Common Law Contract: Offers

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  • BASIC MODEL One person called the offeror makes an offer to another person called the offeree to enter into K on specified terms. Offer creates power of acceptance in the offeree so that she can bring K into existence by signifiying acceptance. The offeree could reject the offer either by express words or inaction. The offeree can express interest by making a counteroffer , which effectively terminates the original offer.
  • Contracts are concluded by offer and acceptance (i.e mutual assent is the basis of contract). Existence of both is judged on the objective theory, thus no need for court to determine subjective “meeting of the minds.” Express contract = mutual consent is clear from words spoken or written. “ Implied in Fact” contracts = existence depends in whole or part upon conduct. NOTE – Next week we will talk about use of objective test. This is important in determining whether there has been an offer AND acceptance. Today we are just discussing whether an offer has been made and when an offer can lapse. However, in the real world offer and acceptance are often discussed together using the Objective test.
  • The rules of offer and acceptance tells us: when and how the promises, initially contemplated, discussed, or negotiated, become effective. They tell us, in other words, when there is mutual assent to a bargain. The traditional language used to classify these communications is "offer and acceptance." Using this language we say that mutual assent to an exchange occurs if and when: one party (an "offeree") timely accepts an offer made by another (an "offeror"). Accordingly, part of the study of mutual assent may be conveniently grouped into these questions: (1) What is an offer and when is it made? (2) What is acceptance and when does it occur? (3) At what point does the power to accept an offer terminate such that an attempted acceptance is no longer timely?
  • Definitions of offer: Class Text – an offer is a manifestation of a present willingness to enter into a contract in the event of an unconditional acceptance being made. The offer must manifest BOTH an intent to be legally bound and contain definite terms. Certainty of Terms Crucial because a court must be able to enforce an that has been accepted. Examples: From text – where an offer to build a house has been accepted, but there are no plans and specifications for the house, there is no agreement. Certainty and Definiteness is met when the offer contains: subject matter quantity price
  • Manifested – must be communicated to the person to whom it is being addressed. Indicate desire to enter into K must specify performances to be exchanged & terms As creator, offeror has control of terms offer can prescribe manner and time for acceptance As the text states “there must be a certainty of terms: e.g. subject matter, quantity, price Directed at some person or group Must invite acceptance Finally, the offer must create the reasonable understanding that upon acceptance, a contract will arise without any further approval being required from the offeror. NOTE: this last requirement distinguishes an offer from a proposal. NOTE the objective standard This is the power of acceptance!
  • FLABBY LANGUAGE One cannot be sure who will win this last dispute. Need more context to clarify ambiguity of farm owner's letter. Court have used a variety of factors to distinguish an offer from a preliminary proposal (offer to treat).
  • Words Used In Communication Clues as to reasonable meaning can sometimes be found in the words themselves: “offer” “quote” or “proposal” are terms of art that are often useful, but not always conclusive, especially if they are not used in their legal sense. “Are you interested” “I would consider” Communication that Omits Terms Remember, an offer is intended to form a K upon acceptance. A communication that omits significant terms probably is not an offer. Thus, specificity of terms is important clue. Directed at Particular Person? Communications not specifically directed to a particular person are likely not offers. Examples: newspaper ad, catalog, circular BUT they could be an offer, as we shall see. Thus, simply because a communication is directed at multiple people does NOT disqualify it as an offer. Relationship of Parties – previous dealings, prior communications may cast light. Common Practices or Trade Usages – where parties are members of same community or trade, common practices or usages may be considered.
