CHAPTER 6
OFFER AND ACCEPTANCE
6-1 Creation of Offers
What Must Be in a Contract?
Contracts – An agreement between two or more
parties that create obligations.
Requirements of a Legally Enforceable Contract
1. Offer & Acceptance
2. Genuine Assent
3. Legality
4. Consideration
5. Capacity
6. Proper Form
6-1 Creation of Offers
What Must Be in a Contract?
1. Offer & Acceptance
– There must be an agreement composed of and
offer and an acceptance upon which to base the
contract.
– Offeror – The person who makes the offer
– Offeree – The person to whom the offer is made
6-1 Creation of Offers
What Must Be in a Contract?
2. Genuine Assent
• The agreement must not be based on one
party deceiving another, on an important
mistake, or on the use of unfair pressure
exerted to obtain the offer or acceptance.
6-1 Creation of Offers
What Must Be in a Contract?
3. Legality
• What the parties agree to must be legal. An
agreement to commit a crime or tort cannot
be a legally enforceable contract.
6-1 Creation of Offers
What Must Be in a Contract?
4. Consideration
• What the promisor demands and generally
must receive in order to make his or her
promise legally enforceable against him.
6-1 Creation of Offers
What Must Be in a Contract?
5. Capacity
• To have a completely enforceable agreement,
the parties must have the legal ability to
contract for themselves.
– Example: Age (in most states, parties must be 18)
6-1 Creation of Offers
What Must Be in a Contract?
6. Proper Form
• Some agreements must be placed in writing to
be fully enforceable in court.
6-1 Creation of Offers
Nature and Classes of Contracts
Executed & Executory Contracts
• Executed Contracts – one that has been fully
preformed
• Executory Contracts – one that has not been
fully preformed ( Something agreed upon
remains to be done by one or both of the
parties)
6-1 Creation of Offers
Nature and Classes of Contracts
Express, Implied-In-Fact & Implied-At-Law Contracts
• Express Contracts– is one in which all the terms
are expressly stated either orally or in writing.
• Implied-In-Fact– Does not have its terms
expressly stated but they can be inferred from
the parties’ acts or conducts.
• Implied-At-Law – Not really a contract, but
instead a fiction created by the law to allow the
enforcement of a contractual remedy where
justice alone warrants such a remedy.
6-1 Creation of Offers
Nature and Classes of Contracts
Unilateral & Bilateral (Multilateral) Contracts
• Unilateral Contracts– The offeror promises
something in return for the offeree’s
performance and indicates that this performance
is the way acceptance is to be made.
• Bilateral Contracts – (one that formed by a
mutual exchange of legally binding promises) The
offeror merely expects a promise in return as
acceptance to form a binding contract.
6-1 Creation of Offers
Nature and Classes of Contracts
Unilateral & Bilateral (Multilateral) Contracts
• For example, if Cindy agrees to watch neighbor Amber’s
children on Monday and Wednesday, and Amber agrees to
watch Cindy’s children on Tuesday and Thursday, a bilateral
contract has been entered into, where each party offered
consideration. The gain or profit of the contract is a couple
of quiet afternoons for each mother. If, instead, Cindy
offered Amber $10 for each afternoon she watched Cindy’s
children, a unilateral contract is created, in which Amber
only receives, and Cindy is only obligated to pay the
money if Amber watches the children.
6-1 Creation of Offers
Nature and Classes of Contracts
Unilateral & Bilateral (Multilateral) Contracts
When a Unilateral
Contract Becomes
Bilateral?
6-1 Creation of Offers
Nature and Classes of Contracts
Unilateral & Bilateral (Multilateral) Contracts
• Bilateral Contract Example
• Bob pays Sam $1,000 to install sprinklers in his yard. This seems like a
unilateral contract in which Bob is obligated to pay the money only if Sam
accepts by installing sprinklers.
• There exists a question of just what constitutes completion or
performance under this type of contract: the act of beginning the
installation, or the completion of the job to a standard satisfactory to Bob?
In response to these issues, the courts generally hold that, when Sam
begins the installation, the contract is converted to a bilateral contract
that requires both parties to perform certain actions.
• Sam must provide the complete service of sprinkler installation, for which
Bob must pay $1,000. Modern courts have moved from applying strict
unilateral vs. bilateral concepts to contract disputes, focusing instead on
the intended result or outcome of each contract.
6-1 Creation of Offers
Requirements of an Offer
An offer is a proposal by an offeror to do something
provided by the offeree does or refrains from doing
something in return.
1. Contractual intent must be present in the offer
2. The offer must be communicated to the offeree
3. The essential terms of the offer must be
complete and definite
6-1 Creation of Offers
Requirements of an Offer
Contractual Intent Must Be Present
• 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.
