The law of contract governs our lives every day in many ways from hiring a tradesman to purchasing a product. The traditional theory of contract is that it is based on a bargain. A bargain requires an offer, the acceptance of that offer, and the exchange of “consideration” between the parties to the contract. For example, a vendor offers to sell an appliance to a person for $50 and that person accepts the vendor’s offer. The exchange of offer and acceptance gives rise to an enforceable contract for the sale of the appliance. The vendor’s contractual consideration is the appliance. The purchaser’s contractual consideration is the $50 payment. Each party to the contract acquires a mutual obligation to the other party to exchange the consideration promised. If either party fails to perform the obligation, there is a breach of the contract and the other party may enforce it in court.
Some cases defy the traditional theory of contract because they cannot be explained by a bargain analysis. An example is a “unilateral” contract. Everyone has seen an advertisement offering a reward for finding a missing pet. A unilateral contract is created between the parties when a person responds to the offer of a reward. The “promisee” need not communicate to the “promisor” that he or she will look for the missing pet. The offer is accepted by the promisee’s performance, that is, by looking for the pet. If the promisee finds the pet and returns it to the promisor, the promisee is entitled to the reward. Fortunately, in this example, there will be a happy owner waiting with open arms and the reward will be paid. However, in other circumstances where the reward is not forthcoming, the unilateral contract is enforceable in court.
An objective standard is applied to determine whether a contract arises between the parties. Although the actual intentions of the parties are considered, they are not as important as what a reasonable person would conclude about the parties’ actions despite what they actually thought.
Certain contracts must be in writing, such as an agreement of purchase and sale relating to land. However, many contracts are simply oral agreements. If an oral agreement meets the objective standard for establishing a contract, it is as enforceable in court as a written contract.