MOD 3 pg. 12:
ELO: Identify the
essential elements of a contract
Lesson 1 – Contract Formation Principles” reading, e.g., Mutual Assent,
1. MOD 3pg 10-11:
Mutual assent (Offer and Acceptance)
contract is formed by acceptance of an offer
. An offer is a proposal by a person (the “offeror”) to
enter into a contract. The person receiving the offer is called the “offeree”. When the offeree intends to
accept the offer and communicates this acceptance to the offeror, a contract is formed. As simple as
these basic building blocks of contract formation may appear, the question of whether a contract has
been formed can be complex. Indeed, the more complex the proposed agreement, the greater the
chance that a contract has not been effectively formed or, if there is an agreement, that the agreement
may in some way be flawe
Many issues may arise.
Most offers can be accepted only by or on behalf of the designated offeree
The offeror generally
has the absolute right to choose the person with whom he or she wants to enter a contract. Subject to
the ordinary rules concerning the legal relationship of principal-agent, someone other than the offeree
can accept the offer for the benefit of the offeree, provided that the offeror has not stipulated to the
contrary. The acceptance by the offeree must be unequivocal. The reason is that the offeror must know
what the state of the offer is, and must not be put in a position of uncertainty by a communication from
the offeree that is ambiguous. Therefore, a conditional acceptance (where the offeree accepts subject to
the offeror doing something more than promised in the offer) or a communication that hedges,
procrastinates, or leaves the offeror in doubt, does not constitute a binding acceptance.
Contract formation requires mutual assent by at least two persons
. These parties must “manifest”
(declare, demonstrate) this assent in an objective manner. It is sometimes said that contract formation
requires a "meeting of the minds". The parties’ minds need not "meet" in a subjective sense; the parties
need not be clairvoyant. Mutual assent will be objectively assessed: How would a reasonable person
interpret the words and or conduct that were exchanged by the parties? If the contract is in writing, the
issue becomes how should the language of the contract be read? If the contract language is clear and
yields only one reasonable interpretation, one party’s subjective misunderstanding of the language is not
relevant. A party’s subjective understanding only becomes relevant if the offer is ambiguous.
Contracts are based on bargain and exchange. Each party receives something of value and gives
something of value. "
Consideration" is the name given to that "value" given by each party. Actually,
many things may constitute consideration: an act, a promise, a forbearance, or the creation,
modification or destruction of a legal relation.
(Restatement of Contracts, Section 75.) In a bilateral