• Statements made in anger or terror – These
statements do not have the reasoned basis
necessary for enforceable offers.
6-1 Creation of Offers
Requirements of an Offer
Contractual Intent Must Be Present
• Preliminary Negotiations – Information is
communicated merely to induce someone to
initiate bargaining, such statements are not
seen by the law as indicating an intent to
contract.
• Social Agreements – These do not typically
create legal obligations.
6-1 Creation of Offers
Requirements of an Offer
Offer Must Be Communicated to the Offeree
• A person cannot accept an offer without
knowing it has been made.
• A person who is not the intended offeree
cannot accept the offer.
6-1 Creation of Offers
Requirements of an Offer
Essential Terms Must Be Complete & Definite
Complete
• Identify the price, subject matter, and quantity
Real estate
1. A proper legal description of the real estate
2. Price
3. Full terms for payment
4. Date for delivery of possession
5. Date for delivery of the deed
6-1 Creation of Offers
Requirements of an Offer
Essential Terms Must Be Complete & Definite
Definite
• Essential terms must be identified clearly
• When the price is not specified, current
market price is used as the basis for the
contract
6-2 Termination of Offers
How Can Offers Be Ended
Revocation by the Offeror
Revocation – The right to withdraw an offer
before it is accepted
• After an offer has been made, the offeror can
generally revoke it anytime before it is
accepted by the offeree.
6-2 Termination of Offers
How Can Offers Be Ended
Time Stated in the Offer
• In making an offer, the offeror may state how
and when the offer must be accepted.
6-2 Termination of Offers
How Can Offers Be Ended
Reasonable Length of Time
• When no specific time is stated a reasonable
length of time is accepted depending on the
surrounding circumstances.
• EXAMPLE: An offer to purchase bananas
would not remain open for day. Bananas are a
perishable item.
6-1 Termination of Offers
How Can Offers Be Ended
Rejection by the Offeree
• An offer is terminated by an offeree’s rejection
even if a time limit set by the offeror has not
expired.
6-2 Termination of Offers
How Can Offers Be Ended
Counteroffer
• An offeree accepting an offer must accept it
exactly as made.
• A counteroffer terminates the original offer
and proposes a new offer.
6-2 Termination of Offers
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
• The law will act for the parties when they can
no longer act and terminates their offers
6-2 Termination of Offers
How Can Offers Be Ended
Destruction of the Specific Subject Matter
• If the offer refers to unique subject matter, for
example a car and a tree falls on that car in
the middle of the night, the offer is
automatically terminated.
6-2 Termination of Offers
How Can an Offer be Kept Open
Options
• If the offeree fives the offeror something of
value in return for a promise to keep the offer
open, this agreement is itself a binding offer.
6-2 Termination of Offers
How Can an Offer be Kept Open
Firm Offers
• Applies to merchants (individuals who
regularly deal in the goods being bought or
sold) who make offers in writing
• Firm Offer – a written offer contains a term
stating how long it is to stay open.
– No more than three months (according to the
UCC)
6-3 Acceptances
What is required of an Acceptance?
• Acceptance – 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 or persons to whom the
offer was made
2. Match the terms in the offer
3. Be communicated to the offeror
6-3 Acceptances
What is required of an Acceptance?
Only Offerees May Accept
• An offer made to one person cannot be
accepted by another
• Sometimes an offer can be made to the
general public
6-3 Acceptances
What is required of an Acceptance?
The Acceptance Must Match the Offer
• Mirror Image Rule – requires that the
acceptance must exactly match the terms
contained in the offer.
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
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Silence as Acceptance
Promises as Acceptance
Performance as Acceptance
Modes of Contractual Communication
When Acceptances Are Effective
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
• Silence as Acceptance – one is not obligated to
reply to offers made by others.
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
• Promises as Acceptance – most offers can be
accepted by giving a promise instead of
performing the contracted-for act.
– If a seller promises to deliver a load of topsoil in
exchange for a homeowner’s promise to pay $65
– Bilateral contract: mutual exchange of legally
binding promises
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
• Performance as Acceptance – Unilateral
Contracts: the offeror promises something in
return for the offeree’s performance and
indicates that this performances is the way
acceptance is to be made.
• EXAMPLE: Find a lost puppy receive $500
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
• Modes of Contractual Communication - In
person, telephone, text messaging, mail,
delivery service, email, fax, and others.
• Example: On some stock and commodity
exchanges, hand signals are used to
communicate offers and acceptance,
6-3 Acceptances
What is required of an Acceptance?
Acceptance Must Be Communicated to the Offeror
• When Acceptances Are Effective - All
communication is takes effect when
received, except acceptances. They take effect
when sent.