction

A means of settling a claim in which a debtor offers to pay a lesser amount than the creditor purports to be owed. For accord and satisfaction to occur, the amount of the debt must be in dispute. If both sides agree as to the amount of the debt, there is no consideration on the part of the debtor due to pre-existing duty rule.

Settlement of Claims and Consideration

Accord and Satisfaction, Release, Covenant Not to Sue

Who can accept an acceptance?

Generally a third person cannot substitute for the offeree and accept an offer. Except in very special circumstances, an offer is only valid to the person/people to whom it is made.

Termination by Operation of Law

Lapse of Time, Destruction of the Subject Matter, Death or Incompetence of the Offeror or Offeree, Supervening Illegality of the Proposed Contract

Elements of Consideration

Legally Sufficient Value and Bargained-For exchange

Contracts that Lack Consideration

Pre-Exsiting Duty Rule, Unforeseen Difficulties, Recession, Past Consideration, Illusory Promise

Promises Enforceable without Consideration

Promissory Estoppel (also called detrimental reliance): a doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will be better served by the enforcement of the promise.

Release

a contract in which one party forfeits the right to pursue a legal claim against the other party. Releases are generally binding if a) given in good faith, b) stated in a signed writing, and c) accompanied by consideration. Ex.---A is in a car accident with B and B is at fault.. B offers A $3000 if A releases B from any further liability resulting from the accident.

Counteroffer

a counteroffer by the offeree is a rejection of the original offer and a new offer is made. Ex.---I'll sell you my car for $10,000. You reply, "that price is too high---will you accept $9000?" This is a counteroffer.

Offer

a promise to perform or refrain from preforming some specified act in the future. 3 elements necessary for an effective offer

Past Consideration

an act done before the contract is made. This generally cannot be consideration for a later promise to pay for the act. You can bargain for something now, or in the future, but not for something in the past. Ex.---my wife's aunt was the real estate agent when we bought our house. She did not accept her commission. If I say to her "in return for you not taking a commission, I promise to do your will for free," this is not proper consideration (her part occurred in the past) and thus I do not have to do the will. I am offering her a gift, which I can change my mind and not do.

Covenant Not to Sue

an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. Same example as above: A agrees not to sue B for damages in a tort action if B will pay for the damages to A's car.

Agreement

an essential element for contract formation; meeting of two or more minds in regard to the terms of a contract. There are 2 parts to an agreement.

Destruction of the Subject Matter

an offer is automatically terminated if the subject matter of the offer is destroyed before the offer is accepted.

Lapse of Time

an offer terminates automatically by law when the time specified in the offer has passed. If only a date is given, the offer is generally valid until midnight. The time period generally begins to run when the offeree actually receives the offer, not when it is formed or sent. If no time for acceptance is specified in the offer, then the offer terminates at the end of a reasonable time. Reasonable time is determined by the subject matter, business conditions, market conditions, etc.

Death of Incompetence of the Offeror or Offeree

an offeree's power of acceptance is terminated when the offeror or offeree dies or becomes incompetent unless the offer is irrevocable, or substantial performance of a unilateral contract has occurred.

Consideration

generally the value given in return for a promise. Consideration must result in a detriment to the promisee or a benefit to the promisor.

Pre-Existing Duty Rule

if a promise is made to do something that you already have a legal duty to do, this promise is not consideration. One example is when a law enforcement official captures a criminal and there is a reward for the capture of the criminal (officer does not get reward). Another example: you hire a contractor and pay him $150,000 to build a house. Contractor begins work, but 6 weeks later demands that you pay another $25,000 (without giving a reason) when the house is completed. You agree. When the house is done, you do not have to pay the additional money due to the pre-existing duty rule.

Illusory Promise

if the terms of a contract are so uncertain that nothing has actually been promised, the promise is said to be illusory or without consideration and unenforceable.

Rejection

offers may simply be rejected by the offeree. A rejection is generally accomplished by words or conduct showing an intent not to accept the offer. A rejection of an offer is only effective when it is actually received by the offeror, not when mailed. Merely inquiring about an offer does not constitute a rejection. If you ,as the offeree, make the statement "is that your best offer," this is not a rejection.

Legally Sufficient Value

something of legally sufficient value must be given in exchange for the promise. This could be a promise to do something that one has no prior legal duty to do. It could also be refraining from an action that one has a legal right to undertake. Remember smoking and alcohol example. Courts generally do not get involved in determining if something given is legally sufficient value. However if the amount given is too small, this may signify that a gift, and not a contract occurred. Also, if too much is paid, this may signify that an agreement was made due to fraud, duress, undue influence, etc.

Unequivocal Acceptance

the acceptance must be to the terms of the offer (mirror image rule). If the acceptance is subject to new conditions or if the terms of the acceptance materially change the offer, the acceptance may be deemed a counteroffer. Ex.---Offer: "I'll sell you my car on March 8 for $10,000." Acceptance: "I accept; please send a written contract." Counteroffer: "I accept if you send a written contract."

Silence as Acceptance

the general rule is that silence by an offeree does not constitute an acceptance of an offer even if the offer states that offeree's silence is acceptance. An offeree is not under a duty to perform an act to reject an offer. Silence may be considered an acceptance if an offeree takes the benefit of goods or services, knew the goods or services were offered with the expectation of compensation, and could have rejected them and didn't. Silence can also be considered acceptance when the parties have had prior dealings with each other.

Revocation

this is the withdrawal of an offer by the offeror. Unless the offer is irrevocable, it can be revoked at any time prior to the acceptance. Revocation may be accomplished by express repudiation (i withdraw my offer made to you on march 13) or by performance of acts inconsistent with the existence of the offer and which are made known to the offeree; : a revocation becomes effective when the offeree receives it. So if the revocation is mailed, the offer is deemed revoked when the offeree receives it, not when it was mailed. An offer made to the general public (such as a reward offer) must be revoked in the same manner that the offer was originally communicated. Some offers are deemed irrevocable

Bargained-For Exchange

this means that the consideration given by both sides was something that both sides bargained for. If there was little or no bargaining, then a court may decide that a gift occurred instead of a contract.

Unforeseen Difficulties

when unforeseen difficulties that give rise to a contract modification are the types of risks ordinarily assumed in that business, the pre-existing duty rule will apply. However, if the unforeseen difficulty is an unusual one (one that is not ordinarily assumed), then the contract modification may be valid. Using the above house example, suppose the reason the contractor wants more money is because while clearing the property, an unknown and very large rock formation was found under the surface. Special equipment and dynamite will be needed to get rid of it. The court may then enforce the second agreement.