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Contracts are everywhere in life. Every time someone fills up a gas tank, buys groceries, eats at a restaurant, buys a fight ticket, hires someone to fix up the house. Contracts are the promises that someone will do something in return for something else. Generally speaking, there are at least three fundamental components in forming a legally binding contract – offer, acceptance, and consideration.



Generally, offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. In other words, for an offer to exist, there must be a manifestation and communication to the person to whom the offer is addressed; the offer must be definite enough to ascertain the terms of the contract; the offer must be directed at the offeree; the offer must invite acceptance. For example, on a cold winter day, A points to B’s coat and says, I will pay you $100 for your coat. That is an offer. In contrast, A hears an advertisement on TV saying, “winter coats for sale starting at $100.”  This is not an offer. Because the advertisement is not definite enough to ascertain the terms – description of the good, quantity, price, delivery terms, etc.  Advertisements are often an invitation to treat or bargain. Another example, A points to B’s coat and says that he will pay $100 for B’s coat. B refuses and then tells C about it. Can C give A the exact same coat and ask for $100? You know the answer is no. There is no offer made here. The offer A made was directed at B, not at C.


An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance. In other words, the acceptance must be made in accordance with the terms of the offer. For example, when A points to B’s coat and says, I will pay you $100 for your coat. B can say, “okay, I accept your offer. Here is my coat.” In another example, the Owner of a beach house tells Painter that he will pay Painter $5000 to paint the exterior of the beach house pink. Owner goes on a vacation for a month. After he comes home, he finds the house has been painted Pink. Owner changes his mind and does not want to pay Painter. Here, Painter has accepted the offer by performing the act. The acceptance was done in accordance with the offer. Owner asked for performance. Painter provided the performance.


Consideration is the promise in which the offer makes and the acceptance relies on. In the coat example, the consideration is the money and the coat. In the painting example, the consideration is the $5000 for the performance. There are at least 5 types of promises. They include performance promise, return promise, gratuitous promise, illusory promise, and implied promise.  

Hamer v. Sidway is a famous example of performance promise. In that case, Louisa Hamer brought a lawsuit against William Story for $5000 in 1869. Hamer said in the lawsuit that William promised his nephew that William will pay $5000 if nephew refrain from drinking and smoking until nephew reaches 21 years old. After nephew turned 21, he sent a letter requesting the $5000 from his uncle. The nephew won the case on appeal. The return promise is the most common bilateral promise. A promises B to clean. B promises A to pay.

Gratuitous promise is not a valid form of consideration. Gratuitous promise could be a promise saying that I will give you $100 tomorrow. Because there is no bargain or exchange. This type of promise is not enforceable. Illusory promise is another type of invalid consideration. For example, I will pay you $500 if I win the lottery, or if I want to tomorrow. Implied promise is self-explanatory.

Li Law Group understands the challenges and rewards of running a business. We have helped many small and medium size business owners. Our lawyers can offer strategic insights to help business owners achieve their goals and protect their assets. 

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