Business Law (part 16)

Illegal Agreements (part A)

 by

 Charles Lamson 

A contract must be for a lawful purpose, and this purpose must be achieved in a lawful manner. Otherwise the contract is void. If this were not true, the court might force one party to a contract to commit a crime. If the act itself is legal, but the manner of committing the act that is called for in the contract is illegal, the contract is void.

If the parties are not equally guilty, courts may assist the less guilty party. However, courts will not allow a wrongdoer to enforce a contract against an innocent party.

If the contract is indivisible, that is, it cannot be performed except as an entity, then illegality in one part renders the whole contract invalid. If the contract is divisible, so that the legal parts can be performed separately, the legal parts of the contract are enforceable. For example, when one purchases several articles, each priced separately, and the sale of one article is illegal because the price was illegally set by price-fixing, the whole contract will not fall because of the one article. 

A contract that is void because of illegality does not necessarily involve the commission of a crime. It may constitute merely of a private wrong---such as an agreement by two persons to slander a third. A contract contrary to public policy is also illegal.

Contracts Prohibited by Statute

There are many types of contracts declared illegal by statute. Some common ones include:

1. Gambling contracts
2. Sunday contracts
3. Usurious contracts
4. Contracts of an unlicensed operator
5. Contracts for the sale of prohibited articles
6. Contracts in unreasonable restraint of trade

Gambling Contracts

A gambling contract is a transaction wherein the parties stand to win or to lose based on pure chance. What one gains, the other must lose. Under the early common law, private wagering contracts were enforceable, but they are now generally prohibited in all states by statute. In recent years certain classes of gambling contracts regulated by the state, such as state lotteries and pari-mutuel systems of betting on horse races and dog races, have been legalized in many states.

In general the courts will leave the parties to a private gambling contract where it finds them and will not allow one party to sue the other for the breach of a gambling debt. If two parties to a gambling contract give money to a stakeholder with instructions to pay the money for to the winner, the parties can demand the return of their money. If the stakeholder pays the money to the winner, then the loser may sue either the winner or the stakeholder for reimbursement. No state will permit the stakeholder, who is considered merely a trustee of the funds, to keep the money. The court in this event requires the stakeholder to return each wagerer's deposit. 

Closely akin to gambling debts are loans made to enable one to gamble. If A loans B $100 and then wins it back in a poker game, is this a gambling debt? Most courts hold that it is not. If A and B bet $100 on a football game and B wins, and if A pays B by giving a promissory note for the $100, such a note may be declared void.

Trading on the stock exchange or the grain market represents legitimate business transactions. But the distinction between such trading and gambling contracts is sometimes very fine.

Alewine and Goodnoe could form a contract whereby Alewine agrees to sell Goodnoe 10,000 shares of stock one month from the date at $42 a share. If they do not actually intend to buy and sell the stock, but agree to settle for the difference between $42 a share and the closing price on the date fixed in the contract, this is a gambling contract.

However, Ripetto could agree to sell Bolde 10,000 bushels of wheat to be delivered six months later at $1.70 a bushel. Ripetto does not own any wheat, but intends to buy it for delivery in six months. They agree that at the end of the six-month period the seller does not actually have to deliver the wheat. If the price of wheat has gone up, the seller may pay the buyer the difference between the current price and the contract price. If the price of wheat has gone down, the buyer may pay the seller the difference. Such a contract is legal because the intention was to deliver. The primary difference between the Alewine case and the Ripetto case is the intention to deliver. In the case of trading, the seller Ripetto intended at the time of the contract to deliver the wheat and the buyer to accept it. In the gambling case, the seller Alewine did not intend to deliver. 

Sunday Contracts

The laws pertaining to Sunday contracts resulted from statutes and judicial interpretation. They vary considerably from state-to-state. Most states have repealed their statutes that had made Sunday contracts illegal. The violators of Sunday acts are seldom prosecuted. For this reason the types of transactions one observes being carried on Sunday do not necessarily indicate restrictions imposed by these laws.

