Transcript REAL PROPERTY (It’s not personal) Real Property & Environmental Law MULTIPLE-CHOICE QUESTION #1 Beth owns a corporate office park in Ohio.

REAL PROPERTY
(It’s not personal)
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#1
Beth owns a corporate office park in Ohio. Her
ownership rights include the right to sell or give away
the property without restriction, as well as the right
to commit waste, if she chooses. Beth’s ownership
interest is
• a. a fee simple absolute.
• b. a leasehold estate.
• c. a life estate.
• d. the power of eminent domain.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#1
ANSWER:
A
Fee simple owner can do anything they want to,
subject to laws or ordinances affecting all other
property owners. These would limit ability to
commit waste, for instance, if dilapidated
buildings were regulated.
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#2
With respect to Adam’s land, Bob has an
easement, Carol has a profit, and Don has a
license. A right to possess the land is owned
by
• a. Adam, Bob, and Carol only.
• b. Adam and Don only.
• c. Adam only.
• d. Bob, Carol, and Don only.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#2
ANSWER:
C
Nasty question, I agree: What would answer be if
Ed had a lease on Adam’s land?
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#3
Regional Construction Company has a right to
drive its trucks across Standard Business
Corporation’s property, which is adjacent to
Regional’s office. This right is
• a. a leasehold estate.
• b. a license.
• c. an easement.
• d. a profit.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#3
ANSWER: C
Roads, pipelines, power lines, utility
installations, etc. are normally on
easement estates.
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#4
Wood Products Corporation, which owns no
land, has a right to cut trees from Natural
Resource Company’s land. Wood’s right is
• a. a leasehold estate.
• b. a license.
• c. an easement.
• d. a profit.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#4
ANSWER: D
Profit is a right to enter and take something
away from land. What about a hunting
arrangement?
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#5
Investment Properties Corporation conveys an office
building to Jay with a deed that makes the greatest
number of warranties and provides the most
extensive protection against defects of title. This
deed is
• a. a grant deed.
• b. a quitclaim deed.
• c. a special warranty deed.
• d. a warranty deed.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#5
ANSWER:
D
Deed warrants property to grantee as against all claims,
whether arising from things that the grantor did or things
that others in the chain of title before him did.
…and Grantor does hereby bind itself to warrant and forever
defend all and singular the Property unto Grantee against
every person whomsoever, lawfully claiming or to claim
the same or any part thereof.
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#6
• Opal conveys three acres of wetlands to
Pristine Places, Inc., with a deed that warrants
only that Opal held good title during her
ownership of the property. This deed is
• a. a grant deed.
• b. a quitclaim deed.
• c. a special warranty deed.
• d. a warranty deed.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#6
ANSWER:
C
The special warranty deed adds a qualifier at the end of
the warranty clause to limit the grantor’s liability:
and Grantor does hereby bind itself to warrant and
forever defend all and singular the Property unto
Grantee against every person whomsoever, lawfully
claiming or to claim the same or any part thereof, by
through or under Grantor but not otherwise.
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#7
Manhattan Developers, Inc., pays Northeast Trust
Company to release its claim to a strip of waterfront
property. Northeast gives Manhattan a deed that
conveys only whatever interest Northeast has in the
strip. This deed is
• a. a grant deed.
• b. a quitclaim deed.
• c. a special warranty deed.
• d. a warranty deed.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#7
ANSWER:
B
Actually not a conveyance of property, but a
relase of any claim to property. Effect is to give
the grantee whatever interest, if any, that the
grantee may have.
Recording Statutes
• Recording a deed (or any interest in real
property) puts the public on notice of the
new owner’s interest in the land and
prevents the previous owner from
fraudulently conveying the same interest to
another buyer.
• Race statute.
– Pure notice statute.
– Notice-race statute.
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Will or Inheritance
• Owner of real property dies, his property is
transferred by:
– Will (testate).
– Without Will (intestate).
• Title is transferred at the time state law so
provides in its testate and intestate laws.
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Adverse Possession
• One person possesses the property of another for a
certain statutory period of time, that person
automatically acquires title to the land, just as if
there had been a conveyance by deed. Must be:
•
•
•
•
Actual and exclusive.
Open, visible and notorious.
Continuous and peaceable.
Hostile and adverse.
