Essentials of Business Law 9th Edition
Anthony Liuzzo
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Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 8 Offer and Acceptance
LESSON OVERVIEW
In Chapter 7 students were introduced to the six elements of an enforceable contract. In Chapter 8, students will examine the first of these essential elements – offer and acceptance For a contract to be valid, there must be a proposal that is both offered by the offerer and accepted by the offeree. There are three requirements of a valid offer; the offer must be definite and certain, communicated, and must intend an enforceable obligation. This chapter will then distinguish between the different types of offers, including bids, advertisements, and public offers. Lastly, we will cover the two requirements for a valid acceptance, as well as the three ways offers may be terminated. Students are encouraged to use the end-of-chapter exercises to further their understanding of these concepts.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CHAPTER OUTLINE
A. REACHING AGREEMENT (p. 124)
B. REQUIREMENTS FOR A VALID OFFER (p. 124)
1. An Offer Must Be Definite and Certain (p. 124)
2. An Offer Must Be Communicated (p. 124)
3. An Offer Must Intend an Enforceable Obligation (p. 125)
C. BIDS, ADVERTISING, AND PUBLIC OFFERS (p. 125)
1. Bids and Estimates (p. 125)
2. Advertising (p. 126)
3. Public Offers (pp. 126-127)
D. REQUIREMENTS FOR A VALID ACCEPTANCE (p. 127)
1. An Acceptance Must Be Communicated (pp. 127-128)
2. An Acceptance Must Be Unconditional (pp. 128-129)
E. TERMINATION OF AN OFFER (p. 129)
1. Termination by Lapse of Time (p. 129)
2. Termination by Revocation (p. 129)
3. Termination by Rejection (p. 130)
4. Termination by Death or Incapacity (p. 130)
5. Termination by Destruction or Illegality (pp. 130-131)
F. CHAPTER SUMMARY (p. 131)
G. CHAPTER ASSESSMENT (p. 131)
1. Matching Key Terms (pp. 131-132)
2. True/False Quiz (p. 132)
3. Discussion Questions (p. 133)
4. Thinking Critically About the Law (pp. 133-134)
5. Case Questions (pp. 134-135)
6. Case Analysis (pp. 135-137)
7. Legal Research (p. 137)
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed in bold in the copy. They are listed here for your quick reference.
▪ request for proposal (p. 125)
▪ invitation to trade (p. 126)
▪ public offer (p. 126)
▪ mailbox rule (p. 127)
▪ counteroffer (p. 128)
LEARNING OUTCOMES
▪ termination by lapse of time (p. 129)
▪ revocation (p. 129)
▪ rejection (p. 130)
▪ option contract (p. 130)
The chapter Learning Outcomes will help you and the students discover the concepts and information that should be understood upon completion of the chapter. You may want to access the PowerPoint (PPT) slides for Chapter 8 when you begin the study of the chapter and discuss each Learning Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are shown here in total as an overview of the sections being presented in Chapter 8. The corresponding text page numbers and PPT slides are listed next to each outcome. These slides should be used to reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Identify the first step in reaching agreement and forming a valid contract. (p. 124, PPT slide 2)
2. Explain and provide examples of the three requirements for a valid offer. (pp 124125, PPT slides 3-7)
3. Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance. (pp. 125-127, PPT slides 8-12)
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
4. Explain and provide examples of the two requirements for a valid acceptance. (pp. 127-129, PPT slides 13-18)
5. Identify the three ways in which an offer may be terminated. (pp. 129-131, PPT slides 19-22)
LECTURE OUTLINE
A. REACHING AGREEMENT
The first of the essential elements of an enforceable contract is offer and acceptance. For a contract to be valid there must be a proposal that is both offered by the offeror and accepted by the offeree.
B. REQUIREMENTS FOR A VALID OFFER
For an offer to be valid, it must be (1) definite and certain, (2) communicated to the offeree, and (3) made with a serious intention that the offeror will be bound by it.
