CHAPTER 7
Chapter 7 Slide 1
Offer and Acceptance
Lessons
7-1 Creation of Offers
7-2 Termination of Offers
7-3 Acceptances
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Chapter 7 Slide 2
LESSON 7-1
Creation of Offers
GOALS
 List the elements required to form a contract
 Describe the requirements of an offer
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Chapter 7 Slide 3
Hot Debate – pg. 110
1) Should Celia be bound because the literal
meaning of her words suggests she
intended to sell the car?
1) Argument can be made - should be bound by
literal meaning of words
2) Should Celia not be bound to sell the car
because the circumstances (new car stalls
and people are honking) suggest that she
did not intend to sell?
1) Argue - literal meaning of sentences often is
quite different from what someone intended
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Chapter 7 Slide 4
WHAT IS A CONTRACT?
A contract is an agreement that courts
will enforce.
Contracts between two parties are the
basis for all economic activity.
Contracts are the legal links between
the individuals and companies
producing and consuming goods and
services.
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Chapter 7 Slide 5
CONTRACT
REQUIREMENTS
There are six major requirements that must be
satisfied before courts will treat transactions as
contracts.
 Offer and acceptance  Consideration
 Genuine assent
 Capacity
 Legality
 Writing
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Chapter 7 Slide 6
CONTRACT
REQUIREMENTS
 Offer and Acceptance –
there must be a serious,
definite offer to contract.
 And the terms of the offer
must be accepted by the
party to whom it was
communicated
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Chapter 7 Slide 7
CONTRACT
REQUIREMENTS
 Genuine Assent –
cannot be based on:
 Deception
 Important mistake
 Use of unfair pressure
to obtain
offer/acceptance
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Chapter 7 Slide 8
CONTRACT
REQUIREMENTS
 Legality - make up
of agreement must
be legal
 i.e. Cannot create
an agreement to
have someone
commit a crime for
you
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Chapter 7 Slide 9
CONTRACT
REQUIREMENTS
 Consideration –
agreement must
involve both sides
receiving something of
legal value as a result
of the transaction
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Chapter 7 Slide 10
CONTRACT
REQUIREMENTS
 Capacity – parties
must be able to
contract for
themselves
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Chapter 7 Slide 11
CONTRACT
REQUIREMENTS
 Writing - some
agreements must be
placed in writing to
be fully enforceable
in court
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Chapter 7 Slide 12
Contracts - oral or written
Does it matter if a contract is only oral?
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Chapter 7 Slide 13
REQUIREMENTS
OF AN OFFER
Expression of intent to create a legal
obligation
Offer must be complete and clear
Offer must be communicated to the
offeree
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Chapter 7 Slide 14
Contract: Painter Example
Painter promises to paint house within
30 days for $3,000 (Offer)
Homeowner agrees to the time frame
and the $3,000 (Acceptance)
Painter  OFFEROR
Homeowner  OFFEREE
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Chapter 7 Slide 15
CONTRACT
REQUIREMENTS
 Offer – proposal by an offeror to do
something, provided the offeree does
something in return
 If the offeree accepts the proposal, a contract arises
 Valid Offer:
1) Offeror must appear to intend to create a legal
obligation (serious)
1) Objective test of the reasonable person
1) Not based on what someone was thinking – unreasonable
to expect courts to figure out what you were thinking
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Chapter 7 Slide 16
CONTRACT REQUIREMENTS
2) Appearance counts – If you think you are joking,
but a reasonable person would interpret your
conduct as indicating that you intend to contract –
you have made an offer
On the other hand, if you are serious, but a
reasonable person would interpret your conduct as
a joke, then no legally enforceable offer is made
2) terms must be definite and complete
3) Offer must be communicated to the
offeree
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Chapter 7 Slide 17
Test of Reasonable Person
Examines:
 offeror’s words
conduct in light of all relevant facts and
circumstances
Words spoken in jest / frenzied terror /
anger = no offer intended
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Chapter 7 Slide 18
Preliminary Negotiations
Tentative terms, inviting others to make
offers
i.e. “I think I’m interested in selling my
laptop computer for around $1,000. Is
anybody interested?”
-- not an offer
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Chapter 7 Slide 19
Where do you stand?
Brent and Lisa were students in a class on
movie production.
