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We are now ready to have a closer look
at the element of agreement
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as one of the key concepts
of contract law.
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The existence of an agreement
is an essential basis
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and precondition of a contract.
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We could say that the exceptions
are promissory estoppel
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and quasi-contracts,
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where there is no agreement,
but technically
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those are not actual contracts.
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We have already seen that
whether there is agreement or not
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will be determined based on
the objective theory of contracts.
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But what we examine now in more detail
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are the individual elements of agreement
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namely, offer and acceptance.
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There can only be an agreement,
and hence a contract,
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if there has been a valid offer
and valid acceptance of the offer.
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The party making the offer
can be referred to as the offeror,
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while the party that receives the offer
and may or may not accept it
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can be referred to as the offeree.
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If there is in fact
an offer by the offeror
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and an acceptance by the offeree,
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then we have the meeting of the minds
that we already referred to earlier,
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and which is necessary for
the formation of a contract.
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Remember however, that whether or not
there is a meeting of the minds
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is determined based on an objective basis.
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The parties may subjectively not think
that there is a meeting of the minds,
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but from the perspective of a reasonable
person or bystander, this is the case.
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That's the reason why
there may be a contract
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despite one of the parties'
unwillingness to enter into an agreement.
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Every contract begins with an offer.
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In order to be valid,
an offer must contain
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the following elements:
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an objective intent to make an offer
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by the party that is attempting
to make the offer,
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the offer must contain
definite material terms
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that would govern the contract,
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and the offer and its contents
must be communicated to the offeree.
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Let's look at these elements in turn.
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Whether there is an objective
intent to make an offer
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is determined by the words
and actions of the offeror.
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There is no objective intent
if the offeror
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uses words that a reasonable person
would interpret as an opinion, joke,
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future plan, a simple suggestion
to engage in preliminary negotiations,
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or an invitation to the other party
to make an offer.
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Let's look at some examples.
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Let's assume a friend says to you,
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"I really like your old car
and I would like to buy it for $15,000."
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In reality, your friend hates your car,
but is just trying to be polite.
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Looking at this statement objectively
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suggests that this would be a valid offer.
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Subjective intent or so-called
mental reservations
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that are not shared with the other party
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are immaterial.
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Next, let's assume that
your friend says to you
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she will pay you a million dollars
if you go to the store
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and pick up a sandwich
and drink for her.
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Would this be an objective intent
to make an offer?
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Normally not because
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unless perhaps your friend
is a somewhat reckless billionaire,
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it's very clearly a joke
and not a serious offer
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that you could accept.
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There is a famous German case,
or perhaps just a hypothetical,
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that nicely illustrates
the concept of an offer
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under the objective theory.
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Mr. X, a visitor from out of town,
enters the town hall of a small village.
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He doesn't know that
a wine auction is going on.
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Under the applicable local law,
during an auction,
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the participants can raise their offers
by lifting their hand.
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Mr. X spots an acquaintance
who is sitting in the town hall.
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He raises his hand
to greet the acquaintance.
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Unbeknownst to Mr. X,
this means that he is making an offer,
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and it is interpreted as such
by the auctioneer.
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As a result, Mr. X wins the auction
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and is obliged to pay
for 12 cases of rare wine.
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In this scenario, would there be
a contract under the law?
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Under the objective theory,
the answer is yes,
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since a reasonable person would interpret
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his actions at the auction
as constituting the making of an offer.
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The second element is that
the offer needs to include
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definite material terms.
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This means that the terms of the offer
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must be sufficiently clear and unambiguous
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so that the essential terms
of the offer can be determined,
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and if the need for
enforcement would arise,
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that a court would be able
to fashion a remedy.
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For instance, saying to a car dealer,
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"I would like to purchase
this blue Ford Fiesta for $15,000,"
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contains definite material terms.
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The essential terms are clear,
and if necessary,
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a court wouldn't have no problems
enforcing this contract
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or fashioning a suitable remedy.
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Conversely, mentioning to a car dealer,
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"I would like to purchase
one of your cars for a good price,"
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would not meet that requirement.
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The third element is that the offer
needs to be communicated to the offeree,
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that is, the person to whom
the offer is being extended.
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An uncommunicated offer is not an offer.
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Also the offer must be
communicated by the offeror
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to the offeree in the manner
chosen by the offeror.
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For example, let's say that Joel
writes on a piece of paper:
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"George, I want to buy your car
for $15,000."
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He then puts that paper
in his own desk drawer
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as he is not yet sure
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whether he's ready to make the offer.
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Two days later, George finds the note.
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Is there an offer?
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No, there would be no offer in this case.
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While it was communicated to the offeror,
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it was not willingly communicated
by the offeror, Joel.
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However, if Joel would have instructed
George to go into his study,
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open his drawer and read the note,
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there would have been a valid offer.