When is a Contract not a Contract?

By January 14, 2013

By Abbey L. Kaplan
The scenario: you are at a charity event sponsored by a real estate development firm and the MC, the company president, asks if anyone wants to buy his lavish home for $5,000.  A man in the audience shouts “I’ll take it!”.  The man does not pay the $5,000 before he leaves the charity event nor does he ever tender payment.  The man later sues the company for breach of agreement and specific performance, claiming that the exchange, where he accepted the MC’s offer formed a legal and binding contract.  But did it?  Let’s dust off our law school hornbook and examine contract law in the context of a charity auction.

Many of the elements of contract law that apply in the auction setting are also issues in general breach of contract cases.  In order to have an enforceable valid contract, there must be an offer, acceptance and consideration.  Moreover it is well-settled that there must be agreement or as we learned in law school, “a meeting of the minds” as to all essential terms of the agreement.
In Florida, while the auctioneer commences the auction, he does not make an offer to sell anything.  “[U]nlike like the ordinary sales agreement in the form of a negotiated, written, signed document, which is completed when the second party signs the agreement, at the usual immediate auction at public outcry ‘sale,’ the bidders make oral offers to buy and the auctioneer ‘accepts’ the winning offer or bid.  Rohlfing v. Tomorrow Realty & Auction Co., Inc., 528 So.2d 463, 466 (Fla. 5th DCA 1998).  The auction’s “sale” is complete “when the auctioneer signifies his acceptance of the highest bid by the fall of his hammer or in some other customary manner. . .”  Id.  The auctioneer, or in this case the MC doesn’t make an offer.  He can however accept an offer made by those in attendance who bid on an auction item.
In addition to the issues surrounding offer and acceptance, the fact pattern above raises questions about meeting of the minds on the essential terms of the agreement. For instance did the parties agree on a closing date?  Were there to be representations and warranties?  Was there to be an inspection period?  Who satisfied any debt?  Will the buyer assume any obligation to the bank? What about insurance?  Without a meeting of the minds on the major terms, there can be no binding agreement.
Finally, Florida courts use a reasonableness test to determine whether an alleged agreement is enforceable.  See Fivecoat v. Publix Super Markets, Inc., 928 So.2d 402, 403 (Fla. 1st DCA 2006); Harrington v. Citizens Property Ins. Corp., 54 So.3d 999, 1002 (Fla. 4th DCA 2010).  Thus, if a reasonable person would perceive the MC’s comment as a joke, it would not be a binding offer  The seminal case on offers intended as jokes is Leonard v. Pepsico, Inc., 88 F. Supp.2d 116 (S.D. N.Y. 1999).  In Leonard, a television commercial viewer who had submitted 700,000 product “points” (or their cash equivalent) to a soft-drink manufacturer sued to enforce an alleged contractual commitment of the manufacturer to provide a fighter jet aircraft in return for submission of the “points.”  The court held that no enforceable contract existed because the alleged offer to provide a fighter jet aircraft in return for amassing 700,000 “Pepsi Points” was an obvious joke that could not give rise to a contract.
These factors do not only apply to the unique auction scenario.  In today’s litigious society, it is not uncommon to encounter frivolous litigation arising out of so-called agreements that are allegedly breached.  When you are defending a breach of contract case, it is important to evaluate the facts to determine if there was truly an intent to contract, or merely an attempt by the plaintiff to extort an early settlement.