Knowing that the final movie in the Alien
Cheerleader trilogy was about to come out,
Brent camped out overnight at the theater. He
bought two tickets, and then asked Lisa to go
with him.
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Chapter 7 Slide 20
Where do you stand?
Lisa agreed.
Lisa would have to call in sick to her evening
job as waitress in order to go
Calling out sick would cost her more than
$100 in wages & tips
She still made the call
When Brent did not show up to get her, she
confronted him
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Chapter 7 Slide 21
Where do you stand?
Brent admitted he sold the tickets to
someone else for $50 each
Should Lisa be allowed to sue Brent
for not taking her to the movie??
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Chapter 7 Slide 22
Where do you stand?
Almost every state would NOT allow such
a lawsuit
Social invitations do not produce
enforceable contracts
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Chapter 7 Slide 23
Social Arrangements
 Friends agreeing to
go to movies
 Social arrangements
= not contracts
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Chapter 7 Slide 24
Offer Must be
Complete & Clear
 terms must be sufficiently complete and
clear to allow a court to determine what
the parties intended
Pg. 112 – “In this case”
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Chapter 7 Slide 25
Complete Terms
Offers should contain price / subject
matter / quantity
Amount of detail depends on complexity
of transaction
i.e. Real estate sale (identify lot, price,
terms of payment, delivery date)
Candy bar sale (price, subject matter,
quantity)
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Chapter 7 Slide 26
Clear
“In this case” - Delgados agreed on
“one lot” – no specification as to which
lot.
lacking essential information
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Chapter 7 Slide 27
READ B E F O R E signing
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Chapter 7 Slide 28
Implied Terms
Terms can be implied by law or common
business practice
i.e. Merchants and customers - price is
not specified; current market price is the
basis for the contract
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Chapter 7 Slide 29
Advertisements
NOT offers - invitations to make offers
What’s Your Verdict – pg. 112
Did the Anchors Aweigh advertisement
make offers to the would-be buyers?
Customers: made Offers
Sellers must make reasonable supply
available – no expectation to meet every
demand
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Chapter 7 Slide 30
Advertisements
 Can be offers:
1) Written clearly and indicating limited
quantities -- book example of selling
car to first person
2) Asks offeree to perform an act as a
way of accepting -- first person to
appear at the main door of a shopping
mall on …
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Chapter 7 Slide 31
Offer Must be
Communicated to Offeree
Non-intended offeree cannot accept the
offer
Cannot accept if unaware of offer
(reward)
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Chapter 7 Slide 32
What’s your Verdict?
Pg. 111
Did the two friends create a contract?
Yes – even though delivery and
payment will occur later
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Chapter 7 Slide 33
E-Contracts: Agreeing Online
When I'm online and I click on
a button that says "I ACCEPT," are all of
those terms actually enforceable
against me, even if I didn't read them?
West's Digital Video Library – video #23
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Chapter 7 Slide 34
If you don’t satisfy the law’s requirement
for creating an offer, then you usually
don’t have a contract.
TRUE / FALSE
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Chapter 7 Slide 35
TRUE
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Chapter 7 Slide 36
To be valid, an offer must indicate an
intent to create a legal obligation.
TRUE / FALSE
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Chapter 7 Slide 37
 TRUE
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Chapter 7 Slide 38
 Which of the following are reasons why an
offer may not be valid?
 A) It is apparent that the speaker is joking
 B) It is clear that the speaker is trying to
obtain additional information rather than
commit to an agreement
 C) The subject of the agreement is only
social
 D) all of the above
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Chapter 7 Slide 39
 D - all of the above
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Chapter 7 Slide 40
The requirement that an offeror show an
intent to contract is a(n) ______ test
rather than a test which focuses on the
purported offeror’s actual thoughts.
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Chapter 7 Slide 41
 Objective
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Chapter 7 Slide 42
Which of the following is evidence showing
an intent to contract
A) spoken or written words
B) conduct other than speaking or writing
C) other facts and circumstances
D) all of the above
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Chapter 7 Slide 43
 D – all of the above
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Chapter 7 Slide 44
Advertisements can be offers when
A) they are complete
B) they are clear
C) they address the problem of
numerous recipients and a limited
supply of the advertised product
D) all of the above
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Chapter 7 Slide 45
 D - all of the above
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Chapter 7 Slide 46
If an offer is made, it can be accepted
by anyone who learns of it.
