Conditions for Contracting: A Review of Contract Formation

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Conditions for Contracting: A Review of Contract Formation

Contracts are pervasive in civilized society. Nearly everywhere you look there is a contractual obligation hanging in the air—though you may not notice it. Every time you purchase a bagel from a local coffee shop, you’re entering into a contract. Every time you hire a babysitter so you and your significant other can spent a night out on the town, you’re creating a contract. It is easy to form contractual obligations without truly understanding the process. Therefore, this post aims to instruct its reader on the basic nature of contracts and their formation.

A contract is defined as “a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” [1] Therefore, a contract is formed by the manifestation of three requisite elements, each being explored in more depth below, they being: an offer to contract, an acceptance of such an offer, and consideration. [2]

What is an offer exactly? Most would likely assume that an offer is a simply statement of an intent to give a product or service to another person; however, this is not always the case. A valid offer, generally must present, on the part of the offeror (the person making the offer), “a manifestation of willingness to enter into a bargain, so made as to justify another person to” accept the terms of the offer.[3] Generally, an offer must: (1) address the party to whom the offer is being made, (2) contain the terms of the offer with certainty—that is to say, a reasonable person would understand what exactly would constitute a breach of the contract—[4] and must give the offeree the belief that they are empowered to “close the contract.” [5] To illustrate this concept, please see the following two examples below:

• A (to B):I will paint your home located at 11 N. Summerlin Ave., Ste: 100, Orlando, Florida 32801 for $10,000.00.

This is an offer as it provides the necessary terms, with certainty, and manifests A’s intention to be bound by contractual obligation.

•  A (to B): Will you let me paint your home in exchange for $10,000.00?

This is not an offer. Namely, A does not manifest an intention to be bound contractually, he is merely inquiring about B’s intentions rather than setting forth his own.

 Similarly, it is helpful to note that offers are revocable by the Offeror prior the acceptance thereof by the offeree. An offer may be termination by revocation (by the Offeror, as aforesaid)[6], rejection or counteroffer by the Offeree (as below discussed),[7] lapse of time (generally deemed to be a reasonable time).[8] After the termination of an offer by any of the aforementioned means, an Offeree is powerless to accept the terms of the offer. [9]

Logically, an Acceptance must follow an offer in order to form a contract at law. An acceptance is the means by which the minds of two parties are brought to an agreement.[10] An acceptance must exactly mirror the terms of the offer—this is the mirror-image rule.[11] This means, that any material variation from the terms of the offer constitutes a counteroffer rather than an acceptance, as illustrated below.

• A (to B): I will paint your home located at 11 N. Summerlin Ave., Ste: 100, Orlando, Florida, 32801 for $10,000.00.
• B (to A): I accept, please paint my home for for $10,000.00.

This is an acceptance, under the mirror-image rule, as the terms of the acceptance “mirror” the terms of the offer.

• A (to B): I will paint your home located at 11 N. Summerlin Ave., Ste: 100, Orlando, Florida, 32801 for $10,000.00.
• B (to A): I accept, please paint my home and I will pay you $10,750.00.

This is not an acceptance, and therefore there is no contract, as B has altered the terms of the offer itself. This then constitutes a counteroffer which empowers A with the ability to accept and form a contract.

Moreover, in order for an acceptance to be valid it must be made according to the terms of the offer.[12] That is to say, that if an offer contains a term such as “mail your acceptance hereof by writing to 11 N. Summerlin Ave., Ste: 100, Orlando, Florida,” then a telephone call cannot stand as an acceptance to the offer. As aforesaid, the acceptance must be made in the manner contemplated by the offer itself.[13]

            The last requirement for contractual formation is consideration. Consideration is “some right, interest profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.” [14] Consideration is a promise, an act other than a promise, a forbearance, or the creation modification, or destruction of a legal relationship; that is to say, something of value must be exchanged.[15] This concept is illustrated below:

• A (to B): I will paint your home located at 11 N. Summerlin Ave., Ste: 100, Orlando, Florida, 32801 for $10,000.00.
• B (to A): I accept, please paint my home and I will pay you $10,000.00.

In keeping with our continuing example, in the above there is a valuable consideration. The consideration in this matter is A’s promise to paint B’s home, and B’s promise to pay A $10,000.00 for the paint services. We therefore, have a valid contract for the sale and purchase of the Galant.

• A (to B): I will pay you $5,000.00 if you stop smoking cigarettes for 5 months.

The consideration in the instant matter is A’s promise to pay B $5,000.00 if B discontinues smoking for 5 months. Similarly, B’s consideration is forbearing his legal right to smoke. Therefore, if B stops smoking for 5 months, there is an acceptance, by performance, and B is entitled to $5,000.00 from A.

            The foregoing is a very general overview of the nature of contractual formation. Contract formation is an incredibly specialized area of law and this document should not be used an alternative to procuring valuable legal advice from an attorney licensed to practice law in your jurisdiction. Barry L. Miller, P.A. is knowledgeable in the areas of contracts and is able to assist you in your creating, reviewing or terminating your contractual obligations. Call us today for a consultation at 407-423-1700 or email Christian@BarryMillerLaw.com

[1] Restatement (Second) of Contracts § 1

[2] SCG Harbourwood, LLC d/b/a Harbourwood Health & Rehab Center v. Hanyan, 93. So.3d 1197 (Fla. 2d DCA 2012)

[3] Restatement (Second) of Contracts § 24

[4] Restatement (Second) of Contracts § 33

[5] Corbin, Offer and Acceptance, and some of The Resulting Legal Relations, 26 Yale. L.J. 169, 181–82 (1917).

[6] Donahue v. Davis, 68 So. 2d 163 (Fla. 1953).

[7] Webster Lumber Co. v. Lincoln, 94 Fla. 1097, 115 So. 498 (1927).

[8] Strong & Trowbridge Co. v. H. Baars & Co., 60 Fla. 253, 54 So. 92 (1910)

[9] State v. Watson, 971 So. 2d 946 (Fla. 3d DCA 2007).

[10] Bullock v. Harwick, 158 Fla. 834, 30 So. 2d 539 (1947).

[11] Knowling v. Manavoglu, 73 So. 3d 301 (Fla. 5th DCA 2011).

[12] Solutec Corp. v. Young & Lawrence Associates, Inc., 243 So. 2d 605 (Fla. 4th DCA 1971).

[13] Id.

[14] Fla. Jur.  2d Contracts § 72

[15] Id.