Have I formed a Contract? by Ryan T. Webster

What must happen to form a contract? Like the NFL’s catch rule, it’s not always clear. Most of us enter into contracts on a regular basis. We buy and sell goods and services; we make promises in exchange for things we want. This article addresses some of the fundamentals associated with forming a binding contract.

Generally, to create a contract one party must make an offer to another party, the other party must accept that offer, and something of value or perceived value must be exchanged. That something is called consideration.
The offer may be for a good, service, promise, etc. The offer must be reasonably certain. For example, John offers to sell Larry his horse, Hurricane, for $70,000. Unless John owns multiple horses named Hurricane, that statement is probably a sufficient offer. If John had not named a price, his offer would not be certain. Offers may be revoked before they are accepted. An offer will lapse if it is not accepted in the stated time or a reasonable time. A reasonable amount of time to accept an offer is dictated by the surrounding circumstances. A reasonable time to accept an offer to buy a perishable item is likely shorter than an offer for non-perishables.

The next step to forming a contract is accepting the offer. Acceptance must be communicated to the person who made the offer (or his agent), and acceptance must be clear and definite. So, if Larry tells Bob (who is not John’s agent) that he accepts John’s offer, has Larry actually accepted? No. Larry’s statement was not made to John. If Larry says to John, “I think I’d like to buy your horse”, Larry has expressed a desire to buy Hurricane but not a clear and definite acceptance of John’s offer. Communicating acceptance, however, does not necessarily require a person to sign a contract or say “I accept.” If upon hearing John’s offer, Larry handed John $70,000, that act would constitute acceptance and performance of Larry’s contractual obligation. If, instead, Larry says to John “I’ll pay you $60,000 for Hurricane”, Larry has rejected John’s offer and made his own offer (a counteroffer) to purchase Hurricane, which John can either accept or reject.

Usually, consideration must be exchanged or promised to create a contract. The consideration for John and Larry is money and a horse. Consideration consists of either a benefit to the promisor or a loss or detriment to the promisee. Consideration may be provided by or to someone who is not a party to the contract. Also, consideration is generally regarded as adequate, except when its inadequacy would “shock the conscience” or is inadequate as the result of fraud. In other words, bad deals are usually enforceable.

Under certain circumstances where consideration is not specified, but one party relies to his detriment on a promise made to him by another party, the promise may still be enforced. For example, John assures and reassures Larry that he is going to give him the rest of the $10,000 he needs to build a new barn for Hurricane. “I love Hurricane and don’t want him setting hoof in your old barn. I’ll give you the money”, says John. Larry, in relying on that promise, demolishes his old barn and starts construction on the new barn. John then informs Larry that he has decided not to give him the money. Larry may be able to enforce John’s promise of $10,000. However, if Larry did not believe that John would give him the $10,000 but demolished his barn and started building a new one anyway, there would be no reliance and no enforcement of John’s promise.

To form a contact, the parties must also have a mutual understanding of the subject matter of the contract and the essential terms. Under a scenario where Hurricane had died two weeks before John offered to sell him to Larry, John knew of Hurricane’s demise, but Larry didn’t. John and Larry don’t have a mutual understanding. Additionally, there is likely inadequate consideration and possible fraud in this example. Larry thinks he’s getting a living horse for $70,000 and John knows otherwise but doesn’t tell Larry.

Contracts can be oral, but some must be in writing and signed by the person to be charged with the promises (e.g., contracts to loan money and contracts for the purchase and sale of real estate). Contracts can be formed through an email or text message exchange if such satisfies the elements of a contract.

Contracts range in complexity and terms. If you need help preparing, reviewing, understanding, enforcing, or defending a contract, consult with an experienced and qualified attorney.

Ryan Webster can be reached at rwebster@dentonlaw.com or www.dentonlaw.com.

View Attorney Profile

Ryan T. Webster

Licensed since 2008

Member at firm Alagood Cartwright Burke PC

RECENT POSTS

  • Why Not DIY Legal?
    Posted on October 18, 2018
    Topic: Civil Litigation

    Instead of hiring professionals, many of us try to save money by doing it ourselves. Sometimes our DIY projects workout as planned or no harm is done when they don’t. Like with haircuts and surgery, DYI lawyering can go horribly wrong. In Texas, an individual may represent himself or herself in a lawsuit and may ... Read more

  • The Engagement is off, who gets the ring?
    Posted on October 18, 2018
    Topic: Civil Litigation

    Talk about the engagement ending prematurely and resulting legal status of the ring are not usually part of the wedding proposal, but should they be? According to a 2003 Time magazine article, 20 to 25% of engagements are broken annually in the United States. An article published by Business Insider, states that this year, Texans ... Read more

  • Mediation and Arbitration, are they all they’re cracked up t o be?
    Posted on October 18, 2018
    Topic: Mediation

    In my practice, clients often ask about mediation and arbitration, which are methods of resolving a case without a trial to a judge or jury. Alternative dispute resolution is touted as a way to amicably, quickly, confidentially, or inexpensively resolve disputes, in lieu of taking a case through the court system. These touted reasons sound ... Read more

Ryan T. Webster

Licensed since 2008

Member at firm Alagood Cartwright Burke PC

RECENT POSTS

  • Why Not DIY Legal?
    Posted on October 18, 2018
    Topic: Civil Litigation

    Instead of hiring professionals, many of us try to save money by doing it ourselves. Sometimes our DIY projects workout as planned or no harm is done when they don’t. Like with haircuts and surgery, DYI lawyering can go horribly wrong. In Texas, an individual may represent himself or herself in a lawsuit and may ... Read more

  • The Engagement is off, who gets the ring?
    Posted on October 18, 2018
    Topic: Civil Litigation

    Talk about the engagement ending prematurely and resulting legal status of the ring are not usually part of the wedding proposal, but should they be? According to a 2003 Time magazine article, 20 to 25% of engagements are broken annually in the United States. An article published by Business Insider, states that this year, Texans ... Read more

  • Mediation and Arbitration, are they all they’re cracked up t o be?
    Posted on October 18, 2018
    Topic: Mediation

    In my practice, clients often ask about mediation and arbitration, which are methods of resolving a case without a trial to a judge or jury. Alternative dispute resolution is touted as a way to amicably, quickly, confidentially, or inexpensively resolve disputes, in lieu of taking a case through the court system. These touted reasons sound ... Read more