HELP COLLEGE OF ARTS AND TECHNOLOGY

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BUSINESS LAW [BUS 206]

LECTURE 7
LAW OF CONTRACTS [2]

OFFER
What is an offer?

A definite proposal or undertaking mad by one person to another which manifest a willingness to
enter into a bargain
The person making the offer is the offeror
The person to whom it is made is the offeree

Forms of an offer

An offer may take several forms:

[1] It may propose a promise for a promise. This is an offer to enter into a bilateral contract.
Example: an offer to sell and deliver goods in thirty (30) days in return for the promise to pay a
stipulated amount upon delivery of the goods. If the offeree accepts this offer, the resulting
contract consists of the parties mutual promises, each made in exchange for the other
[2] An offer may be a promise for an act. This is an offer to enter into unilateral contract.
Example: an offer of a reward for certain information or for the return of lost property. The offeree
can accept such an offer only by the performance of the act requested.
[3] An offer may be in the form of an act for a promise. This is an offer to enter into an inverted
unilateral contract.
Example: Maria offers the stated price to a clerk in a theater ticket office and asks for a ticket for
a certain performance. The clerk can accept this offer of an act only by delivery of the frequested
ticket, which amounts, in effect, to the theater owners promise to admit Maria to the designated
performance.

ESSENTIALS OF AN OFFER

An offer need not take any particular form to have legal validity. However, to be effective it must:
[1] be communicated to the offeree,
[2] manifest an intent to enter into a contract, and
[3] be sufficiently definite and certain

If these essentials are present, an offer that has not terminated gives the offeree the power to
form a contract by accepting the offer

Communication

An offeree must have knowledge of the offer and the offer must be made by the
offeror to the offeree

An offeree cannot agree to something of which he has no knowledge

Accordingly, the offeror must communicate the offer, in an intended manner, to the
offeree

The communication must also be made or authorised by the offeror

ESSENTIALS OF AN OFFER (contd)

Intent

To have legal effect an offer must manifest an intent to enter into a contract.

The intent of an offer is determined objectively from the words or conduct of the parties

The meaning of either partys manifestation is based upon what a reasonable person in the other
partys position would have believed

A promise made under obvious excitement or emotional strain is not an offer

A statement that may indicate a willingness to make an offer is not in itself an offer. Example: If
Terry writes to Susan. Will you buy my automobile for $3,000.00? and Susan replies Yes, no
contract exists. Terry has not made an offer to sell her automobile to Susan for $3,000.00. The offer
must manifest an intent to enter into a contract, not merely a willingness to enter into negotiation

Advertisements ordinarily considered an invitation to negotiate not an offer that can be

accepted by a reader of the paper Pico V. Cutter Dodge, Inc (2002)

However, some court decisions have construed advertisements as offers that called for an act on
the part of the customer thereby forming unilateral contract e.g. advertisement of a reward for
the return of lost property

ESSENTIALS OF AN OFFER (contd)

Definiteness

An offer and the resulting contract must be definite and certain Graziano V. Grant (1999)

An offer indefinite or vague or if an essential provision is lacking no contract arises from an attempt
to accept it Peace V. Doming Holdings Inc (2001)

Reason courts cannot tell what the parties are to do court may not rewrite the agreement of the
parties in order to make it definite

The terms of a contract, all of which the offer usually contains, must be reasonably certain so as to
provide a court with a basis for determining the existence of a breach and for giving an appropriate
remedy

When it is claimed that a contract is too indefinite to be enforced a court will do its best to find the
intent of the parties and thereby reach the conclusion that the contract is not too indefinite

E.g. boxing promoter don King Promotional Agreement and a Bout Agreement with boxer Miguel
Angel Gonzalez boxing match against Julio Cesar Chavez contract if Gonzalez won $75,000.00
for next fight if lost $25,000.00 for subsequent fight Agreement silent in the event of a draw fight
ended in a draw Gonzalez contended that the omission rendered the contract so indefinite that it
was unenforceable Court disagreed striking down a contract as indefinite and in essence
meaningless is at best a last resort held although the contract was poorly drafted, the Promotional
Agreement contained explicit price terms for which a minimum purse for fights following a draw may
be inferred Gonzalez V. Don King Productions, Inc (1998)

ESSENTIALS OF AN OFFER (contd)

(a) Definite By Incorporation

An offer and the resulting contract that may appear too indefinite may be made definite by reference to
another writing

