Offer, Offer, Acceptance Acceptance

and and ConsiderationConsideration

Chapter 10Chapter 10

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Requirements Requirements of an Offerof an Offer

THE FIRST STEP IN THE FIRST STEP IN CONTRACT FORMATIONCONTRACT FORMATION

THE FIRST STEP IN THE FIRST STEP IN CONTRACT FORMATIONCONTRACT FORMATION

Valid offer by the offeror (the person Valid offer by the offeror (the person making the offer).making the offer).

Valid acceptance by the offeree (the person Valid acceptance by the offeree (the person to whom the offer is made), to whom the offer is made),

A bona fide offer- offer and acceptance A bona fide offer- offer and acceptance indeed are present.indeed are present.

MUTUAL ASSENTMUTUAL ASSENTMUTUAL ASSENTMUTUAL ASSENT

Requires the assent of both parties to the Requires the assent of both parties to the agreement.agreement.

Parties must agree exactly to the same terms Parties must agree exactly to the same terms and conditions.and conditions.

Without mutual assent no agreement comes Without mutual assent no agreement comes into existence.into existence.

                         

  

Of course, one must be careful Of course, one must be careful about what one bargains for….about what one bargains for….

THE OBJECTIVE THEORY OF THE OBJECTIVE THEORY OF CONTRACTSCONTRACTS

THE OBJECTIVE THEORY OF THE OBJECTIVE THEORY OF CONTRACTSCONTRACTS

An offer involves an indication (either through a An offer involves an indication (either through a promise or another commitment) of one’s promise or another commitment) of one’s willingness to do or refrain from doing something willingness to do or refrain from doing something in the future.in the future.

Offeror has the right to set the terms of the offer.Offeror has the right to set the terms of the offer. Offeror controls method of acceptance by the Offeror controls method of acceptance by the

offeree.offeree. Offeror must exhibit Offeror must exhibit clear and present intentclear and present intent to to

offer.offer. Must be clear and definite Must be clear and definite

OFFEROFFEROFFEROFFER Clear Intention to Contract and Definiteness Clear Intention to Contract and Definiteness

of the Offerof the Offer– Statements of opinions, intentions, and Statements of opinions, intentions, and

preliminary negotiations lack definiteness.preliminary negotiations lack definiteness.– Offer must be specific in all particulars.Offer must be specific in all particulars.

Advertisements and AuctionsAdvertisements and Auctions– Advertisements not valid offers because lack Advertisements not valid offers because lack

sufficient specificity. “Come-Ons”sufficient specificity. “Come-Ons”– In auctions the law treats the bidder as the In auctions the law treats the bidder as the

offeror. offeror.

Words to that Effect…Words to that Effect…

Clear, not definite:Clear, not definite: ““I I maymay sell you that sell you that

couch for $450.00.”couch for $450.00.” ““I I mightmight sell you that sell you that

couch for $450. couch for $450. dollars.”dollars.”

““I I cancan sell you that sell you that couch for $450. couch for $450. dollars.”dollars.”

Bona Fide Offer:Bona Fide Offer: ““I I offeroffer to sell you that to sell you that

couch for $450.” couch for $450.” ““I I willwill sell you that couch sell you that couch

for $450. dollars.”for $450. dollars.”

““Can I get that in Can I get that in writing????” writing????”

Uniform Commercial Code UCCUniform Commercial Code UCCSection 2-207 Section 2-207

Purposes; Rules of Construction; Variation by Agreement.Purposes; Rules of Construction; Variation by Agreement.

The UCC exists to:The UCC exists to: To simplify, clarify and modernize the law governing To simplify, clarify and modernize the law governing

commercial transactions.commercial transactions. To permit the continued expansion of commercial practices To permit the continued expansion of commercial practices

through customer, usage and agreement of the parties.through customer, usage and agreement of the parties. To make uniform the law among the various jurisdictions.To make uniform the law among the various jurisdictions.

http://www.law.cornell.edu/ucc/ucc.table.html

Uniform Commercial CodeUniform Commercial Code Divided into ArticlesDivided into Articles

– Article 1 - General ProvisionsArticle 1 - General Provisions– Article 2 – SalesArticle 2 – Sales– Article 2A – Leases – General ProvisionsArticle 2A – Leases – General Provisions

Article 2 – Sales:Article 2 – Sales:– Short Title, Construction and Subject MatterShort Title, Construction and Subject Matter– Form, Formation and Readjustment of ContractForm, Formation and Readjustment of Contract– General Obligations and Construction of ContractGeneral Obligations and Construction of Contract– Title, Creditors and Good Faith PurchasesTitle, Creditors and Good Faith Purchases– PerformancePerformance– Breach, Repudiation and ExcuseBreach, Repudiation and Excuse– RemediesRemedies

Communication of the Offer to the Offeree… Communication of the Offer to the Offeree… Offeror must communicate the offer to the Offeror must communicate the offer to the offeree to have legal effect.offeree to have legal effect.

