Creating a Contract: Offers

CHAPTER 10 CREATING A CONTRACT: OFFERS Outline I. Introduction An agreement or "meeting of the minds" may be defined as an Offer + Acceptance. II. What is an Offer? An offer is the manifestation of a willingness to enter into a contract if the other party agrees to the terms. A. Intent The offeror must have the intent to enter into a contract. The offer must be definite and communicated to the offeree. Example: Republican National Committee v. Taylor: The appeals court reiterates the lower court’s holding that the offer of the $1 million reward became a binding contract upon acceptance. Note that on appeal, the RNC does not challenge this finding. Instead, the crux of RNC’s argument – and hence, the opinion – is that even if the ad were an offer to contract, the “challenge statement” was not false. The court found that the challenge statement was not ambiguous and did not falsely allege that the Republican plan would balance the budget. The court affirmed summary judgment in favor of the RNC. Example: Conwell v. Gray Loon Outdoor Marketing Group, Inc.: The agreement for modifications was sufficient to bind Conwell to the additional fees. B. Definiteness The offeror must specifically indicate what he is willing to do and what he wants the offeree to do or agree to do in return. Example: Allen v. Clarian Health Partners: The court found that the contract was reasonably certain and definite when plaintiff agreed to pay for healthcare, despite the lack of a dollar amount in the contract. Example: Chateau des Charmes Wines v. Sabate USA: Each of the parties in the case reside in countries that have agreed to the CISG and are therefore bound by it. C. Communication to the Offeree Communicating the offer to the offeree indicates that the offeror is willing to be bound by its terms. Example: Permison v. Comcast Holdings Corporation: The court found that Permison was not adequately informed about the terms of the contract because there is insufficient evidence that Permison received and had an opportunity to review and understand the terms of the offer. III. Cyber-Contracts A. Shrink-wrap and Click-on Contracts Shrink-wrap and click-on contracts are usually enforceable unless found to be unconscionable. Example: Bragg v. Linden Research, Inc.: The arbitration clause found in the Terms of Service agreement is unconscionable as Linden had superior bargaining power over Bragg. III. Special Problems A. Advertisements Advertisements are generally not treated as offers but as invitations to bargain.

