Contracts:
Nature, Classification,
Agreement and Consideration
Chapter 8
Contracts: Basic Principles
• A contract is an agreement between two or
more parties to perform or to refrain from
some act now or in the future enforceable
by the courts.
Contracts: Requirements
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Agreement (offer + acceptance)
Consideration
Competent Parties
Lawful Purpose
Genuine Assent
Legal Form
Objective Theory of Contracts
• Contracts will be interpreted objectively
(looking at the words and the circumstances
at the time of entering into the contract) as
interpreted by a reasonable person.
• Subjective intent (what I meant to say) will
not usually be looked at.
Unilateral and Bilateral Contracts
Every contract involves at least two parties
• the offeror/ promisor, who makes the
offer/promise to perform, and
• the offeree/promisee, to whom the
offer/promise is made.
Unilateral and Bilateral Contracts
• Bilateral Contract
– a promise is given in exchange for a
promise in return.
• For example: X promises to deliver a
car to Y, and Y promises to pay X an
agreed price.
Unilateral and Bilateral Contracts
• Unilateral Contract
– a promise is exchanged only for the
offeree’s performance.
• For example: X offers Y $15 if Y will
mow X’s yard.
Ardito v. City of Providence
Express and Implied Contracts
• Express Contract
– A contract in which the terms of the agreement
are fully and explicitly stated orally or in
writing.
Express and Implied Contracts
• Implied Contract
– A contract formed in whole or in part by the
conduct (as opposed to the words) of the
parties.
– Can be implied in fact or implied in law (quasi
contract)
Express and Implied Contracts
– 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.
Express and Implied Contracts
• Quasi-Contract (Implied in Law)
– A fictional contract imposed on parties by a
court in the interests of fairness and justice,
typically to prevent the unjust enrichment of
one party at the expense of the other.
Status of Contracts
• Executory Contracts
– Not yet performed by all parties
• Executed Contracts
– Fully performed by all parties.
Agreement
• The process of agreement usually involves
two steps:
– Offer
– Acceptance
Agreement
• Offer
– A promise or commitment to perform or refrain
from performing some specified future act
made by the offeror.
Agreement
• Acceptance
– Unqualified, unconditional and unequivocal
response that indicates agreement to the terms
of the offer.
Requirements of an Offer
• Contractual Intent
• Reasonable Definiteness
• Communication to Offeree
Requirements of an Offer
• Contractual Intent
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Statements made in anger or jest are not offers
Advertisements are not offers
Social invitations are not offers
Opinions are not offers
Statements of future intent
Requirements of an Offer
• Reasonable Definiteness
– Offer must contain all key terms
– Acceptance does not add any terms
Requirements of an Offer
• Communicated to Offeree
– Must be sent to offeree
– If accepted by someone else, it’s a new offer
Termination of the Offer
• The communication of an effective offer
gives the offeree the power to transform the
offer into a binding legal agreement, or
contract (by acceptance).
Termination of the Offer
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Revocation
Rejection
Counteroffer (“Mirror Image Rule”)
Lapse of time
Destruction of subject matter
Death or incompetence
Illegality
Communicating Acceptance
• When the offeror and offeree cannot or
chose not to deal face to face, acceptance is
effective when communicated by the
offeree to the offeror by any authorized
means.
Communicating Acceptance
• The “Mailbox Rule”
– An acceptance becomes effective upon being
placed in the mailbox by the offeree.
• Note: revocation of an offer becomes
effective upon its receipt by the offeree; an
acceptance becomes effective upon its
dispatch by the offeree to the offeror.
Online Acceptances
• Click-on Agreements- Clicking “I Agree,”
even if the terms have never been read
constitute accpetance
• Shrink-Wrap Agreements- Agreements are
inside the box.
E-Signatures
• An electronic sound, symbol or process
attached to a record and executed by the
person with the intent to sign the record.
• Usually just as valid as written signature
unless exempt from E-Sign Act.
Elements of Consideration
• Consideration must be given in order to
make a contract legally binding
• Must be something of value to be a
“bargained for exchange”
Elements of Consideration
• Consideration must induce the party to
incur a legal detriment and/or provide a
legal benefit to the other party sufficient to
induce that party to commit itself.
• The adequacy of the consideration is not
usually taken into account.
Elements of Consideration
Legally sufficient consideration can be:
• Promising to do something that the
promisor has no prior legal duty to do.
• Performing an action that the promisor is
not otherwise obligated to undertake.
• Refraining from exercising a legal right
which the promisor is entitled to exercise.
(Hamer v. Sidway (p.224))
Insufficient Consideration
• Pre-Existing Legal Duty
– Under most circumstances, a promise to
do (or refrain from doing) what one
already has a legal duty to do (or refrain
from doing) does not constitute legally
sufficient consideration.
Insufficient Consideration
• Past Consideration
– Promises made in return for acts or
events that have already taken place are
unenforceable for lack of sufficient
consideration.
Settlement of Claims
• Accord and Satisfaction
– A debtor offers to pay, and a creditor agrees
to accept a lesser amount than was
originally owed on the claim (can only used
when amount is in dispute).
Settlement of Claims
• Release
– An agreement whereby one party forfeits its
rights to pursue a legal claim against another
party.
Settlement of Claims
• Releases are generally binding if they are:
– Given in good faith
– Stated in writing
– Accompanied by consideration
Promissory Estoppel
• Sometimes when a promisor makes a clear
and definite promise on which the promisee
justifiably relies, the promisor is bound by
the promise, even if it was insufficient to
form the basis of a valid, legally binding
contract.
Promissory Estoppel
• Requirements for Promissory Estoppel:
– The promise was clear and definite.
– The promisee justifiably relied on the promise.
– The promisee’s reliance was substantial and of
a definite character.
– Enforcing the promise will avoid unjust
enrichment.
Contracts:
Nature, Classification,
Agreement, and Consideration
Chapter 8