Objective:
Understand what must be in a
contract.
Know how an offer can be
terminated.
Creation of Offers
Contracts: agreements between two or
more parties that creates an obligation.
Examples
 Athletes/Celebrities
 Buying fast food
 Filling your car with gas
 Public Transportation
 Employment
 Buying a House
 Leasing an Apartment
Major Requirements of a Contract:
 Offer and Acceptance
 Genuine Assent
 Legality
 Consideration
 Capacity
 Writing
1. Offer and Acceptance
Offeror: the person who makes the
offer.
 Ex) Phillies Organization
Offeree: the person to whom it is
made.
 Ex) Cliff Lee
Offer: A proposal by the offeror to do
something, provided the offeree does or
reframes from doing something in
return.
2. Genuine Assent
Valid offer is met by a valid acceptance
The agreement must not be based on:





Fraud
Misrepresentation
Mistake
Undue Influence
Economic Duress
Ex) If you were at an auction and the
auctioneer said “sold” to you because you
were scratching your arm and were not
bidding on the item.
3. Legality
An agreement to commit a crime or
tort cannot be a legally enforceable
contract
Ex) An employment contract for the
hiring of a blackjack dealer is illegal if
gambling is illegal in that state.This is
because the contract would require the
employee to perform illegal activities.
4. Consideration
Must involve both sides receiving value in
some form as the result of the transaction
 Cash, goods, services, actions
Ex) If Bob signs a contract to buy a car from
Hank for $5,000.
 Bob's consideration is the $5,000
 Hank's consideration is the car.
5. Capacity
Must have the legal ability to contract for
themselves
 Minimum age to form a contract is 18
 Exception – an incapacitated child
 Mentally ill
 Drugged or drunk individuals
6. Writing
Some agreements must be placed in
writing to be fully enforceable in court
 Provides proof that the agreement was
made
 Assures that both parties know the exact
terms
 Ex) Letter, fax, email, newspaper
 Most contracts are oral contracts
 WHY?
Requirements of an Offer
Offer: a proposal made by one party to
another party indicating a willingness to
enter a contract.
Ex) “She proposed marriage to the man
she had known for only two months”
Offer
Three test that an offer must pass:
Contractual intent must be present
2. The offer must be communicated to the
offeree.
1.
Ex: (Fax, email, oral agreement, letter, newspaper)
3.
The essential terms of the offer must be
complete and definite.
Contractual Intent Must Be Present
Although the words themselves may
indicate an offer, a reasonable person
would disregard them because of the
facts and circumstances under which
they were spoken.
Ex) Claire says, “I’ve had it with my car.
At this point I would sell it for a dollar.”
John replies, “Accepted!”
Jests
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.
If you are serious, but a reasonable person would
interpret your conduct as a joke, then no legally
enforceable offer is made.
Ex) If Charlie agrees to buy Sam's stock at a certain
price within a certain time, and Sam accepts such
offer, believing that Charlie is in earnest, the fact
that Charlie makes such offer as a jest, does not
relieve him from liability.
Statements Made in Anger or Terror
It does not have the reasoned basis
necessary for enforceable offers.
Ex) “Stop thief – I’ll pay anyone who
stops her $100”
It is not looked upon as being a valid
offer by the law.
Preliminary Negotiations
Invitations to negotiate
 Newspapers
 Magazines
 Catalogs
Ex) “Lava Lamps, $49.99” (Limited
Merchandise)
Offer – “I would like to buy a Lava Lamp”
Acceptance – The storeowner is free to accept
or reject the offer
 EXCEPTION – when an ad contains specific
promises, uses phrases such as “first come,
first served”
Social Agreements
Social agreements do not create
legal obligations
Offer Must Be Communicated to the Offeree
A person who is not the intended offeree cannot
accept the offer. (Telephone, letter, telegram, fax,
email)
Nor can a person accept an offer without knowing
it has been made.
Ex) Alex found a wallet and returned it to the owner.
The owner thanked him. Later in the evening, Alex
discovered in the newspaper that the owner offered
a reward. However, he cannot claim the reward
because the offer was not communicated to him.
Essential Terms Must be Complete and Definite
Complete
 Identify the price
 Subject matter
 Quantity
Definite
 Each essential term must be identified clearly.
Ex) Landlord agrees to pay “a share” of the cost if
the tenant fixes the plumbing.
WHAT’S YOUR VERDICT?
On May 15th, Melissa offered to sell her collection of baseball cards
for $3,000 at anytime before the first of the next month to her friend
and fellow collector, Raul. While Raul was trying to raise the money,
Melissa had second thoughts. So she called Raul and said, I’ve changed
my mind, I’m not interested in selling the cards.” Raul responded,
“It’s too late, you said the offer would be open for this whole month.
This is just the 20th, and I’ve got the money so I accept.”
Because Melissa revoked first, there was no offer for Raul to accept.
The fact that she had promised to keep it open until the end of the
month was not legally binding on her. Therefore there was no
contract.
How Can Offers Be Ended?
Revocation by the Offeror
Revocation: the right to withdraw an offer
before it is accepted.
 Not effective until communicated to the
offeree.
How Can Offers Be Ended?
 Rejection by the Offeree
 Counteroffer: offeree’s response to an
offer which modifies it
Ex) Paul says, “I’ll sell you my camera for $50”
Judy says, “I’ll give you $35 for it”
How Can Offers Be Ended?
 Time Stated in the Offer
 The offeror may state how and when the offer
must be accepted
 Reasonable Length of Time
 Depends on the circumstances
Ex) A reasonable time to accept an offer for
purchasing a truckload of tomatoes would be
different from a reasonable time to accept an
offer for purchasing a house
How Can Offers Be Ended?
 Death or Insanity of Either the Offeror
or Offeree
 Destruction of the Specific Subject
Matter
 Offer is automatically terminated
How Can an Offer be Kept Open?
 Option: separate contract arising when
the offeree gives the offeror something of
value in return for a promise to leave an
offer open
Ex) “I will give you $1000 if you keep the
offer open for an additional 30 days”
How Can an Offer be Kept Open?
 Firm Offer: a written offer containing a
term stating how long it is to stay open
 Made by a merchant
 Does not require any consideration
Acceptance
 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. Come from the person to whom the offer
was made
2. Match the terms in the offer
3. Be communicated
Acceptance
 Only Offerees May Accept
 An offer made to one person cannot be
accepted by another
 Ex) Reward offered to the general public
 Mirror image rule: requires that the
acceptance must exactly match the terms
contained in the offer.
Acceptance Must Be Communicated
 Silence as Acceptance
 No contract will result from silence
 Bilateral contracts: one party promises to
do something in exchange for the other’s
promise to do something else
 Unilateral contracts: contains a promise by
only one person to do something, if and when
the other party performs some act.
Bilateral or Unilateral?
Imagine that you tell your brother that
you will pay him $100 if and when he
paints your fence. If he agrees, have you
formed a bilateral contract or unilateral
contract with him?
Acceptance
 Modes of Contractual Communication
 Offers, acceptances, rejections, revocations,
and counter-offers
 When Acceptances are Effective
 Oral acceptance, text, email, fax
 Ex) stock-exchange floor