OFFEROFFER

Common Offer Mediums:Common Offer Mediums:

1.1. In Person, face-to-faceIn Person, face-to-face2.2. Over the Phone, fax or other electronic Over the Phone, fax or other electronic

device.device.3.3. Neutral Third PartyNeutral Third Party4.4. Mailbox Rule – US Mail or Express mailMailbox Rule – US Mail or Express mail

OFFEROFFER Offer Mediums:Offer Mediums:

– ““Mail Box Rule”Mail Box Rule”

Where parties Where parties are at distance from one are at distance from one another, another, and an offer is sent by mail, it is and an offer is sent by mail, it is universally held in this country that the reply universally held in this country that the reply accepting the offer may be sent through the accepting the offer may be sent through the same same mediummedium, , and, if it is so sent, the contract and, if it is so sent, the contract will be complete when the acceptance is will be complete when the acceptance is mailed…and beyond the acceptor’s control; the mailed…and beyond the acceptor’s control; the theory being that, when one makes an offer theory being that, when one makes an offer through the mail, he authorizes the acceptance through the mail, he authorizes the acceptance to be made through the to be made through the same medium.same medium.

Note Regarding Certified MailNote Regarding Certified Mail

Sending your response Sending your response Certified Mail leaves little Certified Mail leaves little room for disputes.room for disputes.

Because your tracking Because your tracking numbers are unique, they numbers are unique, they are tracked in such a way are tracked in such a way that times and dates are that times and dates are recorded for process and recorded for process and delivery. delivery.

The delivery of the The delivery of the response can be tracked response can be tracked via the web at via the web at

http://dm.alot.com/app/pkgtrkr/package_tracker/en-us?camp_id=2988&utm_source=google&utm_medium=cpc&gclid=CJfOpsaw0qsCFUwZQgodzCvOWw

Package Tracking SystemPackage Tracking System

OFFEROFFER

Duration of the Offer.Duration of the Offer.– Four methods for terminating an Four methods for terminating an

offer:offer:»LapseLapse»RevocationRevocation»RejectionRejection»Acceptance of offerAcceptance of offer

ACCEPTANCEACCEPTANCEACCEPTANCEACCEPTANCE

Usual mode of terminating an offer.Usual mode of terminating an offer. Offeror and offeree have arrived at an Offeror and offeree have arrived at an

agreement.agreement. Binding contract exists.Binding contract exists. Involves the offeree’s assent to all the terms Involves the offeree’s assent to all the terms

of the offer.of the offer. The acceptance is oral, written, or implied.The acceptance is oral, written, or implied.

ACCEPTANCEACCEPTANCE Mirror-Image Rule:Mirror-Image Rule: the the acceptance must match, term acceptance must match, term by term, the provisions in by term, the provisions in the offer.the offer.

Manner and Time of Manner and Time of Acceptance: Acceptance: offeree must offeree must accept in exactly the mode accept in exactly the mode specified or stipulated, by specified or stipulated, by the offeror in the offer. the offeror in the offer. Acceptance becomes legally Acceptance becomes legally effective at the time of effective at the time of dispatch. dispatch. – ““Mailbox Rule” Mailbox Rule”

ACCEPTANCEACCEPTANCE Silence: overt act accompanies acceptance, which Silence: overt act accompanies acceptance, which

requires a clear intent to accept, prior dealings of requires a clear intent to accept, prior dealings of parties may permit acceptance based on silence. parties may permit acceptance based on silence.

Bilateral Bilateral vs.vs. Unilateral Contracts, Unilateral Contracts,– Bilateral Contracts the offeree accepts by either Bilateral Contracts the offeree accepts by either

a direct communication to offeror or a counter-a direct communication to offeror or a counter-promise inferred from the offeree’s conduct. promise inferred from the offeree’s conduct.

– Unilateral Contracts the offeree accepts by Unilateral Contracts the offeree accepts by merely completing the act called for in the merely completing the act called for in the offer.offer.

Termination of an offer…Termination of an offer…

Termination of an Offer by Termination of an Offer by Action of the PartiesAction of the Parties

Revocation of the offer by the offerorRevocation of the offer by the offeror Rejection of the offer by the offereeRejection of the offer by the offeree Counteroffer by the offereeCounteroffer by the offeree Promissory estoppelPromissory estoppel

Termination of the Offer by Termination of the Offer by Operation of LawOperation of Law

Destruction of the subject matterDestruction of the subject matter Death or incompetency of the Death or incompetency of the

offeror or the offereeofferor or the offeree Supervening illegalitySupervening illegality Lapse of timeLapse of time

““LAS VEGAS – Casino mogul Steve Wynn will LAS VEGAS – Casino mogul Steve Wynn will keep and restore a Pablo Picasso painting that he keep and restore a Pablo Picasso painting that he accidentally damaged shortly after he had agreed accidentally damaged shortly after he had agreed to sell it for a record $139 million, an aide said to sell it for a record $139 million, an aide said Tuesday. Wynn was showing the painting called Tuesday. Wynn was showing the painting called “Le Reve,” French for “The Dream,” to guests in “Le Reve,” French for “The Dream,” to guests in his office earlier this month at Wynn Las Vegas his office earlier this month at Wynn Las Vegas when he struck the painting with his right elbow, when he struck the painting with his right elbow, spokeswoman Denise Randazzo said.” spokeswoman Denise Randazzo said.”

– CNN News - Oct. 17, 2006CNN News - Oct. 17, 2006

Destruction of the subject matterDestruction of the subject matter

http://www.cbsnews.com/stories/2006/10/18/national/main2100835.shtml

So cute I had to include…So cute I had to include…

http://www.youtube.com/watch?v=oxGWENAv_oA&feature=related

Contract Terminology…Contract Terminology…

Contract TerminologyContract Terminology Option Option –– A contract to keep an offer open form A contract to keep an offer open form

some agreed-on time period.some agreed-on time period. Revocation Revocation –– The cancellation, rescission, or The cancellation, rescission, or

annulment of something previously done or annulment of something previously done or offered.offered.

SuperveningSupervening – – Coming or happening as something Coming or happening as something additional or unexpected.additional or unexpected.

Promissory Estoppels Promissory Estoppels –– Denying the making of a Denying the making of a promise or escaping the liability for that promise promise or escaping the liability for that promise because of the justifiable reliance of the promisee because of the justifiable reliance of the promisee that the promise would be kept.that the promise would be kept.

Contract TerminologyContract Terminology

Rejection –Rejection – Refusal to accept what is offered Refusal to accept what is offered Bilateral Contract –Bilateral Contract – Accepted by either a direct Accepted by either a direct

communication of a promise to the offeror or a communication of a promise to the offeror or a counterpromise inferred from the offeree’s counterpromise inferred from the offeree’s conduct or other circumstances.conduct or other circumstances.

Unilateral Contract –Unilateral Contract – Usually is unnecessary for Usually is unnecessary for the offeree to communicate acceptance.the offeree to communicate acceptance.

CONSIDERATIONS:CONSIDERATIONS:

Considerations DefinedConsiderations DefinedSpecial ContextSpecial Context

Absence of ConsiderationAbsence of ConsiderationExceptions of ConsiderationsExceptions of Considerations

CONSIDERATIONCONSIDERATION

Parties have made an exchange of value.Parties have made an exchange of value. Exchange of value, the quid pro quo Exchange of value, the quid pro quo

(something for something), of contract (something for something), of contract formation is consideration.formation is consideration.

THE BARGAIN AS A THE BARGAIN AS A CONTRACT THEORYCONTRACT THEORY

Presence of consideration indicates the parties’ Presence of consideration indicates the parties’ exchange of value results in an agreement between exchange of value results in an agreement between the parties.the parties.

Consideration shows some obligation or duty Consideration shows some obligation or duty worthy of a court’s protection.worthy of a court’s protection.

Establishes that parties are acting deliberately and Establishes that parties are acting deliberately and intend to bind to terms of the agreement. intend to bind to terms of the agreement.