Usurious Contracts

State laws that limit the rate of interest that may be charged for the use of money are called usury laws. Frequently there are two rates: the maximum contract rate and the legal rate. The maximum contract rate is the highest rate that may be charged; any rate above that is usurious. In some states this rate fluctuates depending on the prime rate. The legal rate, which is a rate somewhat lower than the contract rate, applies to all situations in which interest may be charged but in which the parties were silent as to the rate. If merchandise is sold on 30 days credit, the seller may collect interest from the time the 30 days expire until the debt is paid. If no rate is agreed upon in a situation of this kind, the legal rate may be charged.

The courts will treat transactions as usurious when there is in fact a lending of money at a usurious rate even though disguised. Such activities as requiring the borrower to execute a note for an amount in excess of the actual loan and requiring the borrower to antedate the note so as to charge interest for a longer period than that agreed on could make a loan usurious.

The penalty for usury varies from state-to-state. In most states the only penalty might prohibit the lender from collecting the excess interest. In other states the entire contract is void, and in still others the borrower need not pay any interest but must repay the principal. If the borrower has already paid the usurious interest, the court will require the lender to refund to the borrower any money collected in excess of the contract rate.

In all states special statutes govern consumer loans by pawnbrokers, small loan companies, and finance companies. In some states these firms may charge much higher rates of Interest. 

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS. 102-105*

end

The Gift of Spiritual Insight - Sunday, January 19, 2020

Business Law (part 15)

Defective Agreements

by

Charles Lamson

Fraud

One who intends to and does induce another to enter into a contract as a result of an intentionally or recklessly false statement of a material fact commits fraud. The courts recognize two kinds of fraud relating to contracts. These are fraud in the inducement and fraud in the execution.

Fraud in the Inducement

When the party defrauded intended to make the contract, fraud in the inducement occurs. Fraud in the inducement involves a false statement regarding the terms or obligations of the transaction between the parties and not the nature of the document signed. The false statement might relate to the terms of agreement, the quality of the goods sold, or the seller’s intention to deliver goods. A contract so induced is voidable.

Fraud in the Execution

The defrauded party might also be tricked into signing a contract under circumstances in which the nature of the writing could not be understood. The law calls this fraud in the execution or fraud in the factum. In this case, the victim unknowingly signs a contract. A person who cannot read or cannot read the language in which the contract is written could be a victim of this type of fraud. When fraud in the execution occurs, the contract is void.

Fraud also may be classified according to whether a party engages in some activity that causes the fraud or does nothing. A party who actually does something or takes steps to cause a fraud commits active fraud. Sometimes a party may be guilty of fraud without engaging in any activity at all. Passive fraud results from the failure to disclose information when there is a duty to do so.

Active Fraud

Active fraud may occur either by express misrepresentation or by concealment of material facts.

Express Misrepresentation. Fraud as a result of express misrepresentation, consists of four elements, each of which must be present to constitute fraud:

1. Misrepresentation: a false statement of a material fact.
2. Must be made by one who knew it to be false or made it in reckless disregard of its truth or falsity.
3. Must be made with intent to induce the innocent party to act.
4. The innocent party justifiably relies on the false statement and makes a contract.

If these four elements are present, a party who has been harmed is entitled to release in court.

Concealment of Material Facts. If one actively conceals material facts for the purpose of preventing the other contracting party from discovering them, such concealment results in fraud even without false statement. 

Merely refraining from disclosing pertinent facts unknown to the other party is not fraud in some states. In those states there must be an active concealment. However, in other states refraining from disclosing relevant facts does constitute fraud.

 Passive Fraud

If one's relationship with another relies on trust and confidence, then silence may constitute passive fraud. Such a relationship exists between partners in a business firm, an agent and principal, a lawyer and client, a guardian and ward, a physician and patient, and in many other trust relationships. In the case of an attorney-client relationship, for example, the attorney has a duty to reveal anything material to the client's interests, and silence has the same effect as making a false statement that there was no material fact to be told to the client. The client could, in such a case, avoid the contract.

Silence, when one has no duty to speak, is not fraud. Is Lawrence offers to sell Marconi, a diamond merchant, a gem for $500 that is actually worth $15,000; Marconi's superior knowledge of value does not, in itself, impose a duty to speak.

