Chapter 6 Study Guide
Contract Law
Key Terms:
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Offeror-The party who communicates a serious, definite offer.
Offeree-The party to whom an offer is made.
Offer- A proposal by an offeror to do something, provided the offeree does
something in return.
Counteroffer- A change the offeree makes to the offeror’s terms.
Option- A binding contract in which the offeree gives the offeror something of
value in return for a promise to keep the offer open.
Firm Offer- A contractual proposal in writing by a merchant stating how long the
offer is to stay open.
Revocation- The right to withdraw an offer before it is accepted.
Mirror Image Rule –The rule that the terms in the acceptance must exactly match
the terms contained in the offer.
Bilateral Contracts- Contracts in which the offer implies that it can be accepted by
giving a promise instead of performing the contracted-for act.
Unilateral Contracts – Contracts in which the offeror requires that the offeree
indicate acceptance by performing his or her obligations under the contract.
Questions:
Section 1: Creation of Offers
1. What are the elements required to form a contract? (1) There must be a serious,
definite offer and the party to whom it was communicated must accept the offer.
(2) There must be genuine assent. (3) What the parties agree to must be legal. (4)
Both sides must receive something of legal value. (5) The parties must have the
capacity to contract for themselves. (6) Some agreements must be in writing.
2. What are the requirements for an offer? (1) The offeror must appear to intend to
create a legal obligation. (2) The offer must be communicated to the offeree. (3)
The terms must be definite and complete.
3. If the offer that was accepted to form a contract is invalid, the courts will not
enforce the contract. True *see section 1 assessment in your notebook*
4. Which of the following is not an essential element of contract? (a) offer and
acceptance (b) genuine dissent (c) legality (d) all of the above are essential
elements *see section 1 assessment in your notebook*
5. All agreements must be in writing to be enforceable in court. False *see section 1
assessment in your notebook*
Section 2: Termination of Offers
1. Describe how an offeror can end an offer. An offeror can end an offer by
revoking it before it has been accepted or by stating how and when the offer
must be accepted.
2. Explain how the parties can create offers that cannot be ended by the offeror.
An offeree may give the offeror something of value in return for a promise to
keep the offer open; if this option is accepted by the offeror, the offeror cannot
withdraw the offer during the stated period of the option. A firm offer in a signed
writing specifying how long the offer is to stay open will also preent the offeror
from withdrawing the offer before the specific time.
3. If an offeree clearly rejects the offer, the offer is termed (a) suspended (b)
revoked (c) expired (d) terminated *see section 2 assessment in your notebook*
4. A written offer between merchants that contains a term stating how long it is to
stay open is called a firm offer. *see section 2 assessment in your notebook*
5. If an offeree gives the offeror something of value to keep an offer open, the
contract thereby created is called a(n) option. *see section 2 assessment in your
notebook*
Section 3: Acceptances
1. What are the requirements of an effective acceptance? An effective acceptance
must be made by the person or persons to whom the offer was made, match the
terms in the offer, and be communicated to the offeror.
2. At what point in time is an acceptance effective? An oral acceptance is effective
at the moment the words are spoken directly to the offeror. Other acceptances
are generally effective at the moment they are sent, if they are sent properly and
the offer has not specified a different means of acceptance.
3. A(n) acceptance is an offeree’s agreement to an offeror’s proposal. *see
section32 assessment in your notebook*
4. If the parties to a contract have mutual obligations to perform it, the contract is
termed (a) unilateral (b) bilateral (c) biliteral (d) none of the above *see section 3
assessment in your notebook*
5. All forms of contractual communication take effect only when received. True or
False? *see section 3 assessment in your notebook*
Apply Legal Practices (Discussion Questions)
1. Dick had a verbal agreement with the Jones brothers to repair the barn for a
specified amount. The agreement was for half the money to be paid up front so
supplies could be purchased and the other half to be paid when the work was
finished. After one week of work, the Jones brothers never returned. Is a verbal
agreement a binding contract? Yes. The money and the work already begun
shows acceptance and genuine assent.
2. Mary orders a box of Navel oranges and a box of Ruby Red grapefruit from the
school fundraiser. When her order came in, they had substituted regular
grapefruit for the Ruby Red grapefruit due to a lack of supply. Does Mary have to
accept the substitution? What can she do? Mary does not have to accept the
substitution and unless the company indicated in the initial paperwork for the
fund raiser that they had the right to send substitutes, the school can refuse the
substitution.
3. Caryn offered to tutor Dottie in business law for six hours on the day before the
final exam in return for $100. Dottie responded, “Let me think about it for a day,
okay?” Two hours later Jim offered Caryn $150 to tutor him on the day before
the final and she accepted. Dottie called Caryn an hour later and said, I accept.”
Caryn said, “I’m sorry but I’ve already agreed to tutor Jim that day so I can’t tutor
you.” Was there a contract between Caryn and Dottie? Yes; Caryn is now
contractually obligated to tutor Jim and Dottie.
4. Sam advertised his ski boat for sale, priced at $4,500, complete with outboard
engine and trailer. Barbara paid Sam $100 for a ten-day option, the money to be
applied to the purchase price if she exercised her right to buy. Two days later,
Sam was killed. Is Barbara’s option still valid? Yes. Barbara’s option is still valid.
Generally neither physical death of either party nor insanity terminates an option
contract as long as personal service by the deceased is not required. A
representative of the estate of the deceased or the guardian of the insane person
can perform the sales contract.
5. On Monday, Abner offers to sell his trained golden retriever, Track, to Bob for
$300 cash. “My offer is open until we go hunting next Saturday.” On Tuesday,
Carl offers Abner $400 for Track, in eight equal monthly payments of $50. Abner
says, “Sorry, my price is $300 cash.” On Wednesday, Dan learns that Abner has
offered to sell Track. Dan tells Abner, “I’ll pay $300 cash when you deliver the
dog at the end of this year’s duck hunting season. But you can keep Track until
then.” Abner says, “Sounds like a good deal. Okay, you now own Track.” He
phones Bob and tells him of the sale. On Thursday, Carl phones Abner and says,
“I accept your offer. I”ll [ay $300 cash. When can I pick up Track?” Abner
replies,” Sorry, but Track’s been sold.” Has Abner breached a contract with Bob
or Carl? Has he been ethical in his conduct? Abner has not breached a contract
with Bob or Carl. He revoked his offer to Bob before acceptance, and, if the
statement to Carl can be construed as an offer, it expired after a reasonable time
(one day as the dog was a hot property). Yes, Abner has been ethical. He has
been open and honest in his dealings.