  • Facts: "£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. £1000 is deposited with the Alliance Bank, Regent Street shewing our sincerity in the matter. "During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against the disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball. "One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, lOs., post free. The ball can be refilled at a cost of 5s. Address, Carbolic Smoke Ball. Company, 27, Princes Street, Hanover Square, London." The plaintiff, a lady, on the faith of this advertisement, bought on of the balls at a chemist's and used it as directed, three times a daily from November 20, 1891, to January 17, 1892, when she was attacked by influenza. What is the issue? whether ad was a promise to pay or mere “puff” What is the Rule? There is an express promise here, "expressed in language that is perfectly unmistakable" Rationale? 1000 pounds deposited speaks to their sincerity; Not too vague – any way you read it, plaintiff wins; Ads are binding if they offer a specific reward for a specific performance Other Issues: Notice of Acceptance - Notice of performance is contemporaneous with notice of acceptance; in an offer like this, offerer is basically agreeing that by performing, the offeree is automatically accepting
  • Would a reasonable person conclude that the ad was an offer? Maybe. It's unreasonable to think that a merchant would have to sell an unlimited supply at half off, but wouldn't it be reasonable to think that the merchant promised to sell a reasonable number on first come, first serve? Courts use reasonable person test in first impression cases. Rightly or wrongly, early in U.S. common law, court viewed these ads as “invitations to treat.”
  • Facts: P set out to collect 7 million points. Realizing it was impossible to drink enough Pepsi, P turned his attention to fine print in Ad allowing people to buy points for 10 cents. P raised $700,000 and attempted to buy 7 million Pepsi Points. P submitted his Pepsi Points form along with check for over $700,000. At the bottom of the Order Form, plaintiff wrote in "1 Harrier Jet" in the "Item" column and "7,000,000" in the "Total Points" column. In a letter accompanying his submission, plaintiff stated that the check was to purchase additional Pepsi Points "expressly for obtaining a new Harrier jet as advertised in your Pepsi Stuff commercial." Pepsi responded that item requested was not part of program. P sued. ISSUE: Whether commercial was an offer. RULE: An objective, reasonable person would not have considered the TV commercial an offer. Rationale Among many, court notes that “the primary mission of a Harrier Jet, according to the United States Marine Corps, is to "attack and destroy surface targets under day and night visual conditions." & . In light of the Harrier Jet's well-documented function in attacking and destroying surface and air targets, armed reconnaissance and air interdiction, and offensive and defensive anti-aircraft warfare, depiction of such a jet as a way to get to school in the morning is clearly not serious even if, as plaintiff contends, the jet is capable of being acquired "in a form that eliminates [its] potential for military use."
  • Questions to be Asked: What is an offer and when is it made? What is acceptance and when does it occur? At what point does the power to accept an offer terminate such that an attempted acceptance is no longer timely?
  • Rough Guidelines to “Reasonable Time” When parties are in the presence of each other, then reasonable time concludes when parties part. If communicate by non-instantaneous means, then must consider transmission time. Other relevant factors: nature of the transaction relationship of parties custom or trade usage means of communication used
  • Problems? When does the period start? from the date of writing? from the date of receipt? can offer be accepted after business hours on final day? Bottom Line Once the time for acceptance has lapsed, the offer is not longer valid. Put another way, one way an offer becomes invalid is “lapse of time”
  • Rejection offer is terminated if offeree rejects. Offeree cannot recant a rejection. It's final. Offeror's Death or Mental Incapacity offer lapses automatically upon death of offeror makes no difference if offeree knows of the death. Note, once K has been formed, death has no impact. Revocation (we will look at this shortly) Counteroffer – let's look at the case
  • Facts Evans offers land to Livingston for $1800 Livingston receives offer and replies “Send lowest cash price. Will give $1600 in cash” What is Livingston asking Evans? Evans replies “Cannot reduce price.” Livingston receives and immediately replies accepting offer. What is the issue : Was Livingston's counteroffer a rejection? Rules Used by Court Hyde – counteroffer = rejection Stevenson – a mere inquiry is not a counteroffer and thus not a rejection. Rule: Counteroffer is rejection of offer unless subsequent communication revived the original offer. Rationale Livingston essentially said “I will give you $1600 cash. If you wont' take that wire your lowest cash price.” This is a counteroffer! Evans' reply “cannot reduce price” = renewal of original offer. Price referred to was same as original offer “cannot reduce price” = “I'm standing by my original offer.” How did the court use landlord-tenant case? Renewal of original offer gives Livingston power to accept despite his earlier counteroffer.
  • Revocation by Offeror terminates offer. It takes effect once communicated to offeree. usually communication should be same as offer Indirect Revocation offeror takes action clearly inconsistent w/ K intent offeree obtains reliable info of this action. This can be tendered at anytime, even before a set termination date UNLESS there was “firm offer”.