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Real Property & Environmental Law
TRUE/FALSE QUESTION
#3
Adverse possession has the same legal
result as a tenancy at sufferance.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#3
ANSWER:
F
No, it’s much stronger than that! First, what’s a
tenant at sufferance?
Adverse possession results in what’s called a
“limitations” title which can be a fee simple.
Real Property & Environmental Law
TRUE/FALSE QUESTION
#4
Eminent domain refers to the ultimate right of
an owner in fee simple absolute to transfer
the property by will to whomever he or she
wishes.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#4
ANSWER:
F
Eminent domain is the right of the government
to take property for public use
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#8
Bay City wants to acquire undeveloped land
within the city limits to convert into a public
park. Bay City brings a judicial proceeding to
obtain title to the land. This is
• a. adverse possession.
• b. an easement.
• c. constructive eviction.
• d. the power of eminent domain.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#8
ANSWER:
D
Where in the constitution does it say the City can
do this?
Leasehold Estates
• Anyone who rents housing to the public for
commercial purposes subjects herself to
various state and federal Landlord-Tenant
laws.
• Owner of the property is the LESSOR and
Tenant is LESSEE; the contract is called the
LEASE. The property interest is called a
leasehold estate.
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Real Property & Environmental Law
TRUE/FALSE QUESTION
#7
Contract doctrines do not apply to landlordtenant relationships.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#7
ANSWER:
F
Leases are heavily governed by contracts…
Tenancy Interests
• Tenancy for Years.
– Created by an express contract.
– Property is leased for a specified period of time.
• Periodic Tenancy.
– Does not specify how long lease lasts.
– But rent paid at certain intervals.
• Tenancy at Will.
– For as long as both agree.
• Tenancy at Sufferance.
– Wrongful possession without the right to possess.
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Real Property & Environmental Law
TRUE/FALSE QUESTION
#5
A periodic tenancy is created by an
express contract under which property
is leased for a specified period of time.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#5
ANSWER:
False
No, what’s described here is a tenancy for years
(even if it’s only months). You may think of a
periodic tenancy as measured by the rent
period, in a sense, since you are entitled to
one rent period’s notice to leave.
Real Property & Environmental Law
TRUE/FALSE QUESTION
#6
A tenancy for years is created by a lease
that does not specify how long it is to
last but does specify that rent is to be
paid at certain intervals.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#6
ANSWER: False
Landlord-Tenant Relationships
• Lease Agreement can be oral or written (oral may not
be enforceable). Lease gives Tenant the temporary
right to exclusively possess the property.
• Sources of Law:
– Common Law.
– State and Local Statutes
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Lease Agreement
• Form of the Lease (required elements):
–
–
–
–
–
Must express intent to establish the lease.
Provide for transfer of possession to the Tenant.
Provide for the Landlord’s “reversionary” interest.
Describe the property.
Indicate length of the term, amount of rent, when and
where rent paid.
– Illegality.
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Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#9
Dora leases a house from Evan for a two-year term. To
ensure the validity of their lease, it should include
• a. a description of the premises.
• b. a due date for the payment of the property
taxes.
• c. a requirement that Dora perform structural
repairs to the house.
• d. a requirement that Evan carry liability insurance.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#9
ANSWER:
A
Only A is necessary to the validity of the lease;
the other things are all very good ideas and
examples of the many things that need to be
addressed in a lease.
Rights and Duties
• Trend in the law is to curtail, by contract and
real estate law, the immense freedom that
Landlords had in the past.
– Possession.
– Using the Premises.
– Maintaining the Premises.
– Rent.
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Rights and Duties
• Landlord has a duty to deliver legal right to
possession.
• Tenant’s right to exclusive possession is only subject
to Landlord’s limited right to come unto the property.
• Tenant has a “covenant of quiet enjoyment” by
which Landlord promises Tenant’s peace and
enjoyment of the property.
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Real Property & Environmental Law
TRUE/FALSE QUESTION
#8
Under the covenant of quiet enjoyment, a
landlord promises that a tenant will not
be disturbed in the use of the premises.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#8
ANSWER:
True
How might a landlord breach this covenant?
Rights and Duties
• Eviction occurs when Landlord:
– Deprives Tenant of possession of the leased
property; or
– Interferes with this use or enjoyment of the property
to the extent that Tenant cannot use or enjoy.
• Constructive eviction occurs when Landlord:
– Breaches lease or covenant or quiet enjoyment; and
– Makes it impossible for the Tenant to use and enjoy
the property.