1. An Offer Must Be Definite and Certain
To be definite and certain, an offer should specify all the terms and conditions of the contract. Later disagreement can be avoided if the offer is made as specific as possible.
2. An Offer Must Be Communicated
An offeror can make the offer known to the offeree by several means of communication, including oral communication and written communication. A printed or electronic purchase order is also commonplace in today's business world. Communication also may be implied by the actions of the parties.
3. An Offer Must Intend an Enforceable Obligation
Offers made in anger or jest, or those made under severe emotional strain, are obviously not made with the intent of entering into a valid, enforceable agreement. The lack of serious intent must, however, be apparent to a reasonable person.
C. BIDS, ADVERTISING, AND PUBLIC OFFERS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The requirement of offer and acceptance is usually fairly straightforward in contracts involving just two or, perhaps, a few parties. However, the issue gets complicated when there is little or no direct contact between the parties, as in the case of bidding, advertising, and public offers.
1. Bids and Estimates
A call for a bid or estimate for materials to be furnished or work to be done is not considered an offer, but rather a request for an offer or an invitation to negotiate that can be accepted or rejected by the person calling for the bid. Such an announcement or solicitation is often called a request for proposal.
2. Advertising
An advertisement, such as one that appears every day on television, on radio, in a newspaper, in a magazine, or on a Web site, is generally regarded as an invitation to trade, or an invitation to make an offer, rather than a valid offer, because it does not contain sufficient words of commitment to sell. Sometimes goods are advertised in a newspaper at an incorrect price. If the error is the fault of the merchant, he or she will be required to honor the lower price. Even if the error is not his or her fault, the merchant may decide to sell the goods as advertised even though this may not be profitable. The reason is usually that the merchant believes it is a good business decision to sell at the advertised price in order to retain public goodwill. If, however, an advertisement contains a positive promise and a positive statement of what the advertiser expects in return, the courts will usually hold that the advertisement is an offer. This is especially true if the word offer is used in the advertisement.
3. Public Offers
When an advertisement offers a reward for information that might lead to the arrest of a criminal or for the return of a lost article, it is regarded as a general offer to the public at large. Acceptance of a public offer by
anyone, as indicated by the performance of the act, results in an enforceable contract.
D. REQUIREMENTS FOR A VALID ACCEPTANCE
In order for an acceptance of an offer to be valid, (1) it must be communicated to the offeror and (2) it must be unconditional.
1.
An Acceptance Must Be Communicated
It is important to determine how an acceptance may be communicated and when such acceptance becomes effective.
a)
Method of Communication
Any of the usual forms of communication, such as telephone, letter, fax, e-mail, text message, and others, may be used in accepting an offer, unless the offer specifies a certain form of communication, such as “Reply by registered mail,” “Reply by return mail,” or “Reply by e-mail.”
b)
When Acceptance Becomes Effective
The general rule is that an acceptance becomes effective when the parties so intend. The offer may explicitly state whether an acceptance is effective when it is sent by the offeree or when it is received by the offeror. If the offer is silent as to the time the acceptance is effective, the mailbox rule states that an acceptance sent via the postal system or by courier is effective when sent. An acceptance communicated by telephone, fax, or telex is effective when received. Courts have been divided on whether an acceptance sent via e-mail or text message is effective when sent or when received.
c)
Silence as Acceptance
While a person cannot be compelled to speak or to write in order to avoid a binding agreement, and is under no obligation to reply to an offer, silence may indicate assent to an offer when both parties agree beforehand that this is to be the means of acceptance.
2. An Acceptance Must Be Unconditional
A counteroffer, that is, a conditional, or qualified, acceptance of an offer, is generally interpreted as a rejection and is not binding on the parties. The general rule of contract provides that the acceptance of an offer must be the same as the offer, and that if there are any material (important) differences between the offer and the acceptance, the acceptance is regarded as a rejection of the offer. The UCC provides an exception to this rule.