Innocent Misrepresentation

When a contract is being negotiated, one party could easily make a statement believing it to be true when it is in fact false. Such a statement, made in the belief that it is true, it's called an innocent misrepresentation. Courts generally hold that if it was reasonable for the  mislead party to you have relied on the innocent misrepresentation, the contract is voidable.

Statements of Opinion

Statements of opinion, as contrasted with statements of fact, do not, as a rule, constitute fraud. The person hearing the statement realizes or ought to realize that the other party is merely stating a view and not a fact. When the speaker is an expert or has special knowledge not available to the other party and should realize that the other party relies on this expert opinion, then a misstatement of opinion or value, intentionally made, would amount to fraud.

Such expressions as "This is the best buy in town," "The price of the stock will double in the next 12 months," "This business will net you $25,000 a year" are all statements of opinion, not statements of fact. However, the statement "This business has netted the owner $25,000" is not an opinion or a prophecy, but a historical fact.

Duress

For a contract to be valid, all parties must enter into it of their own free wills. The rest is a means of destroying another's free will by one party obtaining consent to a contract as a result of a wrongful threat to do the other person or family members some harm. Duress causes a person to agree to a contract he or she would not otherwise agree to. Normally, to constitute duress, the threat must be made by the other party and must be illegal or wrongful. A contract made because of duress is voidable. 

Duress is classified according to the nature of the threat as physical, emotional, or economic.

Physical Duress

When one party makes a threat of violence to another person who then agrees to a contract to avoid injury, physical duress occurs. Holding a gun to another's head or threatening to beat a person clearly risks injury to a human being and is unlawful.

Emotional Duress

Emotional duress occurs when one party's threats of something less than physical violence results in such psychological pressure that the victim does not act under free will. Courts will consider the age and health of the victim in determining whether emotional duress occurred.

Economic Duress

When one party wrongly threatens to injure another person financially in order to get agreement to a contract, economic duress occurs. However, duress does not exist when a person agrees to a contract merely because of difficult financial circumstances that are not the fault of the other party. Also, duress does not exist when a person drives a hard bargain and takes advantage of the other person's urgent need to make the contract. 

Undue Influence

One person may exercise such influence over the mind of another that the latter does not exercise free will. Although there is no force or threat of harm (which would be duress), a contract between two such people is nevertheless regarded as voidable. If a party in a confidential or fiduciary relationship to another induces the execution of a contract against the other person's free will, the agreement is voidable because of undue influence. If, under any relationship, one is in a position to take undue advantage of another, undue influence may render the contract voidable. Relationships that may result in undue influence are family relationships, a guardian and ward, an attorney and client, a physician and patient, and any other relationship where confidence reposed on one side results in domination by the other. Undue influence may result from sickness, infirmity, or serious distress.

In undue influence there are no threats to harm the person or property of another as in duress. The relationship of the two parties must be such that one relies on the other so much that he or she yields because it is not possible to hold out against the superior position, intelligence, or personality of the party. Whether undue influence exists is a question for the court (usually the jury) to determine. Not every influence is regarded as undue; for example, a nagging spouse is ordinarily not regarded as exercising undue influence. In addition, persuasion and argument are not per se undue influence. The key element is that the dominated party is helpless in the hands of the other.

Remedies for Breach of Contract Because of Fraud, Duress, or Undue Influence

Since some mistakes, such as fraud in the inducement, duress, and undue influence, render contracts voidable, not void, you must know what to do if you are a victim of one of these acts. If you do nothing, you're right to avoid the contracts provisions may be lost. Furthermore, you may ratify the contract by some act or word indicating an intention to be bound. After you affirm or ratify the contract, you are as fully bound by it as if there had been no mistake, fraud, duress, or undue influence. But still you may sue for whatever damages you have sustained.

