2. Identify and discuss the essential elements of contract formation
The formal requisites of a contract include:
1. A real unilateral or bilateral mutual assent consisting of a offer and acceptance of two or more
2. competent parties (an infant or a mentally challenged person is not eligible) , in a
3. form required by law (e.g., written or recorded document), supported by
4. a valid consideration or benefit of the bargain in return for performance of legally binding obligations, and having a
5. valid purpose and a legitimate subject matter.
1. Mutual Assent
The formation of a contract occurs when two or more parties create an agreement by simultaneous compliance. This process is consummated through the affirmation of one partys offer and another partys acceptance. Upon the occurrence of an offer and acceptance, the parties have affirmed their mutual assent and have created a legally binding contract.
The inclination to enter into a bargain agreement represents the offer. This offer must provide a reasonable person an incentive whereby the offeree understands that their assent to any bargain proposed by the offeror creates a legally binding contract and that their acceptance of that bargain will necessitate performance.
Acceptance represents the offerees assent to the terms of the original offer communicated to the offeror at a time prior to revocation or termination of the offer. Acceptance of an offer represents the genuine manifestation by the offeree of her assent to consummate a contractual relationship based upon the conditions and terms made by the offeror in the initial offer. The manifestation of mutual assent of the parties occurs upon acceptance of an offer. The offerors assent is illustrated by her offer and the offerees by his acceptance, henceforth, a contract comes into formation.
In order to determine whether an offerees communication constitutes a formal acceptance, it is necessary to examine whether the terms of the offer have been performed in the proscribed manner, at the proper location, correct time and by a specifically designated party.
If the offer is made available to the public, generally, it may be accepted by any public person or member of a group cognizant of its existence.
When offers are directed towards a specific person, only that person may accept it and this acceptance may consist of:
a. the making of a promise
b. the performance of an act
c. a forbearance, or
A. The Making of a Promise
This form of acceptance consists of the offeree making a promise to perform in compliance with the terms and conditions of an offer initiated by the offeror.
B. Performance of an Act
In a bilateral agreement, offer and acceptance each contain a promise of performance that is favored by law. The courts have held that acceptance under this type of agreement must consist of the complete performance of the obligation requested. Revocation of the offer prior to the completion of the requested contractual directive being performed does not result in a completely enforceable contract. A reciprocal exchange of promises and valid acceptance requies the offeree to possess the competent capacity to accept the unequivocal terms of acceptance and communicate that acceptance to offeror.
Under the mailbox rule, acceptance can undergo a timeline from the time an acceptance was mailed to the time acceptance is actually received by the offeror. Bilateral contracts can experience a timeline whereby a contract is formed only upon acceptance received by the offeror. If offerors acceptance is rejected by the offeree, no contract is formed. This rule only applies to acceptances whereas other acts, such as rejection, are only effective upon receipt.
A unilateral contract acknowledges formal acceptance by performance or non-performance of an act. Upon the initiation of specific performance, the offeror may not revoke the offer. The offeree must be cognizant of the offer and the offer that manifests acceptance obligations is to take the form of some act or forbearance.
An offerees acceptance by forbearance or refraining to perform a specific act during a fixed or reasonable period of time constitutes a legitimate form of acceptance when they satisfy the contractual obligation to forbear in accordance with the terms stipulated in the offer.
In numerous instances, the courts have held that in specific contractual relationships, an offerees silence may imply the acceptance of an offer and have a recent history deciding many cases on the theory that the offeree was obligated to either communicate to the offeror in particular circumstances or that the offeree was a beneficiary of offerors transaction, or the offeree exercised dominion over the subject matter of the original offer.
1. A person must be an offeree to accept agency who represents another or a party must know the principals and the agency relationship or else there is no legitimate offer made.
2. A mistake in the identity of the offeree may invalidate the offer.
3. The offeror must accept agreement with the terms of the offer and these terms must be expressed in certain terms.
Communication of Acceptance
When the contract conditions express that an offerees acceptance must take the form of a promise, the offerees promise is not considered an acceptance until it is communicated to the offeror in the proper manner, time and place requested in the offer. When oral proposals are made, oral acceptance is legally recognized when communicated by the offeree to the offeror. A contract
Acceptance in Accordance to Offer
The acceptance must comprehensively conform to every term and condition stipulated in the offer. An acceptance must be in accord to the conditions of the offer, must be definite and certain, offeree cannot misinterpret the stipulations of the offer and the formation of the agreement must be followed by formal writing.
2. Capacity of the Parties
Lacking the contractual capacity to form a contract doesnt necessarily preclude the formation of the contract but it does result in the offeree having an election to avoid his or her obligations by raising the lack of capacity defense.
1. minors under the age of 18 may form contracts but their obligations are voidable.
2. mental incompetents such as insane, mentally challenged or intoxicated persons lack the capacity to enter into enforceable contracts.
3. Form Required by Law
Evidence of the existence of a contract must be manifested in an acceptable form that is required by law. The statute of frauds identifies the requisite acceptable forms that an agreement must take in order for the courts to recognize a breached partys legal remedies.
Consideration is a bargained-for medium of exchange that has quantifiable legal value. Only when a contract is supported by consideration will it be enforced. The elements of valid consideration occur under the following conditions:
a. Reciprocally bargained-for exchange where a) parties must exchange something, b) forbearance is sufficient if it benefits the promisor, c) gifts do not qualify as consideration because they are not bargained for, and d) past or moral consideration is invalid.
b. A party must bear a legal detriment where a pre-existing legal obligation is not consideration.
c. Promissory estoppel, detrimental reliance and modification under the UCC are adequate substitutes for consideration.
5. Valid Purpose and Subject Matter
Conspiracy to commit a crime by engaging in the sale of an illegal subject matter creates a voidable contract. When an illegal subject matter or participation of one of the parties is illegal, a) the offer is immediately revoked; and b) when either of the two is declared illegal after the formation, but before performance, the obligations of both parties are immediately discharged under the doctrine of impossibility.