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Rights and Duties
• Residential property – More regulated:
Landlord may be required to be responsible
for higher level of maintenance (particular
safety/security related items) and less
flexibility to limit tenant remedies.
• Commercial property – Less regulated: still
allows parties to agree for the most part
(implied warranty of commercial
suitability).
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Rent
• Rent is Tenant’s payment to the Landlord
for the Tenant’s occupancy or use of the
Landlord’s real property.
– Payment based on agreement, custom, state
statute, waiver.
• Security Deposits.
– A deposit by Tenant which Landlord may retain
for non-payment of rent or damage to
premises.
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Tenant’s Remedies
• If Landlord breaches the warranty of habitability,
depending on state law, Tenant may:
– Withhold rent -- put in escrow.
– Repair and Deduct -- notify, repair, and deduct repair
from rent.
– Cancel the Lease -- must be constructive eviction or
breach of habitability.
– Sue for Damages -- difference between what paid for
and what received.
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Real Property & Environmental Law
TRUE/FALSE QUESTION
#9
When a landlord sells leased premises to a
third party, any existing leases terminate
automatically.
Real Property & Environmental Law
TRUE/FALSE ANSWER
#9
ANSWER:
False
Leases usually* are encumbrances that remain in place
when property is sold. It is said that the property is sold
“subject to” the lease. The buyer simply becomes the
landlord.
*Depends on the contract, however!
Transferring Rights
to Leased Property
• Transferring Landlord's Interest.
– Landlord may sell any and all of his rights in the
real property.
– New owner buys “subject to the lease,” if lease is
recorded.
• Transferring Tenant’s Interest.
– Landlord’s consent may or may not be required by
statute or the lease itself.
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Transferring Rights
• Transferring the Tenant’s Interest (cont’d)
– Assignments: Tenant transfers his entire interest
in the lease to a third person. Original Tenant is
not released from liability under the lease.
– Subleases: Tenant transfers all or part of his
interest in the lease for a shorter period of time
than the lease. Original Tenant is not relieved of
liability under the lease.
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Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#11
Allen owns a duplex that he leases to Brad and
Cora. Allen may sell
• a. the duplex at any time.
• b. the duplex, but only after the lease term
expires and Brad and Cora have moved out.
• c. the duplex, but only with Brad and Cora’s
permission.
• d. the lease, but not the duplex.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#11
ANSWER:
A
He can sell the duplex “subject to” the lease. What
rights do Brad and Cora have to dispose of the
leasehold interests that they have?
Real Property & Environmental Law
MULTIPLE-CHOICE QUESTION
#12
Bill leases an apartment from Cathy. Two
months later, Bill moves out, and arranges
with Dian to move in and pay the rent to
Cathy for the rest of the term. This is
• a. an assignment.
• b. an easement.
• c. an eviction.
• d. a sublease.
Real Property & Environmental Law
MULTIPLE-CHOICE ANSWER
#12
ANSWER:
A
How is a sublease different than this?
Contracts – Unit 1
Nature, Classification,
Offer/Acceptance and Consideration
Promises
Why are promises important to society?
How do markets depend on promises?
What would the economy be like without
enforceable promises?
Promise v. Contract
• I promise that tomorrow, there will be $10,000 in cash on that
table.
• I promise Francis that tomorrow I’ll pay her $10,000 in cash.
• I promise Francis that tomorrow I’ll pay her $10,000 in cash if
she’ll give me her champion dachshund.
• Francis gave me the dog today, when I told her that I’d pay her
$10,000 in cash tomorrow.
• Francis said she’d give me the dog tomorrow, and I said I’d pay
her $10,000 in cash tomorrow.
Promise vs. Contract
Promise: an assertion that something will or will
not happen in the future
Contract: an agreement that can be enforced in
court
Law Governing
• Common Law
• Restatement
• Statutes
Uniform Commercial Code (UCC)
Other statutory provisions
Enforcement
If the promise is not fulfilled,
what can happen?