If the contract is voidable, you might elect to rescind it or set it aside. Rescission seeks to put the parties in the position they were in before the contract was made. In order to rescind, you must first return or offer to return what you received under the contract. After this is done, you are in a position to take one of four actions depending upon the circumstances:

1. You may bring a suit to recover any money, goods, or other things of value given up plus damages.
2. If the contract is executory on your part, you may refuse to perform. If the other party sues, you can plead mistake, fraud, duress, or undue influence as a complete defense.
3. You may bring a suit to have the contract judicially declared void.
4. If a written contract does not accurately express the parties agreement, you may sue for reformation, or correction, of the contract.

In no case can the wrongdoer set the contract aside and thus profit from the wrong. If the agreement is void, neither party may enforce it; no special act is required for setting the agreement aside. 

INTERNET RESOURCES FOR BUSINESS LAW

Name	Resources	Web Address
Uniform Commercial Code 2-201	The Legal Information Institute (LII), maintained by Cornell Law School, provides a hypertext and searchable version of UCC 2-201, Formal Requirements, Statute of Frauds.	www.cornell.edu/ucc/2/201.html
Uniform Commercial Code 2-208	LII provides a hypertext and searchable version of UCC 2-208, Course of Performance or Practical Construction.	www.cornell.edu/ucc/2/2-208.html
National Fraud Information Center	National Fraud Information Center, a project the National Consumers League, provides a daily report and other information on fraud, as well as the opportunity to report fraud.	www.fraud.org

*SOURCE: LAW FOR BUSINESS, 15TH ED. 2005, JANET E. ASHCROFT, J.D., PGS. 93-101*

end

Name

Resources

Web Address

Uniform Commercial Code 2-201

The Legal Information Institute (LII), maintained by Cornell Law School, provides a hypertext and searchable version of UCC 2-201, Formal Requirements, Statute of Frauds.

www.cornell.edu/ucc/2/201.html

Uniform Commercial Code 2-208

LII provides a hypertext and searchable version of UCC 2-208, Course of Performance or Practical Construction.

www.cornell.edu/ucc/2/2-208.html

National Fraud Information Center

National Fraud Information Center, a project the National Consumers League, provides a daily report and other information on fraud, as well as the opportunity to report fraud.

www.fraud.org

THE RANT - ECONOMIC MANAGING FOR COMPETITIVE ADVANTAGE (PART 1 - THE PODCAST))

Click here.

Lamsonacare

Business Law (part 14)

Capacity to Contract

 by

 Charles Lamson

 For an agreement to be enforceable at law, all parties must have the legal and mental capacity to contract. This means that the parties must have the ability to understand that a contract is being made, have the ability to understand its general nature, and have the legal competence to contract. The general rule is that the law presumes that all parties have this capacity. This means that anyone alleging incapacity must offer proof of incapacity to overcome that presumption.

However, in the eyes of the law some parties lack such capacity because of age, physical condition, or public policy. Among those whom the law considers to be incompetent, at least to some degree, are minors, mentally incompetent persons, intoxicated persons, and convicts.

Minors

The common law rule that persons under 21 years of age are minors has been abolished by most of the states. Most states have enacted statutes making persons competent to contract at 18 years of age, and a few set the age at 19. In some states, all married minors are fully competent to contract. And still other states minors in business for themselves are bound on all their business contracts.

Contracts of Minors

Almost all of a minor's contracts are voidable at the minor's option. That is, if a minor so desires, the minor can avoid the contract. If a minor wishes to treat a contract made with an adult as valid, the adult is bound by it. An adult cannot avoid a contract on the ground that the minor might avoid it. If a contract is between two minors, each has the right to void it. Should the minor die, the personal representative of the minor's estate may void the contract that the minor could have voided.

Firms that carry on business transactions in all the states must know the law dealing with minors in each state. Mail-order houses and correspondence schools are particularly susceptible to losses when dealing with minors. The significance of the law is that, with but few exceptions, people deal with minors at their own risk. The purpose of the law is to protect minors from unscrupulous adults, but in general the law affords the other party no more rights in scrupulous contracts than in unscrupulous ones. The minor is the sole judge as to whether a voidable contract will be binding.

