1. Chapter 8
Offer, Acceptance, and Mutual Assent
8-1

2. Learning Objectives
1. Define mutual assent.
2. Identify the elements of an offer.
3. Explain the UCC’s concept of offer in contract
law.
4. Explain the nature of acceptance.
5. Define the mirror image rule
8-2

3. Learning Objectives (cont.)
6. Explain the process of revocation.
7. Identify those statutes that affect mutual assent
in cyberspace.
8. Explain the elements of fraud and
misrepresentation.
9. Identify the effects of mistake on mutual assent.
10.Describe duress and undue influence.
8-3

4. Mutual Assent
• Mutual assent
– both parties know what the terms are, and both have
willingly agreed to be bound by those terms
– “meeting of the minds.”
8-4

5. Requirements of an Offer
• Offer
– a proposal freely made by one party to another
indicating a willingness to enter a contract
• Offeror
– the person who makes the offer
• Offeree
– the person to whom the offer is made
8-5

6. Requirements of an Offer
Serious intent
Clear and reasonably
definite terms
Communication to the
offeree
8-6

7. Offer: Case Study
• Lucy v. Zehmer
8-7

8. Serious Intent
• Offeror’s words must give the offeree assurance
that a binding agreement is intended
– Are you prepared to be bound by those words right
now?
• What about joking?
– no contract only if other party aware, or should be
reasonably aware, that the offeror is joking.
8-8

9. Degree of Definiteness
Offer should identify:
1. the parties involved in the contract,
2. the goods or services that will be the subject
matter of the contract,
3. the price the offeror is willing to pay or receive
4. the time required for the performance of the
contract
(who, what, when, where, how much)
Case: Lefkowitz v. Great Minneapolis Surplus Store
8-9

10. Offers and the UCC
UCC allows for omission of certain information
in some cases, “. . .if the parties have intended
to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.”
– Cost-plus contract
– Requirements contract
– Output contract
– Current market price contract
8-10

11. Communication to the Offeree
• To be valid, an offer must be freely
communicated to the offeree
• The offeror’s intentions may be communicated by
whatever means are convenient and desirable
– When acts and conduct are sufficient to convey an
offeror’s intentions, an implied offer results
8-11

12. Public Offers
• Public offer
– One that is made through the public media but is
intended for only one person whose identity or
address is unknown to the offeror
8-12

13. Invitations to Trade
• Invitation to trade (treat, bargain)
– an announcement published to reach many persons
for the purpose of creating interest and attracting
responses
• Newspaper and magazine advertisements, radio and
television commercials, store window displays, price
tags on merchandise, for rent signs, prices in catalogs
8-13

14. Auctions
• Auction
– a sale that is open to the public, during which
potential buyers compete for the right to purchase
certain items by placing higher and higher bids until
the highest bid is reached and the auctioneer accepts
on behalf of the seller
8-14

15. Auctions
• Auction with reserve
– Owner – offeree
– Bidder - offeror
• Auction without reserve
– Owner - offeror
– Bidder – offeree
• An auction not expressly designated as without
reserve is considered with reserve
8-15

16. Bait-and-Switch Confidence Games
• Bait-and-switch confidence game
– a deliberately deceptive practice that entices buyers
into a place of business when the seller actually has
no intention of selling the item at the price stated in
the advertisement.
8-16

17. Acceptance of an Offer
• Acceptance
– the offeree agrees to be bound by the terms set up by
the offeror
8-17

18. Communication of Acceptance
• Face-to-Face and Telephone Communication
– Acceptance when offeror hears words of acceptance
spoken by offeree
• Long-Distance Communication
– Authorized – acceptance when dispatched
– Otherwise, acceptance when it actually reaches the
offeror
8-18

19. Communication of Acceptance
• Text Messages
– Acceptance when message is sent
• The Uniform Commercial Code
– For sales of goods, offeree may accept in any manner
and by any medium that is reasonable
– Acceptance when sent, as long as method is
reasonable
8-19

20. Acceptance of an Offer
Unequivocal acceptance
• The Mirror Image Rule
• Counteroffers Under the UCC
Implied Acceptance
• Mailing of Unordered Merchandise
Silence as Acceptance
8-20

21. Unequivocal Acceptance
• Mirror image rule
– the terms as stated in the acceptance must exactly
“mirror” the terms in the offer
• Counteroffer
– a response to an offer in which the terms of the
original offer are changed
8-21