- Party breaching may be required to pay
money
- In certain circumstances, the breaching party
may be required to perform
Elements of a Contract
• Offer and Acceptance (agreement; at least
two parties required)
• Consideration (something of value given in
exchange for the other party’s promise or
performance)
• Contractual Capacity (all parties must be
legally competent to contract)
• Legal Object (cannot be for an illegal end)
Elements, cont’d
If any of those four elements is missing, then there is
no contract. In addition, there will be no contract if:
- There is not genuine assent (absence of certain
mistaken beliefs; a meeting of the minds), or
- The contract is in the required form, if there is a
required form (in writing, if required to be in writing,
for instance)
Classification based on Contract
Formation
Contract Formation
Bilateral
Formal
Express
Promise for promise
Special form required
By words (oral or written)
Unilateral
Informal
Implied in Fact
Promise for conduct
No special form needed
By conduct (in whole or in part)
Bilateral and Unilateral
Bilateral
Offeree must make a return promise
in order to accept the offer
Unilateral
Offeree must perform in order
to accept the offer
Ardito v. City of Providence
Facts:
During process of hiring police officers, City of Providence sent letters to
best candidates stating that if the recipients successfully completed
medical and psychological exams, then they would be allowed to attend
the Police Academy. Academy training was the last step to being hired by
the city. The letters stated that they were “conditional offers of
employment.”
New police chief had come in during the middle of the selection process
and determined that certain people sent the letter would not be offered a
job, even though they had completed the exams. Ardito was one of those.
He was one of 14 applicants who got the letter and then were rejected.
They sued to have the City stop holding the academy unless they were
admitted.
Ardito Case, cont’d
Question:
Was the letter valid contract that was accepted by Ardito and the others
when they completed the medical and psych exams?
Answer:
YES – CLASSIC UNILATERAL CONTRACT. CITY PROMISED THAT IF THEY
SUBMITTED TO THE EXAMINATIONS, THEY’D HAVE A SPOT IN THE
ACADEMY TRAINING, AND THUS A SHOT AT THE JOB. THEY DID THEIR
PART, THE CITY MUST DO ITS PART.
Special Problems:
Revocation of Offer in
Unilateral Contract
• Roberta offers to buy Ed’s sailboat if he’ll sail it down to
Newport Beach from its regular mooring at San Francisco. He
leaves; the trip takes three days.
• While he’s in route, Roberta decides to revoke her offer and
notifies him by radio.
What result?
Revocation of Offer in
Unilateral Contract, cont’d
• Traditional View. No acceptance until the offeree
completes performance, so Roberta prevails – she
can revoke or withdraw the offer anytime before it is
accepted.
• Modern View. Once performance has been
substantially undertaken, then the offer becomes
irrevocable. Up to a judge or jury to determine what
that means.
Formal Contracts
Certain contracts require
particular forms. Examples:
-- Contracts under seal
-- Recognizances
-- Negotiable instruments
-- Letters of Credit
(Probably others as well)
Contracts not requiring a particular form are – you guessed it – informal
contracts. Most contracts are informal under this definition
Express and Implied Contracts
• Basic difference is that an express contract is
one whose terms are stated in words,
whether written or oral.
• In a contract implied-in-fact some of the terms
are established by one or more of the parties’
conduct or actions instead of their words.
Requirements for Implied-in-Fact Contract
• Plaintiff furnished some goods or services
• Plaintiff expected to be paid, and Defendant
knew or should reasonably have expected to
pay
• Defendant had a chance to reject the goods or
services, but didn’t
Performance
• Executed Contract – one that has been fully
performed by all its parties
• Executory Contract – one for which
performance by some or all of its parties still
remains to be completed
Contract Enforceability
Contract may be:
•
•
•
•
Enforceable
Unenforceable
Voidable
Void
Unenforceable
Also a valid contract, but one that a party has a defense to.
The parties may perform it, but a court will not enforce it.
Important thing to remember is that this kind of contract is
not unenforceable because one of the four basic elements is
missing – that wouldn’t be a contract, would it? It’s not
enforceable for some other reason.
Example would be an oral lease of real property for more than
a year. The statute of frauds requires that such a lease be in
writing or it’s not enforceable.
Voidable
A contract that one or more of the parties can
– at its option – either avoid or enforce.
An example is a contract made with a minor;
the minor has the option to either perform it
or not. There’s an element missing – legal
capacity, however, one party has waived it but
the other is incapable of waiving it.
Void
A void contract is no contract at all. No party
has any legal obligation at all.
Example: a contract to have a romantic rival
“eliminated” a la the Sopranos would be a
void contract, because it did not have a lawful
object.
Voidable v. Void
In case of voidable agreements there is a
contract, though it is marked by a flaw; and
the party who has the option may affirm it in
spite of the flaw. Where, however, an
agreement is void, it falls to the ground as
soon as its nullity becomes apparent.