Theories permit an agreement to be binding in Theories permit an agreement to be binding in some cases despite a lack of consideration.some cases despite a lack of consideration.

DEFINITION OF DEFINITION OF CONSIDERATIONCONSIDERATIONDEFINITION OF DEFINITION OF

CONSIDERATIONCONSIDERATION Most common definition states Most common definition states

consideration is: consideration is: – Waiver, or promised waiver.Waiver, or promised waiver.

» Voluntary surrender of a legal right; intentional Voluntary surrender of a legal right; intentional surrender of a right.surrender of a right.

– Of rights bargained for:Of rights bargained for:» Benefit to the promissor or a detriment to the Benefit to the promissor or a detriment to the

promisee.promisee.

– Given in exchange for a promise.Given in exchange for a promise.

DEFINITION OF DEFINITION OF CONSIDERATIONCONSIDERATIONDEFINITION OF DEFINITION OF

CONSIDERATIONCONSIDERATION Detriment refers to the fact that the promise Detriment refers to the fact that the promise

is based on the promisee giving up is based on the promisee giving up something.something.

Consideration can take many forms, Consideration can take many forms, primarily money, but can include, but is not primarily money, but can include, but is not limited to time, conversion, or forbearance.limited to time, conversion, or forbearance.

Consideration is whatever the offeror wants Consideration is whatever the offeror wants enough to bargain (legally) for.enough to bargain (legally) for.

ForbearanceForbearance

Refraining from legal right: Refraining from legal right:  the fact of the fact of not exercising a legal right, especially of not exercising a legal right, especially of not insisting on payment of a debt at the not insisting on payment of a debt at the due date and giving the debtor more due date and giving the debtor more time to pay.time to pay.

DEFINITION OF DEFINITION OF CONSIDERATIONCONSIDERATIONDEFINITION OF DEFINITION OF

CONSIDERATIONCONSIDERATION Consideration as an Act or a Forbearance to Act:Consideration as an Act or a Forbearance to Act:

– Necessity of parties’ bargaining over event or object and Necessity of parties’ bargaining over event or object and exchanging something of value to bind themselves to do exchanging something of value to bind themselves to do something.something.

– Unilateral contract, consideration is revealed in an act or a Unilateral contract, consideration is revealed in an act or a forbearance to act.forbearance to act.

– Some benefit to the promissor (one making the promise).Some benefit to the promissor (one making the promise).

– Some detriment to the promisee (one to whom the Some detriment to the promisee (one to whom the promise is made).promise is made).

– In exchange for whatever the promissor promises to do.In exchange for whatever the promissor promises to do.

DEFINITION OF DEFINITION OF CONSIDERATIONCONSIDERATIONDEFINITION OF DEFINITION OF

CONSIDERATIONCONSIDERATION Consideration as a Promise to Act or to Forbear:Consideration as a Promise to Act or to Forbear:

– Bilateral contract, consideration consists of not Bilateral contract, consideration consists of not actions themselves, but rather promises to act actions themselves, but rather promises to act or to forebear from taking some action.or to forebear from taking some action.

– Promises must be real, Promises must be real, notnot illusory (false). illusory (false). Adequacy of Consideration: Adequacy of Consideration:

– Is of no interest to the court, assuming fraud, Is of no interest to the court, assuming fraud, mistake, duress or undue influence is not mistake, duress or undue influence is not involved.involved.

CONSIDERATION IN SPECIAL CONSIDERATION IN SPECIAL CONTEXTSCONTEXTS

CONSIDERATION IN SPECIAL CONSIDERATION IN SPECIAL CONTEXTSCONTEXTS

Contracts for the Sale of Goods: Contracts for the Sale of Goods: – ““Firm offer” provisions of UCC makes offer Firm offer” provisions of UCC makes offer

irrevocable for up to three months.irrevocable for up to three months.– Intended to encourage commercial activity.Intended to encourage commercial activity.

Suretyship Contracts:Suretyship Contracts:– Consideration is an absolute requirement.Consideration is an absolute requirement.– Involves three parties: Involves three parties:

» Principal debtor.Principal debtor.» Creditor.Creditor.» Surety (Agrees to beSurety (Agrees to beLiable to the creditor).Liable to the creditor).