TRUE / FALSE
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Chapter 7 Slide 47
 FALSE
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Chapter 7 Slide 48
The test of the reasonable person is
used by a jury or judge to evaluate all
the relevant evidence to determine
whether there has been a manifestation
of an intent to contract.
TRUE / FALSE
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Chapter 7 Slide 49
 TRUE
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Chapter 7 Slide 50
To meet the contract requirement of
genuine assent, the agreement must
not be based on
A) deception
B) an important mistake
C) using unfair pressure
D) all of the above
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Chapter 7 Slide 51
 D - all of the above
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LESSON 7-2
Chapter 7 Slide 52
Termination of Offers
GOALS
 Describe how an offeror can end an offer
 Tell how an offeree can end an offer
 Explain how the parties can create offers that
cannot be ended by the offeror
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Chapter 7 Slide 53
HOW CAN
OFFERS BE ENDED?
Revocation by the offeror – can be
revoked anytime before it is accepted
by the offeree
REVOCATION - right to withdraw an
offer before it is accepted
Not effective until communicated to the
offeree
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Chapter 7 Slide 54
HOW CAN
OFFERS BE ENDED?
Time stated in the offer – offeror may state
how and when the offer must be completed
 i.e. Bank agrees to give loan but specifies acceptance
must be received by Oct. 18
 Boggs mails acceptance on Oct. 17 -- arrives Oct. 20 at
bank
  offer NOT received by time specified
  Offer E-X-P-I-R-E-D
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Chapter 7 Slide 55
HOW CAN
OFFERS BE ENDED?
Reasonable length of time – amount
of time depends on surrounding
circumstances
Rejection by the offeree – offer is
terminated by the offeree’s rejection
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Chapter 7 Slide 56
Negotiation Terms
JOE
Offer
Accept or
Reject or
Counteroffer
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BOB
Accept or
Reject or
Counteroffer
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Chapter 7 Slide 57
HOW CAN
OFFERS BE ENDED?
 Counteroffer – offeree must accept offer exactly as it
was made (no changes) – otherwise, it becomes a
counteroffer
 In this Case – pg. 116
Haviland submitted written offer to sell to Ping a luxury apt. bldg in San Fran.
Property Price  $15.5 million cash
Ping replied (certified mail) offering to pay $14.4 million cash
Haviland rejected price.
Ping writes “I am shocked by your price but feel it is urgent to invest in San Fran.
Therefore, I accept your offer and will pay $15.5 million cash
Was a contract formed?
No, Ping’s $14.4 m price was a counteroffer  eliminated Haviland’s offer at $15.5
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Chapter 7 Slide 58
HOW CAN
OFFERS BE ENDED?
Death or insanity of either the offeror
or offeree
Contracts are agreements voluntarily
entered into by the parties and subject
to their control
Death or insanity eliminates such
control  terminating their offers
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Chapter 7 Slide 59
What’s Your Verdict?
 Melissa offered her collection of baseball cards to
Raoul for $3,0000.
 Raoul requested time to think it over – Melissa
agreed
 Melissa changed her mind, called Raoul and said
“I’ve changed my mind, I’m not interested in selling
the cards.”
 Raoul – “It’s too late, you promised to sell them to
me, and I’ve got the money so I accept.”
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Chapter 7 Slide 60
What’s your Verdict?
Pg. 115
Was Melissa’s offer terminated before
Raoul tried to accept?
Because Melissa revoked first, there
was no offer alive when Raoul tried to
accept
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Chapter 7 Slide 61
The Mailbox Rule
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Chapter 7 Slide 62
HOW CAN AN OFFER
BE KEPT OPEN?
Generally, offeror is NOT obliged to keep
offers open even if offeror agreed to do
so IF OFFEREE HAS GIVEN
NOTHING IN EXCHANGE FOR THE
PROMISE
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Chapter 7 Slide 63
HOW CAN AN OFFER
BE KEPT OPEN?