10-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. B. Rewards An offer for a reward is an offer for a unilateral contract. Example: Alexander v. Lafayette Crime Stoppers Inc.: The court found that Alexander is not entitled to the reward because she did not meet the terms of the offer, that is, calling the phone numbers cited in the offers. C. Auctions and Bids Generally an auction is a request for bids which are viewed as a seller making an invitation to offer. The bidding process in construction work is a source of many legal disputes. IV. What terms are included? In general, if the offeree read the terms, or a reasonable person should have been on notice of them, the offeree is bound. Example: Morales v. Sun Constructors, Inc.: The terms of the offer were explained to Morales in Spanish. The duty was on Morales to fully understand the terms if he was unsure at the time of signing. V. How Long Do Offers Last? A. Terms of the Offer The offer may include the terms that limit its life. B. Lapse of Time If not stated, an offer is valid for a reasonable time. C. Revocation Offerors generally have the power to revoke an offer any time prior to acceptance by the offeree. C. Firm Offers 1. Must be in a signed writing 2. The offeror must be a merchant. 3. It must contain assurances that it will be held open 4. Outer limit of irrevocability is three months. D. Options An option contract is created if the offeree gives the offeror something of value to hold the offer open. E. Estoppel The doctrine of estoppel may apply. Estoppel requires a promise, reliance and an injustice. D. Revocation of Offers for Unilateral Contracts An offer for a unilateral contract generally cannot be revoked if the offeree has begun performance. E. The Effectiveness of Revocations The revocation must be received by the offeree to be effective. F. Rejection Rejection of the offer by the offeree terminates the offer. G. Death or Insanity of Either Party The death or insanity of either party automatically terminates the offer H. Destruction of Subject Matter 10-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. If the subject matter of the contract is destroyed after making the offer but before acceptance, the offer is terminated. I. Intervening Illegality If the performance of the contract was legal when the offer was made, but became illegal before acceptance, the offer is automatically terminated. Learning Objectives 1. You should understand the meaning of an offer, offeror, and offeree, and the requirements for an effective offer: intent, definiteness, and communication to the offeree. 2. You should understand how courts use offer and acceptance to define an agreement and "meeting of the minds." 3. You should be aware of the two main factors courts use to judge whether a person intended to enter a contract: definiteness and communication. 4. You should know what factors the courts consider when deciding whether a given term was included in the offer (and therefore in the contract). 5. You should know how an offer is terminated. 6. You should know the exceptions to the general rule that the offeror can revoke his offer at any time before the offeree accepts it. 7. You should know the meaning of the term "estoppel" and how it relates to the resolution of problems concerning offers. 8. You should know the rules governing when the offeror may revoke an offer for a unilateral contract. 9. You should understand the difference between an acceptance and counter-offer. 10. You should have an awareness of cyber contracts and shrink wrap contracts. Learning Hints 1. "Offer" and "acceptance" are words used by courts to describe a factual situation requiring proof of a statement indicating a present intent to enter into a contract. 2. In order to determine whether there is a legally effective offer, courts must determine the intention of the offeror. This intention, however, is determined by using an objective, rather than subjective, test. Thus, if a reasonable person would believe that an offeror had indicated a present willingness to enter into a bargain, the court may determine that an offer was made, even though the offeror denies any such intention. 3. Keep in mind that the words "offer" and "acceptance" used in contract law have special technical, legal meanings that may be different from the way these words are used in everyday speech. For example, advertisements often use the word "offer," but we have seen that advertisements are generally presumed not to be offers. 4. When you make an offer to another person, you give that person the power to legally bind you to a contract obligation merely by accepting your offer. For this reason, courts will not lightly assume an offer has been made. 5. There are three elements of an offer: an objective manifestation of a present intent to contract, the use of reasonably definite terms, and the communication of the offer to the offeree. 6. Advertisements are generally presumed not to be legally binding offers, even if the advertiser uses the word "offer." This means that the person who reads the advertisement cannot bind the advertiser merely by appearing and saying "I accept." The person who reads the ad is treated as the offeror, not as an offeree. 10-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7. One of the exceptions to the general rule that the offeror can revoke any time before acceptance is the situation when parties have entered an option contract. An option contract is an agreement in which the offeree has paid the offeror something to keep the offer open for a certain period of time. During that period of time, the offeror cannot revoke. If the offeree decides to accept the offer during that period of time, the offeror must go through with the deal. However, the offeree has no obligation to accept during the duration of the option. 8. A request for bids is treated as a request for offers. Bids are generally treated as offers, which the other party may accept or reject. However, this rule may be changed by statute. For example, many states have statutes prescribing the manner and effect of bids made by governmental units. True-False In the blank provided, put "T" if the statement is True or "F" if the statement is False. _____ 1. Courts rely on objective manifestation of intent in determining whether an offeree has made an offer. _____ 2. If facts indicate that a term was left out because parties were unable to reach agreement, it would probably mean the intent to contract was absent and no contract was created. _____ 3. An advertisement in a Cabela’s catalog for a tent listed at a certain price is generally considered to be an invitation to make an offer and not an offer. _____ 4. An ad for a $25 reward for the return of a lost dog is not considered to be an offer. _____ 5. Only a merchant can make a firm offer under the UCC _____ 6. John bids on an antique at an auction. John is making an offer. The auctioneer can accept or reject the offer. _____ 7. A firm offer can normally be revoked any time prior to acceptance of the offer. _____ 8. An option is a separate contract with the limited purpose of holding an offer open. _____ 9. Tracy offers to sell her car to Greta for $5,000. Greta impliedly rejects this offer when she counteroffers a price of $4,000. _____ 10. An advertisement of a reward is an example of an offer for a unilateral contract. Multiple Choice Circle the best answer. 1. A firm offer by a merchant: a. Must be made in a signed writing. b. Is effective for the period stated in the offer, even if the term exceeds three months. c. Only applies in cases where both parties are merchants. d. Requires a signature of both parties. 2. J.D. tells Ken, “I will trade you several baseball cards for your autographed picture of Michael Jordan.” Which of the following is not true? a. J.D. has made an offer to Ken. b. J.D. has given Ken an invitation to make an offer. c. No offer was made because J.D.’s comment is not definite. d. J.D.’s comments do not constitute an offer because they do not indicate a present intent to contract. 3. At a local auction, Jim bid $5.00 for a painting valued at $500.00. No one else bid, so the auctioneer withdrew the painting before "hammering down" his acceptance. Jim argues that