E.g. a lease agreement that was too vague by itself was made definite because the parties agreed that the
lease should follow the standard form with which both were familiar

An agreement may also be made definite by reference to the prior dealings of the parties and to trade
practices
(b) Implied Terms

Not all terms of an offer need to be expressed omitted terms may be implied by law

E.g. an offer to pay $400 for a certain Movado timepiece does not state the terms of payment a court
however would not condemn this provision as too vague but would hold that it required that cash be paid
and that the payment be made on delivery of the watch

Terms may also be implied from conduct

(c) Best Efforts Clauses

Hinc V. Lime-O-Sol Company (2004) best efforts to market the product in a manner that seems
appropriate clause LOS never produced, marketed or sold Stain Remover for the duration of the contract
court held best efforts means at the very least some effort certainly does not mean zero effort

DURATION OF OFFERS

An offer confers upon the offeree a power of acceptance, which continues until the offer
terminates

An offeree cannot accept a terminated offer

Offers may be terminated by [1] revocation, [2] counteroffer, [3] rejection, [4] lapse of time, [5]
death or disability of a party, or [6] subsequent illegality

[1] Revocation Of Offer By Offeror

An offeror can revoke the offer before it is accepted

An offeree cannot create a contract by accepting the revoked offer

Offer may be revoked at any time before it is accepted even though the offeror has expressly
promised that the offer will be good for a stated period and that period has not yet expired

Offer may be revoked even though the offeror has expressly promised to the offeree that the offer
would not be revoked before a specified later date

Fact that the offeror expressly promised to keep the offer open has no effect when no
consideration was given for that promise

DURATION OF OFFERS (contd)

(a) What Constitutes A Revocation?

No particular form or words are required any words indicating the offerors termination of the offer
are sufficient

A notice sent to the offeree that the property that is the subject matter of the offer has been sold to a
third person is a revocation of the offer

(b) Communication Of Revocation

Revocation of an offer is effective only when it is made known to the offeree MD Drilling and
Blasting, Inc V. MLS Construction, LLC (2006)

Until it is communicated to the offeree, directly or indirectly, the offeree has reason to believe that
there is still an offer that may be accepted, and the offeree may rely on this belief

A letter revoking an offer made to a particular offeree is not effective until the offeree receives it

Not a revocation when the offeror writes or even when it is mailed or dispatched

Written revocation effective when it is delivered to the offerees agent or to the offerees residence or
place of business under such circumstances that the offeree may be reasonably expected to be
aware of its receipt

Sufficient communication of the revocation when offeree learns indirectly of the offerors
revocation particularly true in a land sale when the seller-offeror, after making an offer to sell the
land to the offeree, sells the land to a third person and the offeree indirectly learns of such sale

If the offeree accepts an offer before it is effectively revoked, a valid contract is created

DURATION OF OFFERS (contd)

(c) Option Contracts

An option is a contract by which the offeror is bound to hold open an offer for a specified period of
time

It must comply with all of the requirements of a contract, including consideration being given to the
offeror by the offeree i.e. something, such as a sum of money as the price for the promise to keep
the offer open

In other words - the option is a contract to refrain from revoking an offer

(d) Firm Offers

The Uniform Commercial Code (UCC) provides that a merchant is bound to keep an offer to buy
or sell goods open for a stated period or if no time is stated, for a reasonable time not exceeding
three (3) months, if the merchant gives assurance in a signed writing that the offer will be held
open

The Uniform Commercial Code [UCC], therefore, makes a merchants written promise not to
revoke an offer for a stated period enforceable even though no consideration is given to the
offeror for that promise

DURATION OF OFFERS (contd)

[2] Counteroffer By Offeree

Proposal by an offeree to the offeror that changes the terms of, and thus rejects, the original offer

An acceptance that changes the terms of the offer or adds new terms is a rejection of the
original offer and constitutes a counteroffer McLaughlin V. Heikkila (2005)

No contract arises unless the original offeror accepts the counteroffer

Not limited to offers that directly contradict the original offers any departure from or addition to
the original offer is a counteroffer even though the original offer was silent on the point added by
the counteroffer

[3] Rejection Of Offer By Offeree

If the offeree rejects the offer and communicates this rejection to the offeror, the offer is
terminated

Communication of a rejection terminates an offer even though the period for which the offeror
agreed to keep the offer open has not yet expired

Unless the offeror is willing to renew the offer, there is no longer any offer for the offeree to
accept

