BUSINESS LAW SUMMARY
Ch. 7
A contract is a legally enforceable promise or set of promises. Contract law is based on case
law, statutes, and tradition, subject to slight variations from state to state.
7.1 Basic Requirements of a Contract
Courts may invalidate contracts that do not reflect a true “meeting of the minds.” For
instance, if one party is induced to enter into a contract by fraud, duress, or misrepresentation,
courts may refuse to enforce the contract because both parties did not genuinely assent to its
terms. Formation of a valid contract requires four basic elements:
7.2 Agreement
● 1. Agreement
○ A valid contract requires an offer and acceptance resulting in agreement
between the two parties.
○ Offer
■ An offer is a manifestation of willingness to enter into a bargain that
justifies another person in understanding that his or her assent will
conclude the bargain.
○ Intention
■ If a reasonable person would consider an offeror’s statement to be a
serious offer, an offer has been made.
○ Definiteness
■ An offer will form the basis for a contract only when the essential
terms of the agreement are set forth (such as price, subject matter,
duration of the contract, and manner of payment).
○ Communication
■ The offeror must communicate the offer to the offeree.
○ Termination of Offer
■ An offer can be terminated either by operation of law or by action of
the parties.
● Termination by Operation of Law An offer terminates when the
time for acceptance specified by the offeror has elapsed or after
a reasonable period has elapsed if the offeror did not specify a
time (death or destruction).
● Termination by Action of the Parties The offeror can revoke the
offer—that is, cancel it—at any time before the offeree accepts.
An offer is also terminated if the offeree rejects it or makes a
new offer, which is referred to as a counteroffer. A counteroffer
constitutes a rejection of the original offer and reverses the
roles of the original offeror and offeree.
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, ○ Irrevocable Offers
■ An irrevocable offer cannot be terminated by the offeror. Irrevocable
offers arise (1) when an option contract has been created and (2) when
an offeree has relied on an offer to his or her detriment.
● Option Contracts An option contract is created when an offeror
agrees to hold an offer open for a certain amount of time in
exchange for some consideration from the other party.
● Detrimental Reliance An irrevocable offer may also occur
when there is detrimental reliance, that is when an offeree has
changed his or her position because of justifiable reliance on
the offer.
○ Acceptance
■ Acceptance is a response by the person receiving the offer that
indicates a willingness to enter into the agreement proposed in the
offer
● Mode of Acceptance The offeror is the “master of his offer” in
that he (or she) can specify the means and manner of
acceptance.
● Mirror Image Rule The traditional concept of contract
formation requires that what the offeree accepts must be
exactly the same as what the offeror has offered. If it is not, the
mirror image rule dictates that no contract has been formed.
● Intent to Be Bound At some point in the negotiations, the
parties will usually manifest an intention, either orally or in
writing, to enter into a contract. Such intent to be bound can
create an enforceable contract even if nonessential terms must
still be hammered out or a more definitive agreement is
contemplated.
7.3 Consideration
In addition to offering and acceptance, the formation of a valid contract requires that each
side provide something of value, known as consideration, which can be money, an object, a
service, a promise, or the giving up of a right to do something the promisor has the legal right
to do.
● Adequacy of Consideration
○ A court will deem consideration adequate—and hold the parties to their
bargain—unless it concludes that the purported consideration is a sham. Hence
the adage that even a peppercorn can be adequate consideration.
● Bilateral and Unilateral Contracts
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Ch. 7
A contract is a legally enforceable promise or set of promises. Contract law is based on case
law, statutes, and tradition, subject to slight variations from state to state.
7.1 Basic Requirements of a Contract
Courts may invalidate contracts that do not reflect a true “meeting of the minds.” For
instance, if one party is induced to enter into a contract by fraud, duress, or misrepresentation,
courts may refuse to enforce the contract because both parties did not genuinely assent to its
terms. Formation of a valid contract requires four basic elements:
7.2 Agreement
● 1. Agreement
○ A valid contract requires an offer and acceptance resulting in agreement
between the two parties.
○ Offer
■ An offer is a manifestation of willingness to enter into a bargain that
justifies another person in understanding that his or her assent will
conclude the bargain.
○ Intention
■ If a reasonable person would consider an offeror’s statement to be a
serious offer, an offer has been made.
○ Definiteness
■ An offer will form the basis for a contract only when the essential
terms of the agreement are set forth (such as price, subject matter,
duration of the contract, and manner of payment).
○ Communication
■ The offeror must communicate the offer to the offeree.
○ Termination of Offer
■ An offer can be terminated either by operation of law or by action of
the parties.
● Termination by Operation of Law An offer terminates when the
time for acceptance specified by the offeror has elapsed or after
a reasonable period has elapsed if the offeror did not specify a
time (death or destruction).
● Termination by Action of the Parties The offeror can revoke the
offer—that is, cancel it—at any time before the offeree accepts.
An offer is also terminated if the offeree rejects it or makes a
new offer, which is referred to as a counteroffer. A counteroffer
constitutes a rejection of the original offer and reverses the
roles of the original offeror and offeree.
1
, ○ Irrevocable Offers
■ An irrevocable offer cannot be terminated by the offeror. Irrevocable
offers arise (1) when an option contract has been created and (2) when
an offeree has relied on an offer to his or her detriment.
● Option Contracts An option contract is created when an offeror
agrees to hold an offer open for a certain amount of time in
exchange for some consideration from the other party.
● Detrimental Reliance An irrevocable offer may also occur
when there is detrimental reliance, that is when an offeree has
changed his or her position because of justifiable reliance on
the offer.
○ Acceptance
■ Acceptance is a response by the person receiving the offer that
indicates a willingness to enter into the agreement proposed in the
offer
● Mode of Acceptance The offeror is the “master of his offer” in
that he (or she) can specify the means and manner of
acceptance.
● Mirror Image Rule The traditional concept of contract
formation requires that what the offeree accepts must be
exactly the same as what the offeror has offered. If it is not, the
mirror image rule dictates that no contract has been formed.
● Intent to Be Bound At some point in the negotiations, the
parties will usually manifest an intention, either orally or in
writing, to enter into a contract. Such intent to be bound can
create an enforceable contract even if nonessential terms must
still be hammered out or a more definitive agreement is
contemplated.
7.3 Consideration
In addition to offering and acceptance, the formation of a valid contract requires that each
side provide something of value, known as consideration, which can be money, an object, a
service, a promise, or the giving up of a right to do something the promisor has the legal right
to do.
● Adequacy of Consideration
○ A court will deem consideration adequate—and hold the parties to their
bargain—unless it concludes that the purported consideration is a sham. Hence
the adage that even a peppercorn can be adequate consideration.
● Bilateral and Unilateral Contracts
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