Contracts that Cannot Be Avoided

Although most contracts made by minors are voidable, a few are not. These include contracts for necessaries, business contracts, and other specially enforced contracts such as student loan agreements.

Contract of minors for necessaries. If a minor contracts for necessaries, the contract is voidable, but the minor is liable for the reasonable value. Necessaries include items required for a minor to have a reasonable standard of living that are not provided by the minor's parents or guardian. The dividing line between necessaries and luxuries is often a fine one. Historically necessaries included food, clothes, and shelter. With the raising of standards of living, courts now hold that necessaries also include medical services such a surgery, dental work, and medicine; education through high school or trade school, and in some cases through college; working tools for a trade and other goods that are luxuries to some people but not necessary to others because of peculiar circumstances. 

Disaffirmance. The term disaffirmance means the repudiation of a contract; that is, the election to avoid it or set it aside. A minor has the legal right to disaffirm a voidable contract at any time during minority or within a reasonable time after becoming of age. In some states, if the minor has received no benefits under the contract disaffirmance does not have to be within a reasonable time. If the contract is wholly executory, a disaffirmance completely nullifies the contract. 

Upon electing to disaffirm contracts, minors must return whatever they may have received under the contract, provided they still have possession of it. The fact that the minor does not have possession of the property, however, regardless of the reason, does not prevent the exercise of the right to disaffirm the contract. In most jurisdictions, an adult may not recover compensation from a minor who returns the property in damaged condition.

If an adult purchases personal property from a minor, the adult has only a voidable title to the property. If the property is sold to an innocent third party before the minor disaffirms the contract, the innocent third-party obtains good title to the property. However, the minor may recover from the adult the money or the value of property received from the third party. Statutes in some states make minors contracts void, not merely voidable. In these states, disaffirmance is not necessary.

Ratification. A minor may ratify a voidable contract only after attaining majority. Ratification means indicating one's willingness to be bound by promises made during minority. It is in substance a new promise and may be oral, written, or merely implied by conduct.

After majority is reached, silence ratifies an executed contract.

A minor cannot ratify part of a contract and disaffirm another part; all or none of it must be ratified. Ratification must be made within a reasonable time after reaching majority. A reasonable time is a question of fact to be determined in light of all surrounding circumstances.

Minor's Business Contracts. Many states, either by special statutory provision or by court decisions, have made a minor's business contracts fully binding. If a minor engages in business or employment in the same manner as a person having legal capacity, contracts that arise from such business or employment cannot be set aside.

Other Enforceable Contracts. A number of states prevent a minor from avoiding certain specified contracts. These contracts include educational loan agreements, contracts for medical care, contracts made with court approval or in performance legal duty, and contracts involving bank accounts.

Contracting Safely with Minors

Since in general it is risky to deal with minors, every businessperson must know how to be protected when contracting with minors. The safest way is to have an adult (usually a parent or guardian) join in the contract as a cosigner with the minor. This gives the other party to the contract the right to sue the adult who cosigned. A merchant must run some risks when dealing with minors. If a sale is made to a minor, the minor may avoid the contract and demand a refund of the purchase price years later. Since few minors exercise this right, businesspersons often run the risk of contracting with minors rather than seeking absolute protection against lost.

Minors' Torts

As a general rule, a minor is liable for torts as fully as an adult is. If minors misrepresent their age, and the adults with whom they contract rely upon the misrepresentation to their detriment, the minors have committed a tort (a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability). The law is not uniform throughout the United States as to whether or not minors are bound on contracts induced by misrepresenting their age. In some states, when sued, they cannot avoid their contract if they fraudulently misrepresented their age. In some states they may be held liable for any damage to or deterioration of the property they received under the contract. If minors sue on the contract to recover what they paid, they may be denied recovery if they misrepresented their age. 

Mentally Incompetent Persons

A number of reasons Beyond a person's control result in mental incompetence. These include insanity or incompetence as a result of stroke, senile dementia, and retardation. In determining a mentally incompetent person's capacity to contract, the intensity and duration of the incompetency must be determined. In some state, if a person has been formally adjudicated incompetent, contracts made by the person are void without regard to whether they are reasonable or for necessaries. Such a person is considered incapable of making a valid acceptance of an offer no matter how fair the offer is. When a person has been judicially declared insane and sanity is later regained and the court officially declares the person to be competent, the capacity to contract is the same as that of any other normal person.