DURATION OF OFFERS (contd)

[4] Lapse Of Time

When the offer states that it is open until a particular date, the offer terminates on that date if it has not yet
been accepted

Particularly so when the offeror declares that the offer shall be void after the expiration of the specified
time

Offer contains a time limitation for acceptance an attempted acceptance after the expiration of that time
has no effect does not give rise to a contract Century 21 Pinetree Properties, Inc V. Cason (1996)

When a specified time limitation is imposed on an option, the option cannot be exercised after the
expiration of that time

If the offer does not specify a time, it will terminate after the lapse of a reasonable time

What constitutes a reasonable time? depends on the circumstances of each case i.e. on the nature of
the subject matter, the nature of the market and other factors of supply and demand

When a seller purports to accept an offer after it has lapsed by the expiration of time, the sellers
acceptance is merely a counteroffer and does not create a contrcat unless the buyer accepts that
counteroffer

[5] Death Or Disability Of Either Party

If either the offeror or offeree dies or become mentally incompetent before the offer is accepted, the offer
is automatically terminated

[6] Subsequent Illegality

If the performance of the contract becomes illegal after the offer is made, the offer is terminated

ACCEPTANCE OF OFFER

An acceptance is the assent of the offeree to the terms of the offer

Positive and unequivocal expression of a willingness to enter into a contract on the terms of the
offer
What Constitutes An Acceptance?

No particular form of words or mode of expression is required

There must be a clear expression that the offeree agrees to be bound by the terms of the offer

If the offeree reserves the right to reject the offer, such action is not an acceptance Pantano V.
McCowan (1995)
Privilege Of Offeree

Offeree may refuse to accept an offer

If there is no acceptance by definition there is no contract

The fact that there had been series of contracts between the parties and that one partys offer
had always been accepted before by the other does not create any legal obligation to continue to
accept subsequent offers

ACCEPTANCE OF OFFER (contd)

Effect Of Acceptance

The acceptance of an offer creates a binding agreement or contract Ochoa V. Ford (1994)
assuming that all of the other elements of a contract are present

Neither party can subsequently withdraw from or cancel the contract without the consent of the other
party
Nature Of Acceptance

An acceptance is the offerees manifestation of intent to enter into a binding agreement on the terms
stated in the offer

Whether there is an acceptance depends on whether the offeree has manifested an intent to accept.

It is the objective or outward appearnce that is controlling rather than the subjective or unexpressed
intent of the offeree Cowan V. Mervin Mewes, Inc (1996)

In the absence of a contrary requirement in the offer, an acceptance may be indicated by an informal
okay, by a mere affirmative nod of the head, or in the case of an offer of a unilateral contrcat, by
performance of the act called for

Acceptance must be absolute and unconditional must accept just what is offered Jones V. Frickey
(2005)

ACCEPTANCE OF OFFER
Who May Accept?

Only the person to whom an offer is directed may accept it

No agreement or contract if anyone else attempts to accept it

If the offer is directed to a particular class rather than a specified individual, anyone within that class may
accept it

If offer is made to the public at large any member of the public at large having knowledge of the
existence of the offer may accept it

When a person to whom an offer was not made attempts to accept it, the attempted acceptance has the
effect of an offer if the original offeror is willing to accept this offer - a binding contract arises or else
there is no contract

Manner And Time Of Acceptance

The offeror may specify the manner and time for accepting the offer

If offeror specifies that there must be a written acceptance, no contract arises when the offeree makes an
oral acceptance

If the offeror calls for acceptance by a specified time and date, a late acceptance has no legal effect, and
a contract is not formed

No time is specified in the offer the offeree has a reasonable period of time o accept the offer

When the offeror calls for the performance of an act or of certain conduct the performance thereof is an
acceptance of the offer and creates a unilateral contract

The offeror is the master of the offer

ACCEPTANCE OF OFFER
[a] Silence As Acceptance

Most cases offerees silence and failure to act cannot be regarded as an acceptance

Ordinarily, the offeror is not permitted to frame an offer in such a way as to make the silence and
inaction of the offeree operate as an acceptance

Nor can a party to an existing contract effect a modification of that agreement without the other
partys actual acceptance or approval

[b] Unordered Goods And Tickets

Sometimes a seller writes to a person with whom the seller has not had any prior dealings,
stating that unless notified to the contrary, the seller will send specified ,merchandise and the
recipient is obligated to pay for it at stated prices there is no acceptance if the recipient of the
letter ignores the offer and does nothing

The silence of the person receiving the letter not an acceptance, and the sender, as a reasonable
person, should recognise that none was intended

Rule applies to all kinds of goods, books, magazines, and tickets sent through the mail when they
have not been ordered fact that the items are not returned does not mean that they have been
accepted the offeree is required neither to pay for nor return the items

ACCEPTANCE OF OFFER
Communication Of Acceptance

Acceptance by the offeree is the last step in the formation of a bilateral contract

The offerors receipt of the acceptance should be the point in time when the contrcat is formed and its
terms apply

[a] The Mailbox Rule

A properly addressed, postage-paid mailed acceptance takes effect when the acceptance is placed into
the control of the U.S. Postal Service Adams V. Lindsell (1818) or, by judicial extension, is placed in the
control of a private third-party carrier such as Federal Express or United Parcel Service

The acceptance is effective upon dispatch even before it is received by the offeror

The offeror may avoid the application of this rule by stating in the offer that acceptance shall take effect
upon receipt by the offeror

[b] Determining The Applicable Means Of Communication

Unless otherwise stated in the offer it shall be construed as inviting acceptance in any manner and by
any medium reasonable under the circumstances

Medium of communication normally reasonable if it is one used by the offeror or if it is customary in

similar transactions at the time and place of the offer is received

E.g. if the offeror uses the mail to extend an offer the offeree may accept by using the mail

ACCEPTANCE OF OFFER
[c] Telephone And Electronic Communication Of Acceptance

Most U.S. courts have applied the mailbox rule holding that telephoned acceptances are effective where
and when dispatched

Courts have yet to address the applicability of the mailbox rule to e-mail anticipated that the courts will
apply the mailbox rule and acceptance will take effect on proper dispatch or when the message is passed
onto the Internet

Facsimile transmissions instantaneous face-to-face communications anticipated that U.S. courts will
apply the mailbox acceptance-upon-dispatch rule as they do with telephoned acceptances

[d] Effect Of The Mailbox Rule

A situation may occur when a revocation and acceptance cross in the mail revocation is effective only on
the offerees receipt if an offeree dispatches an acceptance after the offeror has dispatched a revocation
but before the revocation arrives, a contrcat is formed

Auction Sales

Statements made by the auctioneer to draw forth bids are merely invitations to negotiate

Each bid is an offer not accepted until the auctioneer indicates that a particular offer or bid is accepted
by the fall of the auctioneers hammer

Bid is merely an offer bidder may withdraw the bid at any time before it is accepted by the auctioneer

CASE STUDY
QUESTION 1
Farah signs a written contract and sends it to Khan. Is there an offer to enter into a contract? Discuss
QUESTION 2
[a] An inquiry by a school as to whether a teacher wished to continue the following year. Is there a
contractual intention?
[b] if the teacher responded affirmatively, is there a contract?
QUESTION 3
Boy George intends to renew a contract when it expires relying on the provision in the original contract
that when it expires, the parties intend to negotiate in good faith to renew this agreement for an
additional year upon terms and conditions to be negotiated. Is there a binding contract to renew a
contract when it expires relying on the provision in the original contract? Discuss
QUESTION 4
Lady Gaga offers to conduct a business for as long as it is profitable. Is there a valid offer? Is acceptance
of such an offer result in a contract that can be enforced?
QUESTION 5
Statements by a bank that it was with the debtors and would support them in their proposed business
venture. Can the statements be regarded as a promise by the bank to make necessary loans to the
debtors? Discuss

CASE STUDY
QUESTION 6
[a] Can a bidder at an auction sale withdraw (revoke) a bid (offer) before it is accepted?
[b] Can the auctioneer accept the bid later?
QUESTION 7
A customer orders for goods, which is an offer to purchase at certain prices. However, the customer later
by a notice to the seller cancels the order. Is there revocation of the offer? Discuss
QUESTION 8
Sharapova makes an offer to sell a used automobile to Nadal for $3,000.00, and Nadal in reply makes an
offer to buy at $2,500.00. Discuss
QUESTION 9
Crazy Wolf offers to sell his ranch to Dallas Cowboys for $2.5 million. A week later, Crazy Wolf is killed in
an aviation accident. Dallas Cowboys subsequently writes to Crazy Wolf Jr, an adult, that his fathers offer
is accepted. Has a contract been formed?