1. 1. Common Law of ContractMutual Assent: The Study of Offer andAcceptance in Common Law
2. 2. The Basic Model without revocationOffer AcceptanceRejectionCounteroffer = rejection+ new offerContract formedNo Contracton terms of offerOfferor Offeror offerorAccepts Rejects makes c-offerK on terms ofNo and so oncounteroffer Contract
3. 3. All About CommunicationMutual Assent is basis of contractK communication can be done with:words (express)actions (implied)In perfect world a persons intent is alwaysunderstood by other party.we dont live in a perfect world
4. 4. Questions to be AskedWhat is an offer and when is it made?What is acceptance and when does it occur?At what point does the power to accept an offerterminate such that an attempted acceptance is nolonger timely?
5. 5. Question 1: The Nature of an OfferClass text says an offer is a manifestation of apresent willingness to enter into a contract in theevent of an unconditional acceptance being made.The offer must manifest BOTH an intent to belegally bound and contain definite terms.Lets break this down!
6. 6. Offer Must ContainManifested must be communicated to the personto whom it is being addressed.Indicate desire to enter into KDirected at some person or groupMust invite acceptanceMust contain power of acceptance
7. 7. ExampleOffer RequirementsProperty owner writes toprospective buyer:Communicated?I offer to sell my farm forSpecify performances &$2 million cash. If youother terms?wish to buy this propertyDirected at someone?you must deliver yourInvite Acceptance?written acceptance to meby midnight on Friday,K arise w/out further November 11, 2005.approval?Is this an offer?
8. 8. ExampleOffer Requirements I wish to sell my farmCommunicated?and will consider anSpecify performances & offer of not less than $2other terms? million. I invite you to make an offer if you areDirected at someone? interested in purchasingInvite Acceptance? it.K arise w/out furtherOffer?approval?
9. 9. ExampleOffer Requirements I am willing to sell myCommunicated?farm to you, but will notSpecify performances & accept less than $2other terms? million cash. Let me have your reply as soon asDirected at someone? possible.Invite Acceptance?K arise w/out furtherapproval?Offer?
10. 10. Offer v. Preliminary Proposalwhat do the words themselves indicate?are significant terms omitted?is communication directed at particular person?what is the relationship of the parties?what are common practices or trade usages?NOTE preliminary proposal = invitation to treat
11. 11. Special Rules Price-marked goods usually goods in storewindow or on shelves do not constitute offer to sellbut rather invitation to treat.Some American courts make exception for purposes ofaction brought by consumer.In this instance displaying the item constitutes an offer andplacing the item in ones basked constitutes acceptance.
12. 12. Special RulesAdvertisements, Price Lists and Circulars most areconsidered invitations to treat. Unless:circumstance clearly indicate intention to make an offeradvertisement invites those to whom it is addressed to takespecific action without further communication, orwhere over acceptance is unlikely (note correction).Ads promising rewards probably fall into all threeand are thus offers.
13. 13. Carbolic Smoke Ball Case
14. 14. Invitation to TreatAn invitation to treat is not an offer, but anindication of a persons willingness to negotiate acontract.response to such an invitation constitute offerswhich may be accepted or rejected and notacceptances which would lead to a binding contract.
15. 15. Ordinary Ad, An Offer?
16. 16. Can an Ad be an Offer?What about this ad:The Great Minneapolis Surplus Store published thefollowing advertisement in a Minneapolis newspaper: SATURDAY 9 AM. 2 BRAND NEW Pastel MINK 3-SKIN SCARFS Selling for $89.50 Out they go SATURDAY. Each ......... $1.00 1 BLACK LAPIN STOLE . . . Beautiful, worth $139.50........$1.OO FIRST COME FIRST SERVEDOffer or Invitation to Treat?
17. 17. An Ad Can be an Offerwhere the offer is clear, definite and explicit, andleaves nothing open for negotiation, it constitutes anoffer, acceptance of which will complete thecontract. . . .Thus, language used in the ad is key.Look at the language in the Carbolic Smoke Caseand the language in the previous example (whichwas also a famous case).
