Chapter 12: Formation of Traditional and E-Contracts

Contract

an agreement that can be enforced in a court.

Objective Theory of Contracts

looks at circumstances to determine intent of the parties (reasonable person standard).

Objective Facts may include:

• What a party said when entering into the contract.

• How the party acted or appeared (intent may be inferred)

• Circumstances surrounding the transaction.

Offeror

makes the offer

Offeree

party to whom the offer is made

Bilateral Contract

Offeree must only promise to perform (promise for a promise) usually for items.

Unilateral

A promise for an act

Revocation

offer cannot be revoked once substantial performance has begun.

Formal Contracts

statutes or rules which state that a contract must be in writing to be enforceable.

Informal Contracts

all other contracts (small contracts)

Express Contracts

words (verbal/written)

Implied Contracts

conduct creates and defines the terms of the contract.

Requirements for an Implied Contract:

• Plaintiff furnished some service or property

• Plaintiff expected to be paid, or defendant should have known payment was expected.

• Defendant has a chance to reject goods/services and did not.

Valid Contract Enforceability

agreement, consideration, contractual capacity, and legality (enforceable).

Void Contract Enforceability

no contract (not enforceable)

Voidable Contract Enforceability

valid contract that can be avoided at the option of one of the  parties.

Agreement

(offer and acceptance)

Parties must show mutual assent to terms of contract

Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed.

Offer:

a promise or commitment to do or refrain from doing a specified action in the future.

Offeror's serious intention

contract is judged by what a reasonable person in the Offeree's position would conclude about the offer.

Where intent may be lacking:

◆ Expressions of Opinion 

◆ Statements of Future Intent 

◆ Preliminary Negotiations, or invitations to Negotiate ◆ Invitations to bid 

◆ Advertisements and price Lists

Definiteness of Terms

4 Requirements: 

◆ Identification of the parties 

◆ Object or subject matter of the contract ◆ Consideration to be paid 

◆ Time of payment, delivery or performance

Communications to Offeree 

Offeree must have knowledge of the offer: ◆ Directly given by the Offeror, or ◆ Given by the Offeror's Agents 

Termination of the Offer

An offer may be terminated prior to acceptance

Action of the Parties

Revocation of the offer by the offeror: 

◊ Offer can be withdrawn anytime before offeree accepts the offer. 

◊ Effective when the offeree or offeree's agent receives it.

Irrevocable offers

courts are generally unwilling to allow  revocation when the offeree has changed positions based on  justifiable reliance on the offer.

Option contract

promise to hold an offer open for a  specified period of time in return of consideration

Rejection of the offer by the offeree:

Rejection by the offeree (expressed or implied) terminates the offer. 

◊ Effective only when it is received by the offeror or  offeror's agent. 

Counteroffer

rejection of original offer and the simultaneous  making of a new offer. 

Mirror Image Rule

any change in terms automatically terminates the offer and substitutes the counteroffer.

Lapse of time

• Offer terminates by law when the period of time

specified in the offer has passed.

• If no time period for acceptance is specified, the offer

terminates at the end of a reasonable period of time.

Destruction of the Subject Matter

If it occurs before acceptance of the offer, then the offer

is canceled.

Death or Incompetence of the offeror or offeree

Automatically terminates unless it is an irrevocable offer.

Supervening Illegality of the Proposed Contract:

Legislation or court decision automatically terminates offer or renders contract unenforceable.