10-4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. placing the item on the block was an offer, which he legally accepted. Is he correct? a. No, the auctioneer must deliver the painting to Jim before there is an acceptance. b. No, the auctioneer may withdraw the item before accepting it by "hammering down" the item. c. Yes, placing an item for auction is an offer. d. Yes, Jim is entitled to the item under the doctrine of promissory estoppel. 4. Which of the following is an offer? a. A newspaper advertisement for groceries b. “I will pay you $25 if you mow my lawn today.” c. “I would like to buy your car.” d. A sale item shown in a catalog 5. Winkler’s Jewelers sends a letter to past customers advertising a special two-week sale on a particular bracelet at a certain price. The letter is signed by Jim Winkler, President. Which of the following statements is accurate? a. The letter is not an offer, but an invitation to negotiate. b. Winkler’s could revoke this offer anytime before a customer accepts it. c. This is an irrevocable firm offer. d. This offer remains open indefinitely. 6. If the letter from Winkler’s in the above question does not mention anything regarding the time that the offer is valid, a. Winkler’s could revoke the offer anytime. b. The offer can never be revoked. c. The offer can be revoked after a reasonable time. d. The offer is automatically revoked after six months. 7. Mabel tells Frank she will pay him $2,000 if he paints her house. Frank buys some paint and equipment and begins painting Mabel’s house. The day after Frank starts painting the house, Mabel tells him she has changed her mind and revokes her offer. Which of the following is true? a. Mabel owes Frank for the time and materials he has already invested in the project. b. Mabel can revoke her offer anytime, so Frank is out of luck. c. This is a firm offer so Mabel cannot revoke the offer. d. Mabel must permit Frank to finish the job once he starts it. 8. In the fall of 1981, Farmer Hicks wrote to City Slicker, a food wholesaler, and offered to sell Slicker his entire crop of persimmons for $500. Slicker did not reply, and Hicks did not contact him again. In the fall of 1982, however, persimmons were scarce, and Slicker wrote Hicks, "I hereby accept your offer." a. There is a contract because Hicks never said how long his offer would remain open and never revoked his offer before Slicker accepted it. b. There is a contract if Slicker subjectively intends to contract. c. There is no contract because Hicks' offer was terminated by the passage of a reasonable time before Slicker accepted it. d. There is no contract to sell Slicker the entire crop for $500, but Hicks must sell Slicker persimmons at the new market price. 9. Which of the following is not an effective way to terminate or revoke an offer?

10-5 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. a. The death of the offeror before the offer was accepted. b. Jane is thinking of buying a car from Cindy. Before Jane can accept Cindy’s offer, the car is destroyed in a tornado. c. The contract performance becomes illegal before the acceptance is made. d. The offeree accepts the offer before receiving a mailed revocation from the offeror. 10. Martha pays Howie $25 to not sell his car for three days so that Martha can decide if she wants to buy it. This is an example of: a. A counteroffer b. An option c. An acceptance of the offer d. Promissory estoppel Short Essay 1. Iowa Furniture Mart runs television commercials advertising a special three-day Labor Day sale on recliners. Is this a firm offer?

2. Stevens Construction Co. is developing a bid to Fellowship Church for a new church building. Stevens asks for bids from subcontractors such as plumbers, electricians, and bricklayers. Who is making offers in this process?

3. John offered to sell his house to Mary, but before Mary could accept, John's house burned down. What is the legal status of John's offer? Why?

4. Sylvia attends an auction that is advertised as being “without reserve.” Sylvia really likes an antique candle holder that is being auctioned. Apparently, nobody else has much of an interest, so Sylvia’s opening bid is the highest bid on the candle holder. Can the auctioneer reject Sylvia’s offer?

5. Rick tells Mona, “I will give you $3,000 for your car.” Mona says, “Great, you have a deal.” What

6. What kinds of things do the courts look at in determining whether the offeror has a present intent to contract? Judy hears Bill offer to sell his car to Stan for $7,000. Judy says, “I will take it.” Is there an acceptance here?