The basic formula for the formation of a contract is: Contract = Offer + Acceptance + Consideration + No Defenses

Some definitions:
-Unilateral contract: A promise for an action.
-Bilateral contract: A promise for a promise.


  1. The first question to ask when discussing contracts is, "What law applies?"
    1. Uniform Commercial Code (UCC): Generally under the UCC's jurisdiction when there is a transaction of goods.
    2. Common law: This applies to basically everything else.
  2. Offer: Was it a unilateral offer, bilateral offer or an offer under the UCC?
    1. Was there commitment?
      1. Prior dealings: Look at the history between the offeror and the offeree. Had they done this sort of thing before? If so, then there is evidence of commitment.
      2. Industry norms: What does the industry do? If the offer is similar to what the industry usually does, there's another vote for commitment being present.
      3. Circumstances: What circumstances was the offer made? Was the offeror drunk or mentally incapacitated? If the circumstances were normal, then that points towards commitment.
      4. Language: The language of the offer is also important in that it is clear.
    2. Was the offer communicated to the offeree?
      1. Actual communication: This is where the offeror sees that the offeree knows about the offer.
      2. Attempted communication: You know what it means.
    3. Does the offer contain definite terms?
      1. For real estate: Only need description (location usually) and price.
      2. For goods: Only need a quantity.
      3. For service: Define a duration or a specific task.
    4. Termination of the offer.
      1. Counteroffer: When the offeree wants to change the terms of the offer, the original offer is terminated and a new offer stands.
      2. Death/incapacity of offeror/offeree: When either the offeror or offeree is dead or incapacitated, the offer is terminated.
      3. Lapse of time: There is implied rejection if the offer is left unanswered, usually around one month unless otherwise specified in the original offer.
      4. Express rejection: When the offeree says, "No."
      5. Destruction of subject matter: If the subject of the offer is destroyed, then the offer no longer stands.
      6. Expressed Revocation: When the offeror says, "I don't want to offer this anymore," and there is no clause in the offer saying that the offeror cannot revoke the offer.
      7. Implied Revocation: This is when through actions, it is clear that the offer no longer stands. Example: John offers to sell Tanya a car for $5,000. Tanya does not give an answer yet. Tanya sees Monica driving John's car around. There is implied revocation of the offer because John can no longer sell his car to Tanya because he's already sold his car to Monica.
      8. Illegality: If the offer asks for an illegal act, then the offer is void.
  3. Acceptance
    1. Unilateral contract: Acceptance through actions.
    2. Bilateral contract: Acceptance through a promise.
    3. UCC: Acceptance through eitheran action or a promise. However, if the action is a shipment, but the shipment will take a long time, then a promise will do.
    4. Mirror image rule (common law): The acceptance must have the same exact terms as the offer, or else a counteroffer exists.
    5. New terms allowed: Some allow that new terms can be made conditions to the original offer. There is acceptance of the original offer, and each additional condition will be treated as a separate offer.
    6. Mailbox rule: The offer is accepted when the offeree's acceptance letter is handled by a postal worker.
  4. Consideration
    1. Exists when the following conditions are met:
      1. There is a bargained-for exchange.
      2. There is a legal detriment or benefit.
      3. The contract cannot be illusory; it must be binding and obligatory.
  5. No defenses. Some defenses are as follows:
    1. Statute of Frauds: Says that the contract should be in writing to prevent any dispute.
    2. Misrepresentation: There must be no misleading or incorrect information in the contract, unless it was a typographical mistake in the contract.
    3. Fraudulent misrepresentation: This is the intentional purveying of false information to one party, and that party justifiably relies on this misrepresentation.
    4. Mutual mistake: When both parties are under the same false belief regarding the terms of a contract.
  6. Performance
    1. Full performance requires full payment.
    2. Substantial performance only requires "substantial" compensation.
    3. No performance requires no payment.

Okay, got that? Great. Be careful making contracts--don't let yourself get fucked.

§ Contracts are the basis of civilization. Though often thought of as just formalized documents a contract can be made just about any way people can communicate. If two aborigines make a verbal agreement about trading stone arrowheads for a piece of art that is also a contract.

§ The reason written contracts are most often though of is due to their enforceability. It is a lot easier to prove that a person signed a piece of paper. If it is only a verbal contract it can easily turn into a case of "he said" vs. "she said". So the written contract is very popular.

