There are two sets of rules governing contracts, the Common law and the Uniform Commercial Code. The Uniform Commercial Code is commonly known as the UCC. The UCC governs the sale of goods. A test to determine if a contract is under the UCC or the Common law is this: If you can pick it up and move it, it is governed by the UCC. Common law governs all other contracts.
An offer is the demonstration of willingness to enter into a contract. This can be done by words or actions. When I go to the store to pick out a candy bar and place it on the counter, I am making an offer. My actions communicate that I am offering to buy the candy bar.
Two essential elements in an offer are:
Offer must be distinguished from invitation to deal, an offer must be concrete. For example: “I will give you...” or “I bid...” not “would you give...” or “would you consider...”
There are five elements necessary to have a valid offer. Under the Common law all five of these must be clearly stated in order to have a valid offer. Under the UCC all of the elements may be implied except quantity.
“I will sell you my 3.9 acre lot on the corner of Hollywood and Vine right now for $100,000.” This example of an offer has all five elements necessary. The quantity is one 3.9 acre lot, the time is right now, the parties involved are you and I, the price is $100,000, and the subject matter is my lot on the corner of Hollywood and Vine.
“I offer to sell you 100 widgets.” Is this a valid offer? Because widgets are goods, this offer is governed by the UCC. Under the UCC all of the element may be implied, except quantity. If in the past I have supplied you with widgets and we have an understanding, as to the time of performance, parties, price, and subject matter, then a valid offer has been made. If we have not had a past relationship and these terms are not clear, this would not be a valid offer.
Advertisements are usually not offers, because they do not contain all of the elements for a contract; particularly the identification of the parties involved.
A bid is an offer. By bidding at an auction you are offering to pay the price stated by the auctioneer. A contractor is also making an offer when he makes a bid. An offer creates the power of acceptance. The power of acceptance can be terminated a number of ways. The offer will be void if it is not accepted within the stated time; if no time is given a reasonable period of time will be derived from the circumstances. The offer will be void if the offer is rejected. A counter-offer will render the previous offer void. Under the UCC counter-offers are treated as additional terms and do not terminate the offer. Qualified acceptance will also terminate the offer. At any time before the offer is accepted it can be revoked by the person making the offer, unless the parties have entered into a separate option contract where the person making the offer agrees to keep the offer open for a certain period of time. If a law makes the contract illegal, the offer will be void. If the person making the offer dies before the offer is accepted, the offer is terminated.
The kind of acceptance that is necessary depends on the type of contract. There are two types of contracts. The first is called a bilateral contract. A bilateral contract is a promise in exchange for a promise: “I promise to give you $499 if you promise to fix my car” you may enter into a contract by promising to fix my car.
The promise is not necessarily verbal. I may designate an act to signify acceptance, for example I could say “If you pick up my car before 5:55 I will assume that you will fix my car,” If you pick up my car by 5:55 a contract has been formed. I may not condition acceptance on something that you would normally do, such as “If you want to fix my car let me know by going to work today.”
When acceptance by mail is a reasonable means of acceptance, there is a special rule governing. This rule is called the mail box rule. The mail box rule is this: acceptance is effective upon dispatch. It is only important when it is postmarked, not when it is received. If you receive my offer on June 5 and mail your acceptance on June 6, I can not call you on June 7 and revoke my offer even though I have not received your acceptance. A contract has already been formed
The second type of contract is a unilateral contract. A unilateral contract is a promise in exchange for action “I will promise you $499 if you fix my car.” The only way you can accept this offer is by fixing my car. Once you start to fix my car I cannot revoke my offer for a reasonable period of time.
If a means of acceptance is not specified in the offer, any reasonable means of notifying the person making the offer of acceptance will form a contract.
Consideration as a legal concept has nothing to do with thinking something over or if the parties realized what they were doing when they made the contract. Consideration is when two parties exchange something of legal value. Things of legal value are goods, services, promises to perform or promises to abstain from something that I have the right to do. Consideration is what makes a contract enforceable by law. Without consideration a contract is only as good as the word of the persons making the contract. What is consideration? Each party must gain something of legal value lose something of legal value.
“I promise you that I will give you my car when you turn 16.” However, when you turn 16 I realize that you are reckless and will kill yourself. I decide not to give you my car. You sue me for breach of contract. Will the court enforce this promise.
There are three elements that must exist in order for there to be consideration:
Let’s look at our contract and see if it contains all of the elements necessary to form a contract.
I would lose something of legal value, my car, however I would not be gaining any thing of legal value. You would gain something of legal value, my car, however you would not lose anything. My promise did not induce you to turn 16.
If I had said that “I will give you my car if do not play cards or go to movies until you are 16.” If you abstain from these activities is there an enforceable contract? Both of us are losing something and gaining something. You would gain my car and I would keep you from playing card and going to movies. I would be losing my car and you would be losing your right to play cards and go to movies. It was my promise that induced your action. This contract is enforceable because it contains all of the elements necessary for consideration.
What would the court enforce in a contract that had nominal consideration, that is consideration in form only? The majority of courts would not, there is; however, a small minority that will. An example of nominal consideration would be if I offered to sell you my ’99 Lexis for one dollar. The court would say that my promise to give you one dollar did not induce your action, thus there is no consideration and no enforceable contract.
If I say to you “I will buy all of the baseball cards that I want from you at book value, if you promise to buy my car.” You accept my offer but before you buy my car, you change your mind and decide not to. If I sue you for breach of contract will the court enforce this contract? No. There is no consideration. My promise to “Buy as many cards as I want” is illusionary and has no legal value. If I had said “I will buy all my baseball cards from you if you sell them to me at 5.9% below book value” and you agreed, we would have a binding contract. You are giving me a discount, and I am giving you all of my future business.
You offer to paint my house by Aug. 31 if I promise to pay you $1034, and I agree. Will the court enforce this contract
I would lose something of legal value, $1034, and I would be gaining a your time and labor. You would gain something of legal value, $1034, lose your time and labor. Without your promise to paint my house I would not pay you. Without my promise to pay you, you would not paint my house.
Yes, this is an example of a contract with consideration each party loses something and gains something of legal value. The court will enforce this contract.