Introduction to Contracts and Their Formation

OBE-118, Section 10

Fall 2004

“It’s a deal, I’ll take it”

Basic Elements of a Contract

Usually looked at as six elements

Agreement (or “Mutual Assent”)

Consideration

Capacity

Legality

Genuineness of assent

Writing and Form

These four are sometimes called the elements

“Defenses” to Formation

Classifying Contracts

• Bilateral versus Unilateral• Express versus Implied• Formal versus Informal• Valid, Void, Voidable, and Unenforceable

Formation

• Mutual Agreement or Mutual Assent

• Requires acceptance of an offer

• The “objective theory of contracts” resolves issues as to what was an offer,

Offer

Basic Elements of an offer– Serious objective intent by offeror– Terms reasonable definite and certain– Offer communicated to offeree

No: “ Want to buy my car?”

“My car is for sale”

‘I want to sell my 2000 BMW for $40,000”

Acceptance

• Voluntary act that expresses assent or agreement to terms of offer

• Unequivocal or absolute• Communicated to the offeror

No: “Maybe” “Okay but only if…” “Yes if you increase the the price

by…”

Did the Offer Survive to be Accepted?

Offer Acceptance

Revocation?

Rejection?Counteroffer?

Operation of Law?

Offer Terminated?

Was offer non-revocable?

Revocation of Offers

• Direct repudiation

• Behavior conforming to repudiation• Generally, revocation must be received by offeror or offeror’s agent.

• Irrevocable offers

Firm Offers

Option contract

Termination by Rejection

• Words or acts that convey “no”

Termination by Counteroffer• A rejection with a new offer

• Watch out for inquiries: “Would you accept $50?• Mirror-image rule (common law)

Termination by Operation of Law

• Lapse of time• Destruction of Subject matter

• Death or incompetence of offeror

• Illegality of proposed contract