 Options – offeree gives the offeror something
of value in return for a promise to keep the
offer open
 Firm offers – special rule that applies to
merchants for sale of goods/services stating
in a signed writing how long it is to stay
open
 Not open more than three months
 True even when nothing is paid by offeree
 Death/Insanity do not terminate option contracts or firm
offers
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Chapter 7 Slide 64
Offers expire at the time stated in the
offer.
TRUE / FALSE
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Chapter 7 Slide 65
TRUE
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Chapter 7 Slide 66
If an offeree clearly rejects the offer, the
offer is said to be:
a) Counteroffered
b) Revoked
c) Expired
d) Terminated
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Chapter 7 Slide 67
d) Terminated
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Chapter 7 Slide 68
When an offeree changes the offeror’s
terms in important ways, the offeror
makes a(n) ________________
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Chapter 7 Slide 69
Counteroffer
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Chapter 7 Slide 70
Which of the following does not describe
a method used to terminate offers?
a) Revocation by the offeror
b) Offeror is admitted to the hospital for
tests
c) Counteroffer
d) Death of the offeree
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Chapter 7 Slide 71
B) Offeror is admitted to the hospital for
tests
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Chapter 7 Slide 72
An offeree who rejects an offer can later
accept it if the acceptance occurs within
a reasonable time after the rejection.
TRUE / FALSE
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Chapter 7 Slide 73
FALSE
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Chapter 7 Slide 74
Which of the following will cause an offer to
end?
a) Occurrence of an event, such as the
passage of time, which the offer said would
cause it to end
b) Passage of a reasonable time if nothing is
said in the offer about the length of its life
c) Revocation by the offeror
d) Counteroffer by the offeree
e) All of the above
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Chapter 7 Slide 75
E) All of the above
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Chapter 7 Slide 76
If an offeree gives the offeror something
of value to keep an offer open, this is
called a(n) ________________
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Chapter 7 Slide 77
Counteroffer
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Chapter 7 Slide 78
A barber, speaking to a longtime customer
said, “I promise not to raise my prices
for you this year.”
Is this offer binding?
YES / NO ?
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Chapter 7 Slide 79
NO
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Chapter 7 Slide 80
A barber said, “I promise not to raise my
prices for you this year if you pay me
$10 today.” If this offer binding if you
pay the ten dollars?
YES / NO
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Chapter 7 Slide 81
YES
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Chapter 7 Slide 82
If a hardware store salesman said, “This
price on the lawnmowers is good for 30
days,” would this be a firm offer?
YES / NO
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Chapter 7 Slide 83
NO
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Chapter 7 Slide 84
If a beauty salon hair designer said, “This
price on the cut and dry is good for 30
days,” then wrote it down on a piece of
paper and signed it, would this be a firm
offer?
YES / NO
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Chapter 7 Slide 85
YES
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LESSON 7-3
Chapter 7 Slide 86
Acceptances
GOALS
 Discuss the requirements of an effective
acceptance
 Determine at what point in time an acceptance is
effective
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Chapter 7 Slide 87
HOW ARE
ACCEPTANCES CREATED?
ACCEPTANCE occurs when a party to whom
an offer has been made agrees to the
proposal
To create an enforceable contract the
acceptance must:
1) Be made by the person or persons to whom
the offer was made
2) Match the terms in the offer
3) Be communicated to the offeror
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Chapter 7 Slide 88
HOW ARE
ACCEPTANCES CREATED?
Who can accept an offer? – can only be
accepted by person to whom offer was made
 What’s Your Verdict?  Darrow offered to trade his
digital camera to Monette in exchange for her camcorder.
Schorling, who had a camcorder of the same make and
model, overheard the offer and said she would make the
swap
 Did a contract result from Schorling’s statement?
 Only Monette, not Schorling, could accept Darrow’s offer
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Chapter 7 Slide 89
HOW ARE
ACCEPTANCES CREATED?
Acceptance must match the offer –
offeror may specify the terms of
acceptance
Acceptance must be communicated
to the offeror – must be more than a
mental decision
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Chapter 7 Slide 90
In This Case
 RING LOST at Zuma Beach in front of beach house.
Lady’s yellow-gold band with 12 small diamonds.
Inside inscribed “Like diamonds. Forever Yours,
J.R.J.” $1,00 reward. Call 555-8142
 Dowell saw this newspaper advertisement and rushed
to the beach with a homemade sand sifter. About ten
other people were also searching, using various
devices. After four hours, Dowell shouted. “Eureka!