22. Implied Acceptance
• Acceptance resulting from actions and/or
gestures
– Mailing of unordered merchandise – may be
considered as a gift
• Silence as acceptance
– In most cases, cannot be forced upon offeree, but can
be agreed upon as valid method
Columbia House/BMG?
8-22

23. Rejection and Revocation
• Rejection
– comes about when an offeree expresses or implies a
refusal to accept an offer
– Terminates the offer and associated negotiations
• Revocation
– the calling back of the offer by the offeror
– An offer may be revoked any time before it has been
accepted
8-23

24. Revocation of an Offer
Communication
Death or Insanity
Automatic Revocation
Destruction of the subject matter
Passing of Time
Subsequent Illegality
8-24

25. Option Contracts
• Option contract
– an agreement that binds an offeror to a promise to
hold open an offer for a predetermined or reasonable
length of time.
8-25

26. Firm Offers and Sale of Goods Contracts
• Firm offer
– created when a merchant agrees in writing to hold an
offer open
– under this condition, no consideration is needed to
hold that offer open
– may be made for a specified period of time (not
longer than 3 months)
8-26

27. Lease Options and Real Property Contracts
• Lease option
– a contract that permits a party to lease real property
while at the same time holding an option to purchase
that property
8-27

28. Mutual Assent in Cyberspace
• Electronic contracts or e-contracts
– contracts that are made using computers either via email or the Internet or contracts that involve
computer-related products such as databases and
software
8-28

29. Mutual Assent in Cyberspace
• The E-Sign Act
– Gives validity to E-contracts and e-signatures
• The Uniform Electronic Transactions Act
– Ensures e-contracts have same weight as paper
equivalents
• The Uniform Computer Information Transactions Act
(UCITA)
– Covers database contracts, software licensing
agreements, customized software formulation and rights
to multimedia commodities
• Offer and Acceptance in Cyberspace
8-29

30. Offer and Acceptance in Cyberspace
An electronic offeror should insert the following terms
in the offer:
1. payment criteria
2. remedies that can be used by the offeree,
3. refund policies
4. return procedures
5. dispute settlement instructions
6. the applicability of cybersignatures
7. liability disclaimers if needed
8. provisions relating to the offeree’s manner of
acceptance
8-30

31. Offer and Acceptance in Cyberspace
• Click-on acceptance or a click-on agreement
– one that is created by having a party click on a box on
the computer screen that states he or she agrees to
be bound by the terms of the contract.
8-31

32. Mutual Assent
• Mutual assent
– both parties know what the terms are, and both have
willingly agreed to be bound by those terms
– “meeting of the minds”
• Parties are protected from some tricks and
certain mistakes
• Defective agreement – contract where mutual
assent has been destroyed
8-32

33. Defective Agreements
• Causes:
–Fraud
–Misrepresentation
–Mutual Mistake
–Duress
–Undue Influence
8-33

34. Elements of Fraud
• To prove fraud, must prove five elements:
1. Party made false representation about some
material fact (crucial to terms)
2. Knowing it was false
3. With intention that it be relied upon by innocent
party
4. There was reasonable reliance on the false
representation
5. Some loss occurred due to reliance
8-34

35. Types of Fraud
• Fraud in the inception
– Lying to the innocent party about the actual nature of
the contract
– Ex: I tell you it’s a contract to buy a car, but you are
actually co-signing my mortgage
• Fraud in the inducement
– Lying about the terms of the agreement to get the
innocent party to enter the contract under false
pretenses
– Ex: I tell you the APR is 5%, but it’s really 30%
8-35

36. Case Study
Park 100 Investors, Inc. v. Kartes
• Kartes agreed to lease space from Park 100 for KVC;
– Representative of Park 100 (Scannell) showed up the
night before KVC is to move in and says they have
“lease papers” to sign;
– Kartes calls lawyer to make sure “lease papers” are
OK;
– Papers turned out to be a personal guaranty;
– Kartes signs without actually reading it
8-36

37. Active Fraud
• Active fraud
– One party contract makes a false statement intended
to deceive the other party and thus leads that party
into a deceptively based agreement.
– Not limited to oral or written words
• Ex: turning back car’s odometer, hanging picture over hole
in wall
– Contrast: Puffery
8-37

38. Passive Fraud
• Passive fraud
– occurs when one party does not say something about
certain facts that he or she is under an obligation to
reveal
– Also called concealment or nondisclosure
8-38

39. Passive Fraud
• Hidden Problems
– Sellers not obligated to reveal everything
• But if problem (of material fact) is hidden
and other party cannot be reasonably
expected to find it, could be fraud
8-39

40. Passive Fraud
• Fiduciary relationship
– A relationship based on trust
– Exist between:
• attorneys and clients
• guardians and wards
• trustees and beneficiaries
• boards of directors and corporations
– Obligation to reveal what otherwise might be
withheld
8-40

41. Misrepresentation
• Misrepresentation
– False statement made innocently with no intent to
deceive
• Rescission
– Both parties are returned to their original positions,
before they entered into the contract
• Was that really the hat Indiana Jones wore in
Raiders of the Lost Ark?
8-41

42. Agreements Made Defective by Falsehood
8-42
8-42

43. Mistake
• Unilateral mistake
– Made by only one of the contracting parties
– Does not offer sufficient grounds for rescission or
renegotiation
• Bilateral mistake
– Both parties are mistaken
– May permit a rescission by either the offeror or the
offeree
8-43

44. The Nature of Mistakes
• Mistakes as to Description
– Rescission granted
• Mistakes as to Existence
– Rescission if destroyed before acceptance
• Mistakes as to Value
– Matter of opinion, no rescission
• Mistakes through Failure to Read Document
– Generally no rescission
• Mistakes of Law
– Depends
8-44

45. Case Study
• Raffles v. Wichelhaus (1864)
– The two entered into a contract for the sale of bales
of cotton
– Ship, Peerless, departing from Bombay and arriving in
Liverpool
– Unknown to the parties, two ships Peerless, one
arriving in October, the other in December
– Plaintiff arrives in December, ready to sell, Defendant
says no contract b/c mutual mistake
8-45

46. Duress and Undue Influence
• Duress
– an action by one party that forces another party to do
what need not otherwise be done
– forces a person into a contract through the use of
physical, emotional, or economic threats
8-46

47. Physical and Emotional Duress
• Physical duress
– involves either violence or the threat of violence
against an individual or against that person’s family,
household, or property
• Emotional duress
– arises from acts or threats that would create
emotional distress in the one on whom they are
inflicted
8-47

48. Economic Duress
• Economic duress (business compulsion)
– Threats of a business nature that force another party
without real consent to enter a commercial
agreement
– Plaintiff must prove:
• Wrongfully placed in bad economic situation
• Had no alternative but to submit to contract demands
• Acted reasonably by entering contract
8-48

49. Undue Influence
• Undue influence
– Requires special relationship between the parties
• Parent/child, attorney/client, guardian/ward
– Dominant party uses excessive pressure to convince
the weaker party to enter a contract that greatly
benefits the dominant party
8-49

50. Question?
What is an offer made through the public
media but is intended for only one person
whose identity or address is unknown to the
offeror?
A. Private offer
B. Public offer
C. Auction offer
D. Feedback offer
8-50

51. Question?
What is the calling back of the offer by the
offeror?
A. Revocation
B. Rejection
C. Affirmation
D. Orientation
8-51

52. Question?
What is an announcement published to
reach many persons for the purpose of
creating interest and attracting responses?
A. Public offer
B. Invitation to trade
C. Auction
D. Private offer
8-52

53. Question?
What is a false statement made innocently
with no intent to deceive?
A. Rescission
B. Recession
C. Misrepresentation
D. Representation
8-53

54. Question?
What forces a person into a contract through
the use of physical, emotional, or economic
threats?
A. Stress
B. Eustress
C. Duress
D. Coercion
8-54

55. Question?
Which type of fraud occurs when one party
to a contract makes a false statement
intended to deceive the other party?
A. Passive fraud
B. Active fraud
C. Submissive fraud
D. Dynamic fraud
8-55

56. Question?
Which type of duress consists of threats of a
business nature that force another party
without real consent to enter a commercial
agreement?
A. Physical duress
B. Emotional duress
C. Economic duress
D. Undue influence
8-56

57. Question?
What is contract that permits a party to lease
real property while at the same time holding
an option to purchase that property?
A. Firm offer
B. Private offer
C. Lease option
D. Lease offer
8-57

58. Question?
What is an agreement that binds an offeror
to a promise to hold open an offer for a
predetermined or reasonable length of time?
A. Firm offer
B. Option contract
C. Lease option
D. Private auction
8-58

59. Question?
__________ is when both parties know what
the terms are, and both have willingly
agreed to be bound by those terms?
A. Agreement
B. Mutual assent
C. Shared agreement
D. A firm offer
8-59