Quasi-Contract
• Quasi-contract = contract implied –in-law
• Distinguish from a contract implied-in-fact
“Quasi” means “as-if.” Quasi-contract is an equitable
device. It’s not a real contract; there is no agreement
between the parties. It is really a remedy; a fictional
contract imposed by the law in order to prevent
unjust enrichment.
DCB Construction v. Central City Development Co.
FACTS
o Central City Development (“Landlord”) leased building to
Tenant for 5 years.
o Tenant (who was responsible for all repairs, maintenance and
alterations under the lease) hired DCB Construction to
remodel the premises at a cost of about $300M. Landlord
told DCB that it would not be responsible for any of those
costs.
o Tenant stopped paying rent and stopped paying DCB.
Landlord evicted Tenant.
DCB Construction v. Central City Development Co.
Tenant went into bankruptcy, so DCB sued the
Landlord for the remaining $280,000 that
Tenant owed it, saying that the work DCB had
done had increased the value Landlord’s
property. Unless the Landlord paid DCB for
that work, the Landlord would be unjustly
enriched.
Would Landlord be unjustly enriched?
DCB Construction v. Central City Development Co.
Court said no, the Landlord was not unjustly
enriched. Why not?
• No fraud or mistake here;
• DCB did the work for Tenant specifically, and not for
the Landlord; and
• Landlord advised DCB that it would not be
responsible for payment.
DCB could have protected itself by not doing the
work if it didn’t have another responsible party to
look to for payment.
Offer and Acceptance
(Agreement)
The agreement of the parties essential to
the formation of a contract is composed of:
1.
OFFER; and
2.
ACCEPTANCE
Before we talk about offers – consider:
Objective Theory of Contracts
Objective v. Subjective
When interpreting a contract, court’s will look at a
party’s words and conduct from the perspective of a
reasonable person in the circumstances of the
parties, not the subjective intention of one of the
parties.
Objective Theory
Consider this from Judge Learned Hand in Hotchkiss v. National City Bank
of New York, 200 F. 287 (2d Cir. 1911):
“A contract has, strictly speaking, nothing to do with the personal, or
individual, intent of the parties. A contract is an obligation attached by
the mere force of law to certain acts of the parties, usually words, which
ordinarily accompany and represent a known intent. If, however, it were
proved by twenty bishops that either party, when he used the words,
intended something else than the usual meaning which the law imposes
upon them, he would still be held, unless there were some mutual
mistake, or something else of the sort. Of course, if it appear by other
words, or acts, of the parties, that they attribute a peculiar meaning to
such words as they use in the contract, that meaning will prevail, but only
by virtue of the other words, and not because of their unexpressed
intent.”
BOTTOM LINE: "The manifestation of a party's intention, rather than the
actual or real intention, is controlling."
Three Requirements of a valid Offer
• Serious objective intention of the offeror – it must be clear
(objectively, or to a reasonable person – not subjectively, to
him alone) that offeror intends to form a binding contract
• Terms of the offer must be reasonably definite and certain –
It must be clear to the offeree what the contract is going to be
if he or she were to accept it.
• The offer has to be communicated to the offeree. Duh.
Once a valid offer is accepted, a contract is formed.
Elements of an Offer – Objective Intention
to Contract
Mr. Martinez drives a $750,000 Ferrari. While it’s indeed awesome
when it runs, it is persistently hard to start. After class, in the parking lot
it, sure enough, won’t.
Out of frustration, Mr. Martinez yells out “Whoever’ll give me $10
can have this son-of-a-Testarossa.”
Hilary Clinton, who happened to have a little cash burning a hole in
her pocket, immediately says “I accept! Here’s the ten bucks, now hand
me the keys and your mechanic’s phone number.”
Do we have an offer to contract? What would a reasonable observer think?
Elements of an Offer – Objective Intention
to Contract
Expressions of Opinion
Ms. Williams, whose mechanical abilities are
legendary, takes a look at Mr. Martinez’s
temperamental Ferrari, and makes a few
adjustments to the ravioliator for him. She says that
it will probably make it start better for him in the
future.
However, it doesn’t work. Offer to contract?