§ A contract is formed whenever there is a meeting of minds over and exchange of value, usually called consideration. If one person does not give something of value there is no contract. It cannot be a one-sided agreement where one person gives away something for nothing. Though what is exchanged does not have to be money for an object.

§ However there is nothing that limits one person getting a better deal. So when agreeing you must be absolutely clear on what you are agreeing to do. That is also another part of contract making. The meeting of minds. If there is a misunderstanding about what is being exchanged then a court may rule that it is invalid. For example if there were two ships in port by the same name and a cargo was loaded on the wrong one there was no contract because of the basic misunderstanding of what was intended. If on the other hand one signatory overlooked some part of the contract that contract is likely to be held as valid.

§ Important Note: I am not a lawyer. Do not take this as legal advice. When in doubt always consult a lawyer, preferably one who is a friend.

§ Contracts are also apparently a favorite of The Devil. Old scratch is often portrayed as making deals that he will adhere to the letter on in exchange for a person's soul. It is also fun to note that the famous contract for Manhattan Island is invalid, since the Indians that sold it did not live there and so could not legally trade it away.

Scotland is notorious in legal circles, because its contract law differs from English common law (and, naturally, from those systems that derive from English common law, such as the American system). This notoriety is undeserved. The foundations of Scottish contract law are not that exotic, and few differences impact on ordinary life.

The Basics

In Scottish law, as in most Western legal systems, a contract consists of an offer and an acceptance. Five factors must be present for the contract to be valid.

  1. consensus in idem
    This is a fancy Latin term for both parties agreeing to a material degree what the contract covers. For instance, if I contract to buy a chicken and mean a hen, and you contract to sell me a chicken and mean a rooster, we do not have conensus in idem. No contract is formed.
  2. consent
    Both parties must freely consent to the contract. A contract formed under duress is not a contract. The exemplar case for this principle is from the 1600's when an Earl forced a contract on another man by holding a loaded gun to his head to make him sign. (Modern case law is so dull by comparison.)
  3. capacity
    Not everyone is capable of forming a contract. The insane are deemed incapable of contracting. Contracts with children under 16 are void, and those with anyone between the ages of 16 and 18 are voidable (that is, a court may set them aside). In the ordinary course of business, many contracts (such as minor purchases) are still carried out with children.
  4. formality
    The contract must be documented to the level of formality required by law. In 1985, the Requirements of Writing (Scotland) Act cleaned up the law in this area, specifying when a written document was needed. Basically, gratuitous promises, trust deeds, and contracts involving land must be written.
  5. legality
    No contract to break the law is valid.
    It is assumed that if you're breaking one area of the law, you don't deserve the protection of another area in enforcing your contract. If I promise to sell you a bunch of E's for a given sum, and sell you aspirin instead, don't bother to sue me.

Note the absence of a sixth criterion, a central component of the other write-ups in this node. This is the major area where Scots law differs from the rest of the world: there is no requirement for compensation. Benefit (or rather, material benefit) does not have to be mutual - unilateral obligations, known as gratuitous promises, are valid contracts in certain circumstances.

Invitations to Treat

When considering Scots contract law, if is important to distinguish between an offer and an invitation to treat. An invitation to treat is a way of saying, "Make me an offer. I am willing to trade." In the real world, it also sets the price of the offer that the seller is likely to accept. It is not in itself an offer, subject to acceptance.

The display of goods in a shop, advertisements on a shop window, and "for sale" ads in the paper are all invitations to treat. A vendor is not required to accept the offers that come as a result of that invitation, and may impose additional conditions when forming the actual contract. (Note that false advertising is still a crime - it is simply not a violation of contract law.)

In the real world, the distinction between an invitation to treat and an offer to sell is in the small print. A vendor can add conditions to the contract formed by accepting an offer to buy, even though those conditions were not stated in the invitation to treat. The best example of this is actually a company that failed to add conditions at the right moment.

The owners of a car park posted a sign inside the ticket gates, stating that they did not accept liability for lost or stolen items. They argued that the ticket barrier was an invitation to treat. The contract, they said, was formed when a car was parked. Therefore, the terms and conditions were notified before formation of a contract, and parking the car constituted acceptance of those terms. The plaintiff (who had had his car stolen) argued that the contract was formed when he took the ticket from the entry gate, at which time the exclusion of liability was not visible, and therefore not part of the contract. (The car park company lost, and now post the exclusion of liability by the ticket barrier. However, the case does illustrate the difference between an invitation to treat and an offer).

