BUSINESSthLAW TODAY
Essentials 8 Ed.
Roger LeRoy Miller - Institute for University Studies, Arlington, Texas
Gaylord A. Jentz - University of Texas at Austin, Emeritus
Chapter
7
© 2008 West Legal Studies in Business
A Division of Thomson Learning
Contracts: Nature,
Classification, Agreement,
and Consideration
1
Learning Objectives
 What is a contract? What are the four
basic elements of a valid, enforceable
contract?
 What are the various types of
contracts?
 What are the requirements of an offer?
 How can an offer by accepted?
 What are the elements of
consideration?
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Contracts
 Function of Contracts:
Fundamental to business.
Creates rights and duties between parties.
Provides stability and predictability.
 Parties: Promisor (makes the promise) and
Promisee (accepts the promise).
 Definition of a Contract.
Agreement that can be enforced in court.
Formed by two or more parties.
Failure to perform results in breach and
damages.
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Elements of a Contract
 A valid, enforceable contract includes:
Agreement.
Consideration.
Capacity.
Legality.
 Defenses to Enforceability:
Genuineness of Assent.
Form.
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4
Contract Formation
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5
Bilateral vs. Unilateral Contracts
 Bilateral Contracts:
Offeror and Offeree exchange promises to
each other.
A contract is formed when Offeree promises
to perform.
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Bilateral vs. Unilateral Contracts
 Unilateral Contracts:
Offeror wants performance in exchange for
his promise.
CASE 7.1 Ardito v. City of Providence
(2003).
Contract is formed when Offeree performs.
Contests and lotteries are examples.
Revocation of Offer: modern view is that offer
is irrevocable once the Offeree substantially
performs.
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Formal vs. Informal Contracts
 Formal: require special form or method
to be enforceable, e.g., under seal.
 Informal: all other contracts.
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Express vs. Implied Contracts
 Express: terms of contract are set forth
either in writing or orally.
 Implied-in-Fact: based on conduct.
Plaintiff furnished service or product.
Plaintiff expects to be compensated.
Defendant had a chance to reject and did not.
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Contract Performance
 Executed vs. Executory Contracts.
Executed: fully performed by both sides.
Executory: at least one of the parties has not
performed.
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Contract Enforceability
 Valid Contract.
Four Elements: Agreement, Consideration,
Legal Purposes, Parties have legal capacity.
 Voidable Contract.
Valid contract that is legally defective and can
be avoided (rescinded) by one of the parties.
 Void Contract.
No contract at all.
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Quasi Contracts
 Implied-in-Law Contracts (Quasi
Contract).
Fictional, created by court to avoid unjust
enrichment.
Limitations on quasi-contractual recovery.
Cannot be used when an actual contract
exists.
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Requirements of the Offer
 An agreement consists of a valid offer
and acceptance.
 An offer is the Offeror’s promise to
perform.
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Requirements of the Offer
 An offer requires serious, objection
intention.
CASE 7.2 Lucy v. Zehmer (1954).
Opinions are not offers.
Good Intentions are not offers.
Preliminary Negotiations are not offers.
Agreements to Agree are not offers.
 Reasonably definite terms.
 Communication to Offeree.
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Termination of the Offer
 Termination of the Offer.
By Act of the Parties.
Revocation by the Offeror (unless
irrevocable).
Rejection by the Offeree (or counteroffer).
Operation of Law: lapse of time, destruction,
death or incompetence, supervening illegality.
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Acceptance
 Voluntary act by Offeree that shows
assent to terms of original offer.
 Mirror Image Rule.
Offeree must unequivocally accept offer.
Additional terms may be considered a
counteroffer.
 Acceptance by Silence.
 Authorized Means of Communication is
either express or implied by form of
offer (e.g., U.S. mail, fax, email).
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“Mailbox Rule”
 “Offeree accepts offer when the
acceptance is dispatched to Offeror in the
form it was received, unless offer requires
a different method (e.g., Fed-Ex, or receipt
by Offeror).
 Exceptions:
Acceptance is not properly dispatched.
Offer stipulates not accepted until received.
Offeree rejects then accepts. First
communication received determines whether
contract is formed.
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Consideration
 Consideration is value given in return
for a promise.
 Elements:
Something of legally sufficient value given in
exchange for a promise and
That is bargained for between the parties.
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Contracts That Lack Consideration
 Pre-Existing Duty.
 Unforeseen Difficulties.
 Rescission and New Contract.
 Past Consideration.
 Illusory Promises.
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Settlement of Claims
 Accord and Satisfaction.
 Release.
CASE 7.3 BP Products North America, Inc.
v. Oakridge at Winegard, Inc. (2007).
 Covenant Not to Sue.
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Promissory Estoppel
 Promissory Estoppel (“detrimental

reliance”) doctrine applies when a person
relies on the promise of another to her
legal detriment.
Promisor is “estopped” (precluded) from
revoking the promise. There must be:
 Clear and definite promise with substantial
reliance.
 Justice is served by enforcement of the promise.
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