CONSIDERATION IN CONSIDERATION IN SPECIAL CONTEXTSSPECIAL CONTEXTSCONSIDERATION IN CONSIDERATION IN SPECIAL CONTEXTSSPECIAL CONTEXTS

Liquidated Debts: Liquidated Debts: – Partial payment of that debt is not consideration Partial payment of that debt is not consideration

for full discharge of the debt, the amount owed for full discharge of the debt, the amount owed is not disputed.is not disputed.

– Absence of consideration.Absence of consideration. Unliquidated Debts: Unliquidated Debts:

– Amount of debt is in dispute, partial payment of Amount of debt is in dispute, partial payment of that debt is consideration for payment in full. that debt is consideration for payment in full.

CONSIDERATION IN CONSIDERATION IN SPECIAL CONTEXTSSPECIAL CONTEXTSCONSIDERATION IN CONSIDERATION IN SPECIAL CONTEXTSSPECIAL CONTEXTS

Composition Agreements: Composition Agreements: – Reached between debtor and creditors when Reached between debtor and creditors when

accepting smaller percentage of debt owed in accepting smaller percentage of debt owed in full satisfaction.full satisfaction.

– Consideration for full discharge of the debt.Consideration for full discharge of the debt.

ABSENCE OF ABSENCE OF CONSIDERATIONCONSIDERATION

ABSENCE OF ABSENCE OF CONSIDERATIONCONSIDERATION

Illusory Promises: Illusory Promises: – Promises that do not bind the promissor to a Promises that do not bind the promissor to a

commitment. commitment. – Promises without benefit to promissor or Promises without benefit to promissor or

without detriment to promisee.without detriment to promisee. Preexisting Duty: Preexisting Duty:

– When a person is already When a person is already obligatedobligated to perform to perform a certain duty, but wants additional payment.a certain duty, but wants additional payment.

ABSENCE OF ABSENCE OF CONSIDERATIONCONSIDERATION

Moral Consideration: Moral Consideration: – When you feel guilty and offer a large gift and When you feel guilty and offer a large gift and

later renege.later renege.– No consideration and no bargaining.No consideration and no bargaining.

Past Consideration: Past Consideration: – No bargaining and exchange of value has No bargaining and exchange of value has

occurred.occurred.– No consideration and promises will not be No consideration and promises will not be

enforceable.enforceable.

EXCEPTIONS TO EXCEPTIONS TO CONSIDERATIONCONSIDERATIONEXCEPTIONS TO EXCEPTIONS TO CONSIDERATIONCONSIDERATION

Promissory Estoppel: Promissory Estoppel: – When promissor makes clear, definite, When promissor makes clear, definite,

communicated promise which induced the communicated promise which induced the promisee to act, courts will enforce the promisee to act, courts will enforce the agreement.agreement.

Charitable Subscriptions: Charitable Subscriptions: – Promise to pay a certain sum to a nonprofit Promise to pay a certain sum to a nonprofit

charity.charity.

EXCEPTIONS TO EXCEPTIONS TO CONSIDERATIONCONSIDERATIONEXCEPTIONS TO EXCEPTIONS TO CONSIDERATIONCONSIDERATION

Promises Made After the Expiration of the Promises Made After the Expiration of the Statute of Limitations: Statute of Limitations: – Set time limits on when creditors can bring suit Set time limits on when creditors can bring suit

against debtors for the sum owed to the against debtors for the sum owed to the creditors.creditors.

– Enforced by the courts.Enforced by the courts.– No consideration.No consideration.

EXCEPTIONS TO EXCEPTIONS TO CONSIDERATIONSCONSIDERATIONS

Promises to Pay Debts Covered by Bankruptcy Promises to Pay Debts Covered by Bankruptcy Discharges: Discharges: – Debtor promises to pay a debt covered by a Debtor promises to pay a debt covered by a

discharge in bankruptcy.discharge in bankruptcy.– After bankruptcy discharge will be enforced by the After bankruptcy discharge will be enforced by the

courts.courts.– No consideration.No consideration.

ON-LINE RESOURCESON-LINE RESOURCES

Legal Information Institute (LII)-Contract Legal Information Institute (LII)-Contract Law MaterialsLaw Materials

The American Law Institute (ALI)The American Law Institute (ALI)

Offer, Offer, Acceptance Acceptance

and and ConsiderationConsideration

Chapter 10Chapter 10