The formation of every contract begins with an offer. The person who makes an offer is called the “offeror.” An offer is made if the offeror does something that would lead a reasonable person, called the “offeree,” to believe that the parties will have made a bargain if the offeree agrees to the proposal. In this context, an offer might exist if one sibling tells another sibling that she will agree to divide an inheritance equally if the other sibling promises to give up cigarette-smoking, for example. A reasonable person in the offeree’s position (the smoker) would believe that the siblings have reached a bargain if the offeree agrees to the proposal.
A contract is not created unless the offer is accepted. The means of accepting a proposal depend on the terms of the proposal. An offeror might want only a promise in exchange for the offer. Perhaps the offeror instead wants the offeree to actually do something, or to refrain from doing something. From the previous example, if the offeror said, “I will agree to divide the inheritance money equally if you promise to quit smoking,” the offeree would accept the offer if she promised to quit smoking. If instead the offeror said, “I promise to divide the inheritance money equally if you stop smoking,” the offeree would likely have to actually stop smoking to accept the offer.
An agreement is not a contract unless there was consideration given in exchange for the promise. “Consideration” is something of value to the person making the promise. Consideration can be a return promise to do something or not to do something. If the offeror wants a return promise from his sibling that she will quit smoking, that promise would be consideration for the promise to divide the inheritance money equally. If the offeror instead wanted the sibling to actually quit smoking, the consideration for the promise to divide the inheritance money equally would be the actual cessation of smoking.
Promissory Estoppel as an Alternative
An aggrieved party cannot recover in a breach-of-contract lawsuit if there was never a contract. The theory of promissory estoppel may apply in some situations to provide at least some recovery where no contract was formed. Assume that a sibling promises his sister that he will divide inheritance money equally between them, and that the sister relies on that promise and builds an addition to her house in anticipation of the money. Assume further that the promising sibling later does not distribute the money equally as he had promised. There is no contract here because there is no offer. There is no offer because the promising sibling did not ask for anything in exchange (consideration) for the promise. The doctrine of promissory estoppel provides that a person who reasonably relies on a promise and suffers some harm as a result can receive money to compensate her for her loss. In this situation, a court could order the promising sibling to pay an amount equal to the construction costs incurred by his sister. A court could not order the promising sibling to divide the inheritance money equally under this theory, however.