I’ve found it!” She promptly returned the ring to its
owner. She alone was legally entitled to the reward.
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Chapter 7 Slide 91
ACCEPTANCE MUST
MATCH THE OFFER
Mirror image rule – terms in the
acceptance must exactly match the
terms contained in the offer
If it varies any term, it is a counteroffer
 Courts in some states apply this rule only when
the term in the offer is material (important)
 By statute (UCC) the rule has been changed in
contracts for sale of goods such as books,
computers, clothing, and food
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Chapter 7 Slide 92
ACCEPTANCE MUST
MATCH THE OFFER
Goods – if offeror requires acceptance
must exactly match terms set forth in
the offer, than any variation is a
counteroffer
Absent this requirement in the offer, an
unequivocal acceptance of an offer for a
contract for a sale of goods can be valid
even if it includes new or conflicting terms
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Chapter 7 Slide 93
GOODS
In This Case - On Thursday, the manager of Volume Value
Vacuum, Inc. (VVV), offered by mail to sell model 234A
vacuum cleaners to Susan’s Shops, a retailer, at the bargain
price of $129 each, with payment to be made on delivery.
Susan accepted in writing but stated, “payment due 30 days
after delivery.”
VVV said nothing in reply. A contract resulted on the area of
agreement (model 234A at $129). Because both parties are
merchants and VVV did not object to the modification, it will
become a part of the contract if it is not material. Because an
extension of credit is probably material, it does not become a
part of the contract
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Chapter 7 Slide 94
ACCEPTANCE MUST BE
COMMUNICATED TO THE OFFEROR
Silence as acceptance – one is not obliged to
reply to offers made by others
 In This Case – Kulich, an art dealer, wrote Chang, “I understand you are
interested in selling your four-panel Chinese lacquer screen. I sold it to you
in 1997 for $500 and said it would go up in value. Now I offer to buy it back
for $3,000. Unless I hear from you to the contrary. I’ll treat your silence as
acceptance and send my truck to pick it up next Monday morning. The
driver will bring my certified check for the full amount.”
 Chang did not reply
 Chang would not be bound to sell the screen
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Chapter 7 Slide 95
Silence as acceptance
You receive by mail a calculator. The
sender states that if you wish to keep it,
you must send in a check for $40,
otherwise send it back.
What does the law require you to do?
Nothing
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Chapter 7 Slide 96
ACCEPTANCE MUST BE
COMMUNICATED TO THE OFFEROR
 Unilateral acceptance – offeror requires that
the offeree indicate acceptance by performing
his or her obligations under the contract
 Bilateral acceptance – require that the
offeree accept by communicating the
requested promise to the offeror
 When acceptance is effective – may be
communicated orally, in person, or by
telephone
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Chapter 7 Slide 97
Will Your Contract Be Enforced Under the Law?
The unconscionability defense is
concerned with the fairness of both the
process of contract formation and the
substantive terms of the contract. When
the terms of a contract are oppressive
or when the bargaining process or
resulting terms shock the conscience
of the court, the court may strike down
the contract as unconscionable.
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Chapter 7 Slide 98
The unconscionability defense applies
to a wide variety of types of conduct, so
a court will look at a number of factors
in determining if a contract is
unconscionable.
If there is a gross inequality of
bargaining power, so the weaker party
to the contract has no meaningful
choice as to the terms, and the resulting
contract is unreasonably favorable to
the stronger party, there may be a valid
claim of unconscionability.
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Chapter 7 Slide 99
A court will also look at whether one
party is uneducated or illiterate, whether
that party had the opportunity to ask
questions or consult an attorney, and
whether the price of the goods or
services under the contract is
excessive.
LAW FOR BUSINESS AND PERSONAL USE
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Chapter 7
Slide
100
How much consideration, or payment, must
there be for a contract to be valid?
 There is no minimum amount. A price is only how
people agree to value something, so there's no
absolute standard of whether a price is fair or
reasonable. The courts presume that people will only
make deals that they consider worthwhile. So if you
want to sell your car to your friend for $1 instead of
$1,000, you can do it
 An exception may be found if the consideration given
is so out of line with what is being received that it
would "shock the conscience of the court."
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