E. TERMINATION OF AN OFFER
Offers are terminated by (1) lapse of time, (2) revocation, (3) rejection, (4) death or incapacity, and (5) destruction or illegality.
1. Termination by Lapse of Time
When the offeree fails to accept an offer within the time specified, the opportunity to form a contract ends because of a termination by lapse of time. When no definite time for acceptance is stated in an offer, it terminates after a reasonable time has passed. What is considered a reasonable time can vary according to the circumstances.
2. Termination by Revocation
An offer that has been neither accepted nor rejected by the offeree can be revoked, or withdrawn, by the offeror. The offeror may communicate the revocation to the offeree in either spoken or written words. The UCC provides, however, that any written offer by a merchant to buy or sell goods that states that the offer will be held open for a specified time period cannot be revoked during this time period or, if no time period is specified, until a reasonable time has elapsed. An offer that includes specific time limits expires automatically when the time is up, unless the offeror chooses to extend the offer (UCC 2-309).
3. Termination by Rejection
A direct, unqualified rejection, or a refusal to accept, terminates an offer. The offer, once rejected by the offeree, cannot be revived or made into a
counteroffer once the communication of the rejection has been received by the offeror. If the offeror acknowledges the rejection but restates the offer, the offeree still has the opportunity to accept, or reject, or make a counteroffer. Just as a qualified acknowledgment of the rejection of an offer serves to keep an offer alive, a qualified rejection may have a similar effect.
4. Termination by Death or Incapacity
Mutual agreement cannot occur if either the offeror or the offeree dies or becomes incompetent. Therefore, an offer is immediately terminated as a result of the death or legal incapacity of either the offeror or the offeree. However, if either the offeror or the offeree is bound by an option contract, the surviving party may still be obligated to the contract. An option contract is one that has a provision to keep an offer open for a certain period of time. In the event of death, the estate of the deceased would be responsible to carry out the provisions of a contract that includes an option.
5. Termination by Destruction or Illegality
If the subject matter of a contract is destroyed or declared illegal after the offer has been made but before it has been accepted, the contract is terminated.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 8. Every outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter assessment exercises and activities for ease of reference and use
LO1. Identify the first step in reaching agreement and forming a valid contract.
The first step in reaching agreement and forming a valid contract is that there must be a proposal that is both offered by the offeror and accepted by the offeree.
Text Pages: 124
PowerPoint: Slide 2
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
LO2. Explain and provide examples of the three requirements for a valid offer. For an offer to be valid, it must be (a) definite and certain, (b) communicated to the offeree, and (c) made with a serious intention that the offeror will be bound by it. One example would be a salesperson offering a potential buyer an item in a store, putting the terms of sale in clear writing, and signing the document before handing it to the potential buyer for his or her consideration.
Text Pages: 124-125
PowerPoint: Slides 3-7
Discussion Questions: 21-25
Case Questions: 32-33
Case Analysis: 36-38
LO3. Distinguish between bids, advertisements, and public offers, and describe how each relates to offer and acceptance.
A call for bids or estimates is not considered an offer, but rather a request for an offer or an invitation to negotiate that can be accepted or rejected by the person calling for the bid. To determine whether an advertisement is an invitation to trade or a valid offer, one should carefully examine whether the advertisement contains sufficient words to demonstrate a commitment to sell. If it contains a positive promise and positive statement of what the advertiser expects in return, the courts will usually hold that the advertisement is an offer. When an advertisement offers a reward for information, it is regarded as a general offer to the public at large, and acceptance of a public offer by anyone results in an enforceable contract.
Text Pages: 125-127
PowerPoint: Slides 8-12
Thinking Critically About the Law: 27, 31
Case Analysis: 35
LO4. Explain and provide examples of the two requirements for a valid acceptance.
A valid acceptance of an offer must be (a) communicated to the offeror and (b) unconditional. An example would be when a buyer informs a seller that she will accept his offer to sell a copy of the daily newspaper for $1.
