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Contracts • Contract Formation
K#008
Legal Definition
A valid contract requires: (1) an offer, (2) an acceptance, and (3) valid consideration
Plain English Explanation
A contract is the result of a combination of specific factors. Without those factors, no contract is born.
The first factor is an offer. An offer occurs when one party makes some sort of statement or representation that they are willing to be bound to a contract. An offer invites the second factor, which is acceptance. Acceptance is the agreement by another party to enter into the binding relationship.
Finally, the last factor is consideration. Consideration is one of the most important aspects of a contract. Without consideration, a contract is nothing more than wishful thinking with no ability to enforce, like a promise of a gift.
The first factor is an offer. An offer occurs when one party makes some sort of statement or representation that they are willing to be bound to a contract. An offer invites the second factor, which is acceptance. Acceptance is the agreement by another party to enter into the binding relationship.
Finally, the last factor is consideration. Consideration is one of the most important aspects of a contract. Without consideration, a contract is nothing more than wishful thinking with no ability to enforce, like a promise of a gift.
Hypothetical
Hypo 1: Bob offers to sell Sam his bike for $100. Sam accepts Bob's offer and agrees to buy his bike for $100. Result: Bob and Sam have entered into a contract. Here this is an offer from Bob to sell his bike, and an acceptance from Sam to buy his bike. Bob will give Sam the bike in consideration for his $100, and Sam will give Bob $100 in consideration for his bike.
Hypo 2: Bob tells Sam, "Hey, your birthday is coming up, and I wanted to let you know that I promise I will give you my bike as a gift." Sam gleefully responds, "Thank you! I accept!" Result: No contract has been made. Bob has made an offer, and Sam has given an acceptance, but no consideration was exchanged. If Bob lies to Sam and decides not to give him his bike, that may make Bob an untrustworthy person, but it does not make Bob liable. In other words, gifts are usually non-binding contracts because they lack consideration.
Hypo 2: Bob tells Sam, "Hey, your birthday is coming up, and I wanted to let you know that I promise I will give you my bike as a gift." Sam gleefully responds, "Thank you! I accept!" Result: No contract has been made. Bob has made an offer, and Sam has given an acceptance, but no consideration was exchanged. If Bob lies to Sam and decides not to give him his bike, that may make Bob an untrustworthy person, but it does not make Bob liable. In other words, gifts are usually non-binding contracts because they lack consideration.
Visual Aids
Related Concepts
Are offers assignable?
Are pre-existing duties valid consideration?
Can partial payment of a debt be consideration for release of that debt?
How can an offeree reject an offer?
How do courts assess the adequacy of consideration?
How may an offer be revoked?
Though offers can generally be freely revoked, what are the 4 exceptions?
Under battle of the forms, what happens to additional or different terms in an acceptance when at least one of the parties is a non-merchant?
Under battle of the forms, what happens to additional terms in an acceptance between two merchants?
Under battle of the forms, what happens to different terms in an acceptance between two merchants?
What are consideration substitutes?
What are illusory promises and how do they affect a contract?
What are requirement and output contracts?
What are the methods of terminating an offer?
What are the requirements of an offer?
What are the UCC Gap Fillers?
What is acceptance?
What is a contract?
What is a merchant's firm offer?
What is an option contract?
What is consideration?
What is detrimental reliance?
What is promissory estoppel?
What is the effect of a conditional acceptance on an offer?
What is the effect of a contract that contains vague or ambiguous terms?
What is the effect of a contract that is missing price terms?
What is the effect of a contract that is missing quantity terms?
What is the effect of a counteroffer on an offer?
What is the effect of a lapse of time on an offer?
What is the effect of an offeree beginning to perform in response to an offer?
What is the effect of a seller sending non-conforming goods?
What is the effect of including additional or different terms to an offer?
What is the effect of part performance of a unilateral contract?
What is the effect of the death of a party prior to acceptance of an offer?
What is the Mailbox Rule and when does it apply?
When are advertisements valid offers?
When are price quotes valid offers?
When is past or moral consideration valid?
Who controls the method of acceptance, and what are the typical ways that an offer is accepted?