Elements of an Offer – Objective Intention
to Contract
Statements of Future Intent
Ms. Williams, seeking to capitalize on her mechanical abilities,
announces that she’s thinking about opening her own garage
(which will only work on Ferraris) and she tells Ms. Canales
that she will need some first class talent to schmooze her
uppity clientele. Ms. Canales, quits her lucrative position as
Lindsey Lohan’s bail bondsman and tells Ms. Williams that
she’s ready to start work for her in the new job.
Did Ms. Williams make an offer that Ms. Canales could
accept?
Elements of an Offer – Objective Intention
to Contract
Preliminary Negotiations
If Ms. Krenek asks Mr. Martinez if “he’d consider”
selling his Ferrari for $700,000 and he says “yes,” is
there a contract formed?
No, an invitation to negotiate is not an offer.
Elements of an Offer – Objective Intention
to Contract
Advertisements, Catalogs and Circulars
The general rule is that an advertisement does not constitute an offer. The
Restatement (Second) of Contracts explains that:
Advertisements of goods by display, sign, handbill, newspaper, radio or television
are not ordinarily intended or understood as offers to sell. The same is true of
catalogues, price lists and circulars, even though the terms of suggested bargains
may be stated in some detail. It is of course possible to make an offer by an
advertisement directed to the general public, but there must ordinarily be some
language of commitment or some invitation to take action without further
communication.
The exception to the rule that advertisements do not create any power of
acceptance in potential offerees is where the advertisement is “clear, definite, and
explicit, and leaves nothing open for negotiation,” in that circumstance, “it
constitutes an offer, acceptance of which will complete the contract.”
Leonard v. Pepsico – The Commercial
The commercial opens upon an idyllic, suburban morning, where the
chirping of birds in sun-dappled trees welcomes a paperboy on his
morning route. As the newspaper hits the stoop of a conventional twostory house, the tattoo of a military drum introduces the subtitle,
“MONDAY 7:58 AM.” The stirring strains of a martial air mark the
appearance of a well-coiffed teenager preparing to leave for school,
dressed in a shirt emblazoned with the Pepsi logo, a red-white-and-blue
ball. While the teenager confidently preens, the military drumroll again
sounds as the subtitle “T-SHIRT 75 PEPSI POINTS” scrolls across the
screen. Bursting from his room, the teenager strides down the hallway
wearing a leather jacket. The drumroll sounds again, as the subtitle
“LEATHER JACKET 1450 PEPSI POINTS” appears. The teenager opens the
door of his house and, unfazed by the glare of the early morning sunshine,
puts on a pair of sunglasses. The drumroll then accompanies the subtitle
“SHADES 175 PEPSI POINTS.” A voiceover then intones, “Introducing the
new Pepsi Stuff catalog,” as the camera focuses on the cover of the
catalog.
The scene then shifts to three young boys sitting in front of a high school
building. The boy in the middle is intent on his Pepsi Stuff Catalog, while
the boys on either side are each drinking Pepsi. The three boys gaze in
awe at an object rushing overhead, as the military march builds to a
crescendo. The Harrier Jet is not yet visible, but the observer senses the
presence of a mighty plane as the extreme winds generated by its flight
create a paper maelstrom in a classroom devoted to an otherwise dull
physics lesson. Finally, the Harrier Jet swings into view and lands by the
side of the school building, next to a bicycle rack. Several students run for
cover, and the velocity of the wind strips one hapless faculty member
down to his underwear. While the faculty member is being deprived of his
dignity, the voiceover announces: “Now the more Pepsi you drink, the
more great stuff you're gonna get.”
The teenager opens the cockpit of the fighter and can
be seen, helmetless, holding a Pepsi. “[L]ooking very
pleased with himself,” the teenager exclaims, “Sure
beats the bus,” and chortles. The military drumroll
sounds a final time, as the following words appear:
“HARRIER FIGHTER 7,000,000 PEPSI POINTS.” A few
seconds later, the following appears in more stylized
script: “Drink Pepsi-Get Stuff.” With that message, the
music and the commercial end with a triumphant
flourish.
Elements of an Offer – Objective Intention
to Contract
Auctions
In an auction, a seller “offers” items for sale via an auctioneer. However, this is
not an “offer” for purposes of contract formation.
For contract formation purposes, an auction is considered an invitation to submit
offers to buy. The bidder is the offeror; the offer is accepted only when the bid is
struck off. At any time before that, the bid can be revoked or the auctioneer can
reject any bid received.