  • Common Law Contract: Offers

    1. 1. Common Law of ContractMutual Assent: The Study of Offer and Acceptance in Common Law
    2. 2. The Basic Model without revocation Offer Acceptance Rejection Counteroffer = rejection + new offerContract formed No Contracton terms of offer Offeror Offeror offeror Accepts Rejects makes c-offer K on terms of No and so on counteroffer Contract
    3. 3. All About CommunicationMutual Assent is basis of contractK communication can be done with:words (express)actions (implied)In perfect world a persons intent is alwaysunderstood by other party.we dont live in a perfect world
    4. 4. Questions to be AskedWhat is an offer and when is it made?What is acceptance and when does it occur?At what point does the power to accept an offerterminate such that an attempted acceptance is nolonger timely?
    5. 5. Question 1: The Nature of an OfferClass text says “an offer is a manifestation of apresent willingness to enter into a contract in theevent of an unconditional acceptance being made.The offer must manifest BOTH an intent to belegally bound and contain definite terms.Lets break this down!
    6. 6. Offer Must ContainManifested – must be communicated to the personto whom it is being addressed.Indicate desire to enter into KDirected at some person or groupMust invite acceptanceMust contain power of acceptance
    7. 7. ExampleOffer Requirements Property owner writes to prospective buyer:Communicated? I offer to sell my farm forSpecify performances & $2 million cash. If youother terms? wish to buy this propertyDirected at someone? you must deliver yourInvite Acceptance? written acceptance to me by midnight on Friday,K arise w/out further November 11, 2005.approval? Is this an offer?
    8. 8. ExampleOffer Requirements I wish to sell my farmCommunicated? and will consider anSpecify performances & offer of not less than $2other terms? million. I invite you to make an offer if you areDirected at someone? interested in purchasingInvite Acceptance? it.K arise w/out further Offer?approval?
    9. 9. ExampleOffer Requirements I am willing to sell myCommunicated? farm to you, but will notSpecify performances & accept less than $2other terms? million cash. Let me have your reply as soon asDirected at someone? possible.Invite Acceptance?K arise w/out furtherapproval? Offer?
    10. 10. Offer v. Preliminary Proposalwhat do the words themselves indicate?are significant terms omitted?is communication directed at particular person?what is the relationship of the parties?what are common practices or trade usages?NOTE – preliminary proposal = invitation to treat
    11. 11. Special Rules Price-marked goods – usually goods in storewindow or on shelves do not constitute offer to sellbut rather invitation to treat.Some American courts make exception for purposes ofaction brought by consumer.In this instance displaying the item constitutes an offer andplacing the item in ones basked constitutes acceptance.
    12. 12. Special RulesAdvertisements, Price Lists and Circulars – most areconsidered invitations to treat. Unless:circumstance clearly indicate intention to make an offeradvertisement invites those to whom it is addressed to takespecific action without further communication, orwhere over acceptance is unlikely (note correction).Ads promising rewards probably fall into all threeand are thus offers.
    13. 13. Carbolic Smoke Ball Case
    14. 14. Invitation to TreatAn invitation to treat is not an offer, but anindication of a persons willingness to negotiate acontract.response to such an invitation constitute offerswhich may be accepted or rejected and notacceptances which would lead to a binding contract.
    15. 15. Ordinary Ad, An Offer?
    16. 16. Can an Ad be an Offer?What about this ad:The Great Minneapolis Surplus Store published thefollowing advertisement in a Minneapolis newspaper: SATURDAY 9 AM. 2 BRAND NEW Pastel MINK 3-SKIN SCARFS Selling for $89.50 Out they go SATURDAY. Each ......... $1.00 1 BLACK LAPIN STOLE . . . Beautiful, worth $139.50........$1.OO FIRST COME FIRST SERVEDOffer or Invitation to Treat?
    17. 17. An Ad Can be an Offerwhere the offer is clear, definite and explicit, andleaves nothing open for negotiation, it constitutes anoffer, acceptance of which will complete thecontract. . . .Thus, language used in the ad is key.Look at the language in the Carbolic Smoke Caseand the language in the previous example (whichwas also a famous case).