Text Pages: 127-129
PowerPoint: Slides 13-18
Discussion Questions: 26
Thinking Critically About the Law: 28-29
LO5. Identify the three ways in which an offer may be terminated.
An offer can be terminated by (a) lapse of time, (b) revocation, or (c) rejection.
Text Pages: 129-131
PowerPoint: Slides 19-22
Thinking Critically About the Law: 30
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Case Questions: 34
8-10
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 8 Assessment Answers Matching Key Terms
1. b 4. i 7. f 10. g
2. e 5. c 8. d
3. a 6. j 9. h
True/False Quiz
11. T 14. F 17. T 20. F
12. T 15. T 18. T
13. T 16. T 19. T
Discussion Questions
21. Uncertainty in offers and acceptances can result from verbal communications and faulty memories. For this reason, practical, significant details should be in writing. Even in written communications, ambiguity in meaning especially where languages are different can be avoided by precise description.
22. The advantages of having written offers and acceptances over spoken ones are that there will be less confusion and fewer legal disputes.
23. Numerous time factors might be important in offers and acceptances including: the availability of shipping and storage facilities, limited quantities available, perishability of goods, and others.
24. When no definite time for acceptance is stated in an offer, it terminates after a reasonable time has passed, which will vary with the circumstances.
25. For an offer to be valid, it must be (a) definite and certain, (b) communicated to the offeree, and (c) made with a serious intention that the offeror will be bound by it.
26. A valid acceptance of an offer must be (a) communicated to the offeror and (b) unconditional.
Thinking Critically About the Law
27. Advertisements are not considered valid offers because they do not contain sufficient words of commitment to sell.
8-11
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28. Silence may indicate assent to an offer when both parties agree beforehand, either explicitly or implicitly, that this method may be a means of acceptance.
29. The law regards a counteroffer as a rejection. The general rule of contract provides that the acceptance of an offer must be the same as the offer, and that if there are any material differences, such as adding conditions, between the offer and the acceptance, the acceptance is regarded as a rejection of the offer.
30. A direct, unqualified rejection, or refusal to accept, terminates an offer. The offer, once rejected by the offeree, cannot be revived or made into a counteroffer once the communication of the rejection has been received by the offeror. If the offeror acknowledges the rejection but restates the offer, the offeree still has the opportunity to accept, or reject, or make a counteroffer.
31. It may at times be appropriate to accept a bid that is not the lowest if, for example, there have been prior dealings between the two parties, or to ensure high quality. However, the official should not use his or her position for personal gain.
Case Questions
32. a. N b. N c. Y d. N 33.
N b. N c. Y
34. a. N b. N c. Y d. Y
Case Analysis
35. Principle of law: When the text of a bid specifically states that it is not a firm offer, the court will follow the text.
Decision: Judgment for Pote Concrete Contractors, Inc.
36. Principle of law: A counteroffer, that is, a conditional, or qualified, acceptance of an offer, is generally interpreted as a rejection
Decision: Houlihan and Browne did not have a valid contract.
37. Principle of law: There is an exception to the rule against acceptance by silence where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
Decision: The fact finder must determine whether or not Bell had such reasonable opportunity.
38. Principle of law: Advertisements are usually considered invitations to trade, except in cases where specific promises are included and the word offer is used.
Decision: Sanderson will be required to sell the tool at the advertised price, and Cruz can seek appropriate legal remedies.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Legal Research
39. Results of the team research will vary depending on the retailers chosen, but they will probably involve various approaches to planning and writing advertising copy, and how carefully the retailer avoids wording that might cause a reader to regard the ad as a definite offer, instead of as simply an advertisement.
40. An example of a Web site is eBay. The individual with the highest bid is given a specified time frame in which to make payment.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
BONUS ACTIVITIES
• Direct an in-class discussion on how advertisement is generally regarded as an invitation to trade, especially in relation to it not being a valid offer. Ask students to provide examples from personal experiences.
• Have each student locate an article about unconscionable contracts. Ask students to bring their articles to class, and select several for an in-class discussion.
8-14
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.