Critical Thinking Exercise
1. Define the Objective Theory of Contracts.
Objective Theory of Contracts is defined as the parties’ assent is not judged by the subjective intent by each party, but by the objective intent that a similarity situated reasonable person would understand the parties to have.
2. On May 1, Brand Name Industries, Inc. (BNI), sent Carol a letter, via overnight delivery, offering to employ her to audit BNI’s financial statements for the current year for $10,000. In the letter, BNI stated that Carol had ten days to accept. On May 5, Carol sent BNI a fax that stated, “The price for the audit seems too low. Would you consider paying $12,000?” BNI received the fax. The next day, Dan offered to conduct the audit for $8,000. On learning of Dan’s offer, Carol immediately e-mailed BNI, agreeing to do the work for $10,000. BNI received this e-mail on May 7. Explain why BNI and Carol do, or do not, have a contract.
Based on the above facts, BNI and Carol do not have a contract. At first, BNI made an offer to Carol on May 1 and gave her 10 days to accept this offer. However, Carol did not accept this offer by making a counter offer on May 5. Because of the counter offer on May 5, the former offer had been terminated and no longer exist. Hence the later agreement to do the work for $ 10,000 made by Carol is meaningless because the original offer had been deleted by her offer counter. With the counter offer, Carol became offeror and BNI became offeree. If BNI does not accept this offer, there will be no contract between BNI and Carol. If BNI accepts the offer, then an agreement or a contract will be formed between BNI and Carol.
3. Chris promises Dina $40,000 if she graduates from Eagle College. Dina enrolls in Eagle, attends full-time for four years, and graduates. When Dina asks Chris for $40,000, Chris says, “I don’t remember promising you $40,000. But if there was a promise, it’s not enforceable,...
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