    18. 18. Objectively Judging an “Offer” Lucy v. Zehmer
    19. 19. Offer? Leonard v. Pepsicohttp://video.google.com/videoplay?docid=295016640043159024
    20. 20. AuctionsAs the text indicates, the auctioneers statementsgenerally do not constitute an offer.The offer is made by the person making the highestbidWhich is then accepted by the auctioneer.
    21. 21. The Basic Model Offer Acceptance Rejection Counteroffer = rejection + new offerContract formed No Contracton terms of offer Offeror Offeror offeror Accepts Rejects makes c-offer K on terms of No and so on counteroffer Contract
    22. 22. Question 3 At what point does the power to accept an offerterminate such that an attempted acceptance is no longer timely?
    23. 23. Termination of an OfferLapseRejection by the OffereeRevocation by the Offeror
    24. 24. LapseAn offer does not last forever.The offeror is entitled to specify timeIf no time is specified, then acceptance must be w/ina reasonable time.clearly this is a risk & could result in litigation.Reasonable = time needed to receive, consider andreply under circumstances of transaction.
    25. 25. Stating A TimeThere can still be problems even if the time isstated.“Acceptance must be received by 5 P.M. PacificDaylight time on Sunday, November 6, 2005.No problem here.“Acceptance must be received within five days.”Problems?
    26. 26. Termination of Offer Before LapseRejectionOfferors Death or Mental IncapacityRevocation (we will look at this shortly)Counteroffer – lets look at the case
    27. 27. CounteroffersLivingston v. Evans
    28. 28. What Did We Learn About Counteroffers?A counteroffer is treated as a rejection.A mere inquiry is NOT a rejection.An original offer can be “revived” even after acounteroffer has been tendered.Whether something is an inquiry or counteroffer,and whether the original offer has been revived is aquestion of fact that a court must try fit within theserules.
    29. 29. What Else Did We Learn from this Case?How courts use precedent and can be persuaded byother court opinionsHow courts will distinguish cases offered by partyas precedent or persuasion.That in fact specific performance CAN sometimesbe a remedy (more on that much later).NOTE – what amounts to a counter-offer will bediscussed in more detail next week.
    30. 30. RevocationRevocation by Offeror terminates offer.It takes effect once communicated to offeree.Indirect Revocationofferor takes action clearly inconsistent w/ K intentofferee obtains reliable info of this action.This can be tendered at anytime, even before a settermination date UNLESS there was “firm offer”.
    31. 31. Firm Offer/OptionsA promise to keep an offer open for a stated periodof time.Consideration must be given in exchange for thispromise to keep open.We will discuss consideration later.An offeror is considered to be in breach if herevokes “firm offer.”
    32. 32. Option w/ Consideration ExampleOption (Prelim K) promise to keep offer open Offeror Offeree $100 if exercised, will lead toUnderlying Exchange(proposed K) Farm Offeror Offeror $2 million
    33. 33. Option w/out ConsiderationThere are two instances where an option K can beformed without consideration being given:Court applies doctrine of EstoppelUCC §2-205Merchant selling or buying goodsoffer placed in writingwriting contains assurance the offer will be held opensigned by the parties
    34. 34. Estoppel ExampleSeller writes to buyer offering to sell farm, statingthat offer will be held open until Friday.No consideration is given, thus not binding.Buyer, intending to accept offer by Friday, quits hisjob in the city on Tuesday to devote his fullattention to his new farm.Wednesday, seller revokesThursday, buyer disregards revocation and tendersacceptance.
    35. 35. Estoppel ExampleBuyer claims reliance on promise not to revokeoffer until Friday caused him to quit his job.If offer is not enforced, buyer claims he will sufferunfair detrimentA court may apply the doctrine of promissoryestoppel (to be discussed in more detail later).Seller did promise to keep open the offerIts reasonable to expect that buyer would rely on this.Buyer did in fact rely, to his detriment.Whether buyers reliance was justified is Q for court.
    36. 36. The Basic Model Offer Acceptance Rejection Counteroffer = rejection + new offerContract formed No Contracton terms of offer Offeror Offeror offeror Accepts Rejects makes c-offer K on terms of No and so on counteroffer Contract

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