18. 18. Objectively Judging an Offer Lucy v. Zehmer
19. 19. Offer? Leonard v. Pepsicohttp://video.google.com/videoplay?docid=295016640043159024
20. 20. AuctionsAs the text indicates, the auctioneers statementsgenerally do not constitute an offer.The offer is made by the person making the highestbidWhich is then accepted by the auctioneer.
21. 21. The Basic Model Offer AcceptanceRejectionCounteroffer = rejection+ new offerContract formedNo Contracton terms of offer OfferorOfferor offeror AcceptsRejects makes c-offerK on terms ofNo and so oncounteroffer Contract
22. 22. Question 3 At what point does the power to accept an offerterminate such that an attempted acceptance is no longer timely?
23. 23. Termination of an OfferLapseRejection by the OffereeRevocation by the Offeror
24. 24. LapseAn offer does not last forever.The offeror is entitled to specify timeIf no time is specified, then acceptance must be w/ina reasonable time.clearly this is a risk & could result in litigation.Reasonable = time needed to receive, consider andreply under circumstances of transaction.
25. 25. Stating A TimeThere can still be problems even if the time isstated.Acceptance must be received by 5 P.M. PacificDaylight time on Sunday, November 6, 2005.No problem here.Acceptance must be received within five days.Problems?
26. 26. Termination of Offer Before LapseRejectionOfferors Death or Mental IncapacityRevocation (we will look at this shortly)Counteroffer lets look at the case
27. 27. CounteroffersLivingston v. Evans
28. 28. What Did We Learn About Counteroffers?A counteroffer is treated as a rejection.A mere inquiry is NOT a rejection.An original offer can be revived even after acounteroffer has been tendered.Whether something is an inquiry or counteroffer,and whether the original offer has been revived is aquestion of fact that a court must try fit within theserules.
29. 29. What Else Did We Learnfrom this Case?How courts use precedent and can be persuaded byother court opinionsHow courts will distinguish cases offered by partyas precedent or persuasion.That in fact specific performance CAN sometimesbe a remedy (more on that much later).NOTE what amounts to a counter-offer will bediscussed in more detail next week.
30. 30. RevocationRevocation by Offeror terminates offer.It takes effect once communicated to offeree.Indirect Revocationofferor takes action clearly inconsistent w/ K intentofferee obtains reliable info of this action.This can be tendered at anytime, even before a settermination date UNLESS there was firm offer.
31. 31. Firm Offer/OptionsA promise to keep an offer open for a stated periodof time.Consideration must be given in exchange for thispromise to keep open.We will discuss consideration later.An offeror is considered to be in breach if herevokes firm offer.
32. 32. Option w/ Consideration ExampleOption (Prelim K) promise to keep offer openOfferorOfferee $100if exercised, will lead toUnderlying Exchange(proposed K) FarmOfferor Offeror$2 million
33. 33. Option w/out ConsiderationThere are two instances where an option K can beformed without consideration being given:Court applies doctrine of EstoppelUCC 2-205Merchant selling or buying goodsoffer placed in writingwriting contains assurance the offer will be held opensigned by the parties
34. 34. Estoppel ExampleSeller writes to buyer offering to sell farm, statingthat offer will be held open until Friday.No consideration is given, thus not binding.Buyer, intending to accept offer by Friday, quits hisjob in the city on Tuesday to devote his fullattention to his new farm.Wednesday, seller revokesThursday, buyer disregards revocation and tendersacceptance.
35. 35. Estoppel ExampleBuyer claims reliance on promise not to revokeoffer until Friday caused him to quit his job.If offer is not enforced, buyer claims he will sufferunfair detrimentA court may apply the doctrine of promissoryestoppel (to be discussed in more detail later).Seller did promise to keep open the offerIts reasonable to expect that buyer would rely on this.Buyer did in fact rely, to his detriment.Whether buyers reliance was justified is Q for court.
36. 36. The Basic Model Offer AcceptanceRejectionCounteroffer = rejection+ new offerContract formedNo Contracton terms of offer OfferorOfferor offeror AcceptsRejects makes c-offerK on terms ofNo and so oncounteroffer Contract