Chapter 9
Contract Formation
Copyright © 2009 by Jeffrey Pittman
Contract Definition
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A contract is an agreement between two or
more parties that can be enforced in a court
of law
Contract law protects promises that have
been made, allowing commerce to function
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Historical View of Contract LawThe Code of Hammurabi
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Hammurabi was a ruler of ancient Babylon, the
world’s first metropolis
The Code of Hammurabi is the earliest known
example of a ruler publishing for the people an
entire body of laws
The code, carved in a stone monument, dates to
approximately 1750 B.C.
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The Code of Hammurabi
CODE OF LAWS
1. If any one ensnare another, putting a ban
upon him, but he can not prove it, then he
that ensnared him shall be put to death
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The Code of Hammurabi
2. If any one bring an accusation against a man, and the
accused go to the river and leap into the river, if he sink in
the river his accuser shall take possession of his house. But
if the river prove that the accused is not guilty, and he
escape unhurt, then he who had brought the accusation
shall be put to death, while he who leaped into the river
shall take possession of the house that had belonged to his
accuser
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The Code of Hammurabi
Contract Examples
45. If a man rent his field for tillage for a fixed
rental, and receive the rent of his field, but
bad weather come and destroy the harvest,
the injury falls upon the tiller of the soil.
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The Code of Hammurabi
Contract Examples
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228. If a builder build a house for some one
and complete it, he shall give him a fee of
two shekels in money for each sar of
surface.
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The Code of Hammurabi
Contract Examples
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229 If a builder build a house for some one,
and does not construct it properly, and the
house which he built fall in and kill its
owner, then that builder shall be put to
death.
230. If it kill the son of the owner the son of
that builder shall be put to death.
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The Code of Hammurabi
Contract Examples
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244. If any one hire an ox or an ass, and a
lion kill it in the field, the loss is upon its
owner.
245. If any one hire oxen, and kill them by
bad treatment or blows, he shall
compensate the owner, oxen for oxen.
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Electronic Contracts
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From Hammurabi’s time to today, the
methods for contracting have changed
Cyberlaw and electronic contracts are today
very important
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Sources of American Contract Law
The common law (court
created rules)
regulates contracts
involving:
 The sale of land (real
property)
 The sale of services,
and
 The sale of intangible
personal property
The Uniform Commercial
Code (UCC) regulates
contracts involving:
 The sale of tangible,
personal property
(called “goods”)
(Tangible property
has a physical
existence)
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Contract Terms
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Bilateral v. unilateral
Express v. implied
Valid, void, voidable, and unenforceable
Quasi-contract
Executory v. executed
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Elements of a Contract
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Offer
Acceptance
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The offer and acceptance create an agreement
The genuineness of the agreement can be challenged, for example,
arguing fraud, duress, etc.
Consideration
Capacity
Legality
Writing
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Requirements of an Offer
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Intent - offeror is serious, not joking, and
intends to be bound by the offer
Definite – the offer has reasonably certain
and definite terms
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Requirements of an Offer (cont.)
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Communication – the offer is communicated
to the offeree, either actually or
constructively

Constructive communication is a reasonable
attempt at communicating the offer terms, e.g., a
sign on a parking garage wall that the parking
garage owners are not responsible for damage
to parked cars
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Termination of the Offer
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By action of the parties

Revocation
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Note irrevocable offers,
including option contracts
and promissory estoppel
Rejection
Counter-offer
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By operation of law
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Lapse of time
Destruction of
subject matter
Death or
incompetence of
either party
Illegality of offer
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Acceptance
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Voluntary agreement to be bound by the
terms of the offer
Acceptance issues
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The mirror image rule
Silence as acceptance
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Genuineness of Assent
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Occurs when you have a true “meeting of the minds”
Genuine assent may be lacking when there is:
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Fraud
Misrepresentation
Mistake
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Unilateral
Bilateral
Duress
Undue influence
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Consideration
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Contracts usually involve promises exchanged between the
parties
Using a simplified method, the requirement of
“consideration” means that each party must suffer a
“detriment” with his/her promise
A detriment occurs with a promise to do something the
promisor had no duty to do, or a promise to give up a legal
right
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Consideration Example
car
Tom promises to sell
his car to Cindy,
a promise that he had no prior
legal duty to perform
Cindy promises to pay $
for the car, a promise
she had no prior legal
duty to perform
$$
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Consideration
Consider usually requires that each party
satisfy one of the following:
 Promise money, property, or services to the
other party to the agreement, or
 Promise to refrain from lawful activities
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