If a person is incompetent but has not been so declared by the court, then the person's contracts are voidable, not void. Like a minor, the person must pay the reasonable value of necessaries that have been supplied. Upon disaffirmance (declaration that a voidable contract is void), anything of value received under the contract and which the person still has must be returned.

A person who has not been declared by a court to be insane and has only intervals of insanity or delusions can make a contract fully as binding as that of a normal person if it is made during a sane or lucid interval. The person must be able to understand that a contract is being made.

Intoxicated Persons

People may also put themselves in a condition that destroys contractural capacity. Contracts made by people who have become so intoxicated that they cannot understand the meaning of their act are voidable. Upon becoming sober, such persons may affirm or disaffirm contracts they made while drunk. If one delays unreasonably in disaffirming a contract made while intoxicated, however, the right to have the contract set aside may be lost. 

That a contract is foolish and would not have been entered into if the party had been sober does not make the contract voidable.

A person who has been legally declared to be a habitual drunkard cannot make a valid contract but is liable for the reasonable value of necessaries furnished. If a person is purposely caused to become drunk in order to be induced to contract, the agreement will be held invalid.

The rule regarding the capacity of an intoxicated person also applies to people using drugs.

Convicts

Although many states have repealed their former laws restricting the capacity of a convict (one convicted of a major criminal offense, namely, a felony or treason) to contract, some jurisdictions still have limitations. These range from depriving convicts of rights as needed to provide for the security of the penal institutions in which they are confined and for reasonable protection of the public, to classifying convicts as under a disability, as are minors and insane persons. In these instances, the disability lasts only as long as the person is imprisoned or supervised buy parole authorities.  

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS., 69-76*

end

1/11/20 - WEEKLY NEWS ROUNDUP POLITICAL ROUNDTABLE DISCUSSION (THE PODCAST)

Click here.

Business Law (part 13)

Offer and Acceptance

(part B)

by

 Charles Lamson

Duration of the Offer

Several rules affect the duration of an offer:

1. The offeror may revoke an offer at any time prior to its acceptance. If it has been revoked, the offeree can no longer accept it and create a contract. Normally the offer can be revoked even if the offeror has promised to keep it open.
2. An option cannot be revoked at will. If the offeror receives something of value in return for a promise to hold the offer open, it is said to be an option and this type of offer cannot be revoked. If the offer relates to the sale or purchase of goods by a merchant, a signed written offer to purchase or sell that states that it will be held open cannot be revoked during the time stated. If no time is stated, it cannot be revoked for a reasonable time, not to exceed three months. This type of offer is called a firm offer. It is valid even though no payment is made to the offeror. In states in which the seal has its common law affect, an offer cannot be revoked when it is contained in a sealed writing that states that it will not be revoked. 
3. A revocation of an offer must be communicated to the offeree prior to the acceptance. Mere intention to revoke is not sufficient. This is true even though the intent is clearly shown to persons other than the offeree, as when the offeror dictates a letter of revocation. Notice to the offeree that the offeror has behaved in a way that indicates the offer is revoked, such as telling the subject matter of the offer to another party, revokes the offer. 
4. An offer is terminated by the lapse of the time specified in the offer. If no time is specified in the offer, it is terminated by a lapse of reasonable time after being communicated to the offeree. A reasonable length of time varies with each case depending on the circumstances. It may be 10 minutes in one case and 60 days and another. Important circumstances are whether the price of the goods or services involved are fluctuating rapidly, weather perishable goods are involved, and whether there is keen competition with respect to the subject matter of the contract. 
5. Death or Insanity of the offeror automatically terminates the offer. This applies even though the offeree is not aware of the death or the insanity of the offeror and communicates an acceptance of the offer. Both parties must be alive and competent to contract at the moment the acceptance is properly communicated to the offeree. 
6. Rejection of the offer by the offeree and communication of the rejection to the offeror terminates the offer. 
7. If, after an offer has been made, the performance of the contract becomes illegal, the offer is terminated.

