Contract Formation

As a matter of contract law, there are only 3 requirements to form a legally binding contract:

  1. Offer
  2. Acceptance
  3. Consideration

What Is An Offer?

In its most simple terms, an offer is the manifestation of the offeror's willingness to enter into a bargain with the offeree - that party or parties to which the offer is made. That is, an offer is an invitation to another to enter into a legally binding contract.

When Has An Offer Been Made?

An offer only becomes an offer if the offeree is justified in understanding that acceptance of the purported offer will form a binding contract. In other words, we just have to ask if it is objectively reasonable for the offeree to understand that an offer has been made. It is usually obvious when an offer has been made, but there are still a number of scenarious where an offer may look like an offer, but the law treats it as something else.

For example, advertisements may appear as an offer to sell something at a given price. However, advertisements are generally viewed as an invitation to purchase rather than an offer to be bound. Imagine you receive a flyer in your mailbox advertising a reduced price for a power tool at your local hardware store. If you call the store and accept the "offer," would anyone really expect the law to require the hardware store to hold on to the item until you show up an pay for the item? You can see how treating things like advertisements would create all kinds of unintended contracts and create problems for consumers and businesses alike. So again, an offer is only an offer if the offeree is justified in understanding that acceptance of it will conlude the deal and form a legally binding contract.

While the above scenario may seem silly, issues surrounding offers do come up - especially in the sale of goods. Although the sale of goods is governed by the Uniform Commercial Code (UCC), the above explanation is still relevant. For example, we had a situation where someone had posted an item for sale on the popular website There was an advertised price and a person responded, indicating that they wanted to purchase the item for that price. As explained above, no contract had been formed at this point because the Craigslist post would generally not be considered an "offer" in a legal sense. However, when the person responded to the post and indicated they wished to purchase it, an offer had been made. The seller of the item accepted and the parties even agreed on a time and place to meet and complete the transaction. The buyer arrived at the agreed upon time and place, but the seller never showed up. The buyer wanted to know if:

  • Had a contract been made?
  • Was the contract enforceable?
  • What was the remedy, if any?

In this situation all the communication had been done by text messaging. It was our position that yes, this was a legally binding contract between the buyer and seller. As it turns out, the item in question was worth a lot of money - so much so that it was worth legal fees to pursue a claim for breach of contract. It turns out that after the agreement had been reached, the seller discovered that the item was worth a lot more than the price for which he has agreed to sell. Now, obviously this type of situation may happen rather frequently, especially in forums such as Craigslist. However, just because there may be a legally enforceable contract it doesn't necesarily justify the time and expense of enforcing such a contract.

If you find yourself in a position where you want to enforce a purported contract and the other party is refusing or claiming that no contract exists, give the breach of contract attorneys at Johnson, Tabor & Johnson Law a call today at 402-506-4444 for a free consultation.

To read more about issues surrounding remedies for breach of contract, visit our remedies page.

What Is Acceptance?

Acceptance is just what it sounds like - acceptance of an offer. Acceptance may be made in an almost infinite number of ways, unless specific forms of acceptance are made part of the offer. In the absence of some specific form, medium, type, time, or place for acceptance, the law will treat any reasonable method of acceptance as effective to create a legally binding contract.

Issues surrounding acceptance may come up from time to time. For example, if a party has accepted an offer by mail but the offeror retracts the offer prior to receiving notice of the acceptance. What about a purported acceptance that adds additional terms or removes terms included in the original offer? Finally, what if the offeree begins performance - does the performance count as acceptance? If you have questions surrounding whether proper acceptance has been made or if a legally binding contract exists, call the breach of contract attorneys at Johnson, Tabor & Johnson Law. We may help resolve the dispute without actually filing a lawsuit. Contact us today for a free consultation at 402-506-4444.

What Is Consideration?

Consideration is at the heart of all contracts. Consideration is, in its simplest terms, mutual obligations under a contract. Each party must have some type of obligation under the contract and those obligations must be exchanged as consideration to give affect to a contract and make it binding. In other words, there must be an exchange as part of the bargain.

The consideration of a bargain often takes the form of mutual promises, such as a promise by one party to perform and the promise of the other party to pay. However, the performance of one party may be the forbearance of some act or the creation, destruction, or modification of an existing legal duty. For example, a typical settlement agreement consists of one party paying money to the other and the other party dismissing a pending lawsuit. The payment of money and the dismissal of the lawsuit are the consideration of the settlement agreement (although typical settlment agreements also contain many other provisions, each of which may be valid consideration themselves).

Is There A Requirement For Mutuality Of Obligations?

Contrary to popular belief (even among some in the legal field), there is no requirement that there be an exchange of mutual value to make a contract valid. Many times there is a rough equivalence of value, as the free market largely determines the price of goods and services, but not always. As in the example I gave above, an agreement to sell an item for far less than its market price is no less enforceable than an agreement to sell an item at its fair market price. In fact, rarely would a person pursue a breach of contract claim if their contract didn't give them a benefit that they thought was worth more than the market could readily provide. After all, if that were the case they would simply move on from the breaching party and go obtain what they were promised from some other party. Even though the law doesn't impose a requirement of mutuality, there may be cases in which there is such a gross inadequacy that a court invalidates the contract on other grounds, using the gross inadequacy as evidence in support of their determination.

What Isn't Valid Considation?

Consideration is rarely a good place to attack the validity of a contract. However, occasionally the purported consideration of a contract is invalid. This is particularly the case when one party agrees to perform something which he is already legally obliged to do. We had a scenario where a contractor had entered into an agreement with a subcontractor to perform emergency remediation of a damaged roof. A price and time for performance were agreed and made part of a written agreement. However, when the subcontractor appeared at the job they demanded additional money beyond what was previously agreed upon. The contractor agreed to the price increase and the subcontractor did the work. The contractor then refused to pay the additional money and the subcontractor brought an action for breach of contract. We defended the action by arguing that the subsequent agreement to pay additional money was invalid because it lacked consideration. This was successful because the subcontractor already had a legal duty to do the work, so there was no exchange. In other words, the subcontractor did not take on any additional duties which could have been consideration for the subsequent agreement.

If you have been accused of breaching a contract or you think the other party in a contract has breached its duties, call the breach of contract attorneys at Johnson, Tabor & Johnson Law today for a free consultation at 402-506-4444.