Mr. Martinez puts up his Ferrari for sale at auction. Mr. Fastalker
is the auctioneer. The price has quickly risen from an initial bid
of $500 up to well over $500,000. Expecting that her bid will
easily be surpassed, but being a friend and wanting to give Mr.
Martinez a hand, Ms. Moody bids $600,000. Shortly after, Mr.
Moya bids $625,000, a bid Mr. Fastalker takes. The momentum
subsides, however, and while Mr. Fastalker is looking around the
now silent room for other bids, Mr. Moya realizes that his wife
will kill him if he came home in that thing, so he withdraws his
bid. Mr. Fastalker looks at Ms. Moody and says “SOLD, for
$500,000. Does Ms. Moody have a new car?
Elements of an Offer – Objective Intention
to Contract
Agreements to Agree
Because the auction was such a disaster, Mr. Martinez and Mr. Parker
enter into a valid written agreement for Mr. Parker to lease the car for one
year. The lease provides that Mr. Parker has the option to renew the lease
at the end of it’s term, for a lease payment to be mutually agreed to by he
and Mr. Martinez at that time.
Is Mr. Dunn’s option worth the paper it’s written on?
NOPE – an agreement to agree won’t be enforced as a contract. The
lease may be valid, but the option to renew is not enforceable.
Elements of an Offer – Definiteness
An offer must have reasonably definite terms; if not, a court
cannot determine if a breach has occurred nor can it give an
appropriate remedy.
The UCC relaxes the requirements for definiteness in some
areas, calling for the court to supply certain missing or
indefinite terms with “reasonable” terms. The UCC is
intended to govern commercial relationships involving the
sale of goods, often among merchants, and has as a primary
purpose the facilitation of commerce
Elements of an Offer –Communication of
Offer
If we don’t tell the offeree how are we going to have a contract?
One type of advertisement that is often held to be an offer is one offering
a reward for, say the return of a lost pet. Suppose Mr. Black places an ad
offering a $100 reward for his lost cat. Mr. White, not seeing the ad, but
recognizing the cat as Mr. Black’s, finds it wandering around and returns it
to Mr. Black.
The offer has not been communicated to Mr. White. Is there a valid
unilateral contract? Does he get the reward?
No, there’s no contract…but Mr. White may still get the reward in some
jurisdictions based on equity, but not on contract theory.
Termination of Offers
A valid offer is made but not yet accepted; what can happen to the offer
before acceptance, and prevent a contract from coming into existence?
Termination by Act of the Parties
Revoked by Offeror (unless irrevocable)
Rejected by Offeree
Counteroffer by Offeree
Terminated by operation of law
Lapse of time
Destruction of subject matter
Death or incompetence of a party
Supervening illegality of the object of the contract
Termination of Offers
Revocation by Offeror
• Generally, offers are revocable as long as the revocation is
communicated to the offeree before he or she accepts.
• If before accepting, offeree learns from another source
information indicating the offer has been revoked, what
happens?
• Generally revocation can be communicated in the same way
the offer was communicated. Now that Mr. White had
reunited Mr. Black with his cat, how might he communicate
that the reward is no longer being offered?
Termination of Offers
Irrevocable Offers – some offers can be made irrevocable
• If offeree has substantially changed position in
reliance on an offer (for example, the guy who began
sailing his boat from San Francisco) it may be held to
be irrevocable.
• Option Contracts are irrevocable; offeror has
received payment or consideration in exchange for
giving up his right to revoke for a specified time.
Termination of Offers
Rejection by Offeree
• If an offeree rejects an offer, it is terminated; the offeree
cannot thereafter change his mind.
• Rejection is effective when received by the offeror.
• Merely inquiring about an offer doesn’t constitute a rejection
Now that the lease on Mr. Martinez’s Ferrari is up, Kobe
Bryant makes an offer of $600,000. Mr. Martinez asks, “is that
the best you can do?” Is the offer rejected?
What if he says “I was really looking for $650,000”?
How about “I’ll take $650,000”?
Termination of Offers
Counteroffer
Now, Mr. Martinez has made a counteroffer. A counteroffer is
a rejection of the first offer and a new offer by the former
offerree. If Kobe Bryant says no, Mr. Martinez cannot then
take him up on his first offer…that offer was terminated by
the counteroffer.
Common law employs “mirror image” rule: if the acceptance
doesn’t match the offer exactly, it’s a counteroffer, and the
original offer is terminated.
