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Chapter 13: The Agreement. Requirements for Contract. Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted. If either element is missing, there is no contract. Requirements of an Offer.

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Requirements for contract l.jpg
Requirements for Contract

  • Because a contract arises when an offer is accepted, it is necessary to find that there was an offer and that it was accepted.

  • If either element is missing, there is no contract.


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Requirements of an Offer

  • The offer must have contractual intent.

    • This intent is lacking if the statement is merely an invitation to negotiate, a statement of intention, or an agreement to agree at a later date.

      • Newspaper ads, price quotations, and catalog prices are ordinarily invitations to negotiate.

  • An offer must be definite, with terms that are clear and spelled out.

  • The offer must be communicated to the offeree.


Is a contract formed l.jpg

Acceptance

Yes

Offer

No

Offer

Counteroffer

Yes

Acceptance

No

Offer, No Contractual Intent

Acceptance

No

Offer Not Definite

Acceptance

No

Offer

No Acceptance

No

Invitation to Negotiate

Acceptance

No

Terminated Offer

Post-termination Acceptance

Is A Contract Formed?


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Acceptance of an Offer

  • When the offer is accepted, a contract arises.

  • Only the offeree can accept an offer, and the acceptance must be of the offer exactly as made without any qualification or change.

  • The acceptance is any manifestation of intent to agree to the terms of the offer.

  • Ordinarily, silence or failure to act does not constitute acceptance.


Acceptance of offer l.jpg

Offeror makes

an offer

Offeree accepts offer

unconditionally

Offeree changes or

adds terms

Offeree rejects

offer

Contract

Arises

No contract

exists

Counteroffer

Original offeror

accepts counteroffer

unconditionally

Original offeror changes or adds terms

Original offeror

rejects counteroffer

Counteroffer

Acceptance of Offer


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Acceptance of an Offer

  • An acceptance does not exist until the words or conduct demonstrating assent to the offer is communicated to the offeror.

  • Acceptance by mail takes effect at the time and place when and where the letter is mailed or the fax is transmitted.

  • A telephoned acceptance is effective when and where spoken into the phone.


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The Mailbox Rule

September 1, 1997 Seller mails an offer to Buyer

September 2, 1997 Buyer receives offer

Buyer mails acceptance

September 3, 1997 Seller calls to revoke offer

Buyer says he has already accepted

September 4, 1997 The acceptance arrives

Is there a contract?

Assume the same scenario as above, but the buyer’s acceptance never arrives. Assuming the buyer has adequate proof of mailing the acceptance, is there a contract?

Yes, in both cases. Proper acceptance is effective when sent, even if never received.


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The Mailbox Rule

September 1, 1997 Seller mails an offer to Buyer

September 2, 1997 Buyer receives offer

Buyer mails acceptance

September 3, 1997 Buyer mails rejection

September 4, 1997 Seller receives rejection

September 5, 1997 Seller receives acceptance

Is there a contract? Why or why not?

Again, Yes, because the acceptance is effective upon dispatch – or as soon as it was mailed.


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Termination of Offer

  • The ordinary offer may be revoked at any time by the offeror. All that is required is the showing of intent to revoke and the communication of that intent to the offeree.

  • By definition, an attempted acceptance made after the offer has been terminated has no effect.


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Termination of Offer

  • An offer is also terminated by:

    • the express rejection of the offer or by the making of a counteroffer

    • the lapse of the time stated in the offer or of a reasonable time when none is stated

    • the death or disability of either party

    • a change of law that makes illegal a contract based on the particular offer


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Revocation Prior to Acceptance*

By Offeror

Death or Incapacity

Time Limitations Placed in the Offer

Rejection

By Offeree

Counteroffer

Death or Incapacity

Termination of an Offer

*Options and firm offers excepted


Auctions l.jpg
Auctions

  • In an auction sale, asking for bids is an invitation to negotiate.

  • A person making a bid is making an offer, and the acceptance of the highest bid by the auctioneer is an acceptance of that offer and gives rise to a contract.

  • When the auction sale is without reserve, the auctioneer must accept the highest bid.


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