Note that a tender or quote, for instance from a builder, constitutes an offer rather than an invitation to treat. Such an offer is binding.

Revocation of Offer

So you've made an offer, and it's a ghastly mistake. If you can't revoke it before it is accepted, you'll be bound by a contract. How can you do this? Alternatively, you want to accept an offer and have a contract. How can you tell if the offer still stands?

An offer (that has not yet been accepted) is revoked when:

  1. The offeror tells the offeree that it is revoked.
  2. The other party makes a counter-offer.
    It is then up to the original offeror to accept, make another counter-offer, or walk away.
  3. Either party dies or becomes insane.
  4. A time limit was set on the offer, and that time limit expires.
  5. A "reasonable" amount of time passes after an offer with no set time limit.
    I'm sure you can imagine how much time and effort has gone into defining the word reasonable.

Revocation of Acceptance

Can't be done. Offer + Acceptance = Contract, remember? The only way to (in effect) revoke an acceptance is to prove that the contract formed is void or voidable. If it fails on one of the five basic criteria at the top of this write-up, then a court may either refuse to enforce it (if it is void), or set it aside (if it is voidable). Otherwise, the contract stands, and you violate it at your legal peril.


Source: Scottish Business Law, Second Edition, by Moira McMillan and Sally McFarlane, 1996.

I am not a lawyer, and nothing in this write-up constitutes legal advice. The textbook I used is out of date, and the law changes all the time. If you need legal advice, contact a solicitor; the best this write-up can do is help you communicate with any legal advisor you hire.

Con*tract" (?), v. t. [imp. & p.p. Contracted; p.pr. & vb.n. Contracting.] [L. contractus, p.p. of contrahere to contract; con- + trahere to draw: cf. F. contracter. See Trace, and cf. Contract, n.]

1.

To draw together or nearer; to reduce to a less compass; to shorten, narrow, or lesen; as, to contract one's shpere of action.

In all things desuetude doth contract and narrow our faculties. Dr. H. More.

2.

To draw together so as to wrinkle; to knit.

Thou didst contract and purse thy brow. Shak.

3.

To bring on; to incur; to acquire; as, to contract a habit; to contract a debt; to contract a disease.

Each from each contract new strength and light. Pope.

Such behavior we contract by having much conversed with persons of high statir. Swift.

4.

To enter into, with mutual obligations; to make a bargain or covenant for.

We have contracted an inviolable amity, peace, and lague with the aforesaid queen. Hakluyt.

Many persons . . . had contracted marriage within the degrees of consanguinity . . . prohibited by law. Strype.

5.

To betroth; to affiance.

The truth is, she and I, long since contracted, Are now so sure, that nothing can dissolve us. Shak.

6. Gram.

To shorten by omitting a letter or letters or by reducing two or more vowels or syllables to one.

Syn. -- To shorten; abridge; epitomize; narrow; lessen; condense; reduce; confine; incur; assume.

 

© Webster 1913.


Con*tract" (?), v. i.

1.

To be drawn together so as to be diminished in size or extent; to shrink; to be reduced in compass or in duration; as, iron contracts in cooling; a rope contracts when wet.

Years contracting to a moment. Wordsworth.

2.

To make an agreement; to covenant; to agree; to bargain; as, to contract for carrying the mail.

 

© Webster 1913.


Con"tract (?), a.

Contracted: as, a contract verb.

Goodwin.

 

© Webster 1913.


Con*tract" (?), a. [L. contractus, p.p.]

Contracted; affianced; betrothed.

[Obs.]

Shak.

 

© Webster 1913.


Con"tract (?), n. [L. contractus, fr. contrahere: cf. F. contrat, formerly also contract.]

1. Law

The agreement of two or more persons, upon a sufficient consideration or cause, to do, or to abstain from doing, some act; an agreement in which a party undertakes to do, or not to do, a particular thing; a formal bargain; a compact; an interchange of legal rights.

Wharton.

2.

A formal writing which contains the agreement of parties, with the terms and conditions, and which serves as a proof of the obligation.

3.

The act of formally betrothing a man and woman.

This is the the night of the contract. Longwellow.

Syn. -- Covenant; agreement; compact; stipulation; bargain; arrangement; obligation. See Covenant.

 

© Webster 1913.

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