Termination by Operation of Law
Termination by Lapse of Time
• An offer may specify that it expires after a given
period of time.
• If a number of days is specified, but the specific
starting date is not, it will normally be held to start
on the day the offer is received, and terminate at
midnight on the expiration date.
• If not specified, then an offer will expire after a
“reasonable” time.
Termination by Operation of Law
Other ways offers can be terminated:
• Destruction of Subject Matter – A offers to sell B a
cow; before B accepts, cow struck by lightning
• Death or Incompetence of Party. Unless irrevocable,
an offer terminates if the offeror or offeree dies or
becomes incompetent.
• Supervening Illegality. A bank offers to loan A money
at 17% interest. Before A accepts, the legislature
passes a law limiting interest rates to 10%. The law
terminates the offer.
Acceptance
A voluntary act by the offeree that shows
assent to the terms of the offer.
Must be unequivocal
Must be communicated to the Offeror
Acceptance
Mr. Martinez offers to sell his Ferrari to Kobe
Bryant for $600,000. If Kobe Bryant doesn’t
respond right away, can Ms. Williams accept
the offer?
No…Only an offeree – the person or one of
the persons to whom the offer was intended
to be made – may accept (their agents may
also accept)
Acceptance
Kobe Bryant is considering Mr. Martinez’s offer to sell the
Ferrari. He decides to accept, but wants Mr. Martinez to put
a trailer hitch on it so he can pull his cutting horse trailer
behind it. Has he accepted?
No…this is the other half of the “mirror-image” rule we
talked about earlier. By adding terms, Kobe Bryant has
made a counteroffer. If Mr. Martinez refuses to add the
trailer hitch, can Kobe Bryant back-up and say, “well, OK I’ll
take it without the trailer hitch”?
Acceptance
 Let’s say that Mr. Martinez transmits his offer to sell the
Ferrari to Kobe Bryant and the offer says “unless I hear from
you within 10 days, I’ll assume that you have accepted my
offer.” Kobe Bryant remains silent. We got a deal?
 No – generally, silence cannot be an acceptance. However,
in what circumstances might silence operate as an
acceptance?
 (1) where the parties have an established course of dealing
between them, there can be a duty to speak, and (2) where
the circumstances are such that silence can create an
implied-in-fact contract
Acceptance
Communication of Acceptance
In a unilateral contract, acceptance is
communicated by performance
In a bilateral contract, it has to be communicated
separately from performance (unless the offer itself
dispenses with the requirement of communication
of the acceptance).
If the offer specifies how acceptance is to be made,
then that’s how it has to be accepted
Acceptance
Communication of Acceptance
George Bush sends a letter to Mr. Martinez offering
$700,000 for his Ferrari, but stating that his offer expires on
October 15. Mr. Martinez writes a letter back, saying “I
accept your offer.” He puts it in the mail on October 12
(properly addressed and with proper postage). It doesn’t
arrive until the 17th. Meanwhile, George Bush has heard
about the starting problem, and has found a nice cherry
Yugo that he’d rather spend his money on. Has George Bush
bought the Ferrari?
Yup…’fraid so. This is the “mailbox rule.” What if Mr.
Martinez used the wrong address or didn’t use enough
postage on his letter? Different result?
Acceptance
Communication of Acceptance
• Mailbox Rule: Revocation of an Offer is effective when
actually received; but acceptance of an offer is effective
when placed in the mail (assuming it’s properly addressed
and posted). WHY?
• It’s to prevent confusion that can occur when revocations
and acceptances cross each other in the mail – If the
revocation were effective when mailed, then the offeree
could accept it without knowing it had been revoked. It’s a
rule that is designed to facilitate the formation of contracts.
Acceptance
Communication of Acceptance
 Authorized means of communication of acceptance – Can be
expressly stated or implied by the facts or implied by law
 If the offeror chooses one means (say mail) to transmit the
offer, then the offeree may accept in the same way or by a
faster means.
 When the parties are at a distance, mailing is impliedly
authorized.
 Exceptions: (1) If not properly addressed or posted or (2) if
the offer explicitly says it won’t be effective until received.
Acceptance
Communication of Acceptance
• So what happens if an offeree screws up the
mailbox rule – for instance, he sends a rejection
first, but then transmits an acceptance?
• Here, the law cancels the rule that says the
acceptance is valid on deposit in the mail, and
whichever is first received by the offeror is
effective.