The Acceptance

When an offer has been properly communicated to the party for whom it is intended and that party or an authorized agent accepts, a binding contract is formed. Acceptance is the assent to an offer that results in a contract. The acceptance must be communicated to the offeror, but no particular procedure is required. The acceptance may be made by words, oral or written, or by some act that clearly shows an intention to accept. Silence does not, except in rare cases, constitute an acceptance nor is a mental intention to accept sufficient. If the offer stipulates a particular mode of acceptance, the offeree must meet those standards in order for a contract to be formed. 

Counteroffers

An offer must be accepted without any deviation in its terms. If the intended acceptance varies or qualifies the offer, the counteroffer rejects the original offer. This rejection terminates the offer. This rule is changed to some extent where the offer relates to the sale or purchase of goods. In any case, a counteroffer may be accepted or rejected by the original offeror.

Inquiries Not Constituting Rejection

The offeree may make an inquiry without rejecting the offer. For example, if the offer is for 1,000 shares of stock for $20,000 cash, the offeree may ask, "Would you be willing to wait 30 days for $10,000 and hold the stock as collateral security?" This mere inquiry does not reject the offer. If the offeror says no, the original offer may still be accepted, if it has not been revoked in the meantime.

Manner of Acceptance

An offer that does not specify a particular manner of acceptance may be accepted in any manner reasonable under the circumstances. However, the offeror may stipulate that the acceptance must be written and received by the offeror in order to be effective. If there is no requirement of delivery, a properly mailed acceptance is effective when it is posted. This rule is called the "mailbox rule," and it applies even though the offer never received the acceptance.

Similarly, the delivery of an acceptance to the telegraph company is effective unless the offeror specifies otherwise or unless custom or prior dealings indicate that acceptance by telegraph is improper. In former years the courts held that an offer could be accepted only by the same means by which the offer was communicated, called the mirror image rule. But this view is being abandoned in favor of the provision of the Union Commercial Code, section 2-206(1)(a), relating to sales of goods unless otherwise unambiguously indicated by the language or circumstances, and offer to make a sales contract shall be construed as initiating acceptance in any manner and by any medium reasonable in the circumstances. Under this principle, an acceptance can be made by telephone or even by fax. The contract is made on the date and at the place the fax acceptance is sent.

Careful and prudent persons can avoid many difficulties by stipulating in the offer how it must be accepted and when the acceptance is to become affected. For example, the offer may state, "The acceptance must be sent by letter and be received by me in Chicago by 12 noon on June 15th before the contract is complete." The acceptance is not effective unless it is sent by letter and is actually received by the offeror in Chicago by the time specified. 

Name	Resources	Web Address
Uniform Commercial Code 2-205	Legal Information Institute (LII) provides a hypertext and searchable version of UCC 2-205, Firm Offers.	www.law.cornell.edu/ucc/2/2-205.html
Uniform Commercial Code 2-206	LII provides hypertext and searchable version of UCC 2-206, Offer and Acceptance in Formation of Contract.	www.law.cornell.edu/ucc/2/2-206.html
Uniform Commercial Code 2-207	LII provide the hypertext and searchable version of UCC 2-207, Additional Terms in Acceptance or Confirmation	www.law.cornell.edu./ucc/2/2-207.html

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, PGS. 63-68*

end

Name

Resources

Web Address

Uniform Commercial Code 2-205

Legal Information Institute (LII) provides a hypertext and searchable version of UCC 2-205, Firm Offers.

www.law.cornell.edu/ucc/2/2-205.html

Uniform Commercial Code 2-206

LII provides hypertext and searchable version of UCC 2-206, Offer and Acceptance in Formation of Contract.

www.law.cornell.edu/ucc/2/2-206.html

Uniform Commercial Code 2-207

LII provide the hypertext and searchable version of UCC 2-207, Additional Terms in Acceptance or Confirmation

www.law.cornell.edu./ucc/2/2-207.html