Agreement and Consideration in Contracts

Chapter 7

Overview of 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.

Overview: Contract Requirements

• Agreement (offer + acceptance)• Consideration• Competent Parties• Lawful Purpose• Genuine Assent• Legal Form

Overview: 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.

Overview: 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.

Overview: 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.

Overview: 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

Overview: Express and Implied Contracts

• Express Contract– A contract in which the terms of the agreement

are fully and explicitly stated orally or in writing.

Overview: 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)

Overview: 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.

Overview: 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.

Overview: 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

– 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• 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 ConsiderationLegally 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

Overview: