Contract LawChapter 6

What Must be in a Contract?

1. Offer and acceptance2. Genuine assent3. Legality4. Consideration5. capacity6. Writing

Offer and Acceptance•Three tests that a valid offer must pass:

▫Contractual intent must be present Offers made in jest, in extreme terror or anger,

or as a preliminary negotiation or social agreement ARE NOT OFFERS

▫The offer must be communicated to the offeree A person who is not the intended offeree cannot

accept the offer▫The essential terms of the offer must be

complete and definite Must, at minimum, include price, subject matter,

and quantity Term must be identified clearly

Offer and Acceptance• To create an enforceable contract the acceptance

must:▫Come from the person or persons to whom the offer

is made Offer made to one person cannot be accepted by

another▫Match the terms of the offer

Mirror image rule—acceptance must exactly match the terms contained in the offer

▫Be communicated to the offeror Silence is not acceptance Bilateral contracts—offer implies that it can be accepted

by giving a promise instead of performing the contracted-for act

Unilateral contracts—offeror promises something in return for the offeree’s performance and indicates that this performance is the way acceptance is to be made

Offer and Acceptance

•Modes of Contractual Communication▫Offers, acceptances, rejections,

revocations, and counteroffers may generally be communicated in person or other effective means Telephone Mail Delivery service Email Fax

Offer and Acceptance•When Acceptances are Effective

▫All forms of contractual communications but one take effect only when received Acceptance takes effect when it is sent The offeror may require the offeree to use a

certain communication method If a different communication method is used

then it is treated as a modification to the offer

▫Business custom often implies a method to be used in an acceptance

▫Most courts say the acceptance is effective when sent by the same means used for the offer, or by faster means

Offer and Acceptance• When Acceptances are Effective

▫Oral acceptances are effective at the moment the words are spoken directly to the offeror

▫Acceptances sent by mail generally take effect when properly posted Placed with correct address and proper postage under the

control of the U.S. postal service▫Telegram takes effect as an acceptance when it is handed

to the clerk at the telegraph office or telephoned to a telegraph office

▫Fax transmission is instantaneous when the transmission lines are open and both sending and receiving equipment work properly

▫The offeror may specify that an acceptance will not be binding until it is actually received Avoids confusion

Genuine Assent

•The agreement (offer and acceptance) must not be based on:▫One party’s deceiving another▫on an important mistake▫on the use of unfair pressure exerted to

obtain the offer or acceptance

Legality

•What the parties agree to must be legal▫An agreement to pay someone to commit a

crime or a tort cannot be a contract

Consideration•The agreement must involve both sides

receiving something of legal value as a result of the transaction

•Requirements:▫Each party must give an act, forbearance, or

promise to the other party▫Each party must trade what they contribute to

the transaction for the other party’s contribution

▫What each party trades must have legal value—must be worth something in the eyes of the law

Capacity

•The parties must be able to contract for themselves rather than being forced to use parents or legal representatives

•Those who lack capacity:▫Minors▫Mentally incapacitated▫Intoxicated – drugs or alcohol

•Minimum age to contract is 18

Writing

•Some agreements must be placed in writing to be fully enforceable

How can offers be ended?

•Revocation by the Offerer▫The offeror can generally revoke an offer

anytime before it is accepted by the offeree▫Not effective until it is communicated to

the offeree•Time Stated in the Offer

▫The offeror may state how and when the offer must be accepted

How can offers be ended?•Reasonable Length of Time

▫When nothing is said in the offer about how long it will remain open, it will end after a reasonable length of time

▫To avoid misunderstandings, the time available for acceptance should be specified at the outset

•Counteroffer▫The offeree changes the offeror’s terms in

important ways and sends it back to the offeror▫The counteroffer terminates the original offer--

Becomes the new offer

How can offers be ended?

•Death or Insanity of either the offeror or the offeree▫The law acts for these parties when they

can no longer act and terminates the offer•Destruction of the Specific Subject Matter

▫If the offer refers to specific subject matter and it is subsequently destroyed, the offer is automatically terminated

How can an offer be kept open?• Options

▫ If the offeree gives the offeror something of value in return for a promise to keep the offer open This agreement in itself is a binding offer The offer may not be withdrawn during the period of

the option• Firm Offers

▫Works the same way as an option▫Applies to merchants who make offers in writing

Contains terms stating how long the offer is to stay open

▫The Uniform Commercial Code makes firm offers binding for the time stated, but not more than 3 months Applies even if nothing is paid by the offeree