All questions

Contract formation

i Basic elements: offer, acceptance, and consideration

Illinois courts define a contract as 'an agreement between competent parties, upon a consideration sufficient in law, to do or not to do a particular thing'. To be a valid contract, there must be an 'offer, acceptance, and consideration; to be enforceable, the agreement must also be sufficiently definite so that its terms are reasonably certain and able to be determined'. The party seeking to enforce a contract has the burden of proving that the contract was legally formed.

An offer must contain sufficiently detailed material terms so that 'the promises and performances to be rendered by each party are reasonably certain'. An acceptance occurs when the offeree communicates a 'meeting of the minds' or 'mutual assent'. Illinois courts follow the common law rule that 'it is not necessary that the parties share the same subjective understanding as to the terms of the contract'. A valid contract requires only an objective manifestation of mutual assent.

The acceptance 'must comply strictly with' the terms of the offer; if not, it will be construed as a rejection and counteroffer. An acceptance is invalid if the parties have 'fail[ed] to agree upon an essential term of a contract,' because 'the mutual assent required to make a contract is lacking'. The test for determining whether a term is 'essential' or 'material' is whether 'under proper rules of construction and principles of equity', the court can 'ascertain what the parties have agreed to do' and find a 'basis for deciding whether the agreement has been [breached]'. The price and nature of an item to be delivered are common examples of essential terms.

Illinois defines consideration as the 'bargained-for exchange of promises or performances … [which] may consist of a promise, an act or a forbearance'. Illinois courts generally will not inquire into the adequacy of the consideration, which is 'within the exclusive dominion of the parties where they contract freely and without fraud' unless the sufficiency is 'so grossly inadequate as to shock the conscience' or the promise of one party is illusory—that is, when 'closer examination reveals that the promisor has not promised to do anything'. In this vein, one cannot provide valid consideration by '[p]erforming an act that one is legally obligated to do . . . because there is no detriment'. Additionally, in Illinois, as in most jurisdictions, there is no valid contract if 'the alleged consideration for a promise has been conferred prior to the promise upon which [the] alleged agreement is based'. In other words, past consideration is no consideration at all.

ii Modifications

Illinois law generally supports the modification of contracts. 'Ordinarily, parties are as free to change a contract after making it as they were to make it in the first place' as long as the modification does not 'violate the law or public policy'. A modification is defined as 'a change in one or more aspects of [the contract] that introduces new elements into the details or cancels some [provisions] but leaves the general purpose and effect of the contract intact'. A modification is its own contract, and there must be a valid offer, acceptance, and consideration for it to be valid. In Illinois, 'the terms of a written contract can be modified by a subsequent oral agreement even though . . . the contract precludes oral modifications', but only if the parties agree that they actually intended to modify the contract.

iii Oral contracts and implied-in-fact contracts

In general, oral contracts are 'binding so long as there is an offer, an acceptance, and a meeting of the minds as to the terms of the agreement'. Similarly, courts can find that a contract is implied in fact if all of the elements of an express contract can be inferred from the facts and conduct of the parties, rather than from an oral or written agreement. However, Illinois has adopted the traditional statute of frauds, which requires a formal, written contract for specific subjects. Although Illinois is one of three states that have not adopted the Uniform Electronic Transactions Act, it has provided by statute that '[i]nformation, records, and signatures shall not be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form'. It is important to note, however, that these electronic signatures are not valid for negotiable instruments.

iv Third-party beneficiaries

Illinois courts recognise third-party beneficiaries to a contract, but only under certain circumstances. In general, 'Illinois follows the 'intent to benefit' rule; that is, [determining] third-party beneficiary status is a matter of divining whether the contracting parties intended to confer a benefit upon a nonparty to their agreement'. Under this approach, 'there is a strong presumption that parties to a contract intend that the contract's provisions apply to only them and not to third parties. In order to overcome that presumption, the implication that the contract applies to third parties must be so strong as to be practically an express declaration'. To determine whether this presumption has been overcome, courts consider the contract's language and surrounding circumstances at the time of the agreement's execution; circumstances after the execution of the contract are generally irrelevant. In addition, many Illinois courts have said that there must be 'an express provision in the contract identifying the third-party beneficiary by name or by description of a class to which the third party belongs'. If a recognised third-party beneficiary is intended to benefit directly from the performance of the contract, then the beneficiary may sue to enforce the agreement.

v Alternative frameworks for relief

Illinois, like many jurisdictions, recognises a number of situations where a party can seek relief even if there is no express or implied-in-fact contract. The four most common claims under these circumstances are unjust enrichment (also known as an 'implied-in-law contract' or 'quasi-contract' claim), quantum meruit, promissory estoppel, and equitable estoppel.

Unjust enrichment and quantum meruit claims are similar, but have different measures of damages. Under both theories, 'the plaintiff must show that valuable services or materials were furnished by the plaintiff [and] received by the defendant, under circumstances which would make it unjust for the defendant to retain the benefit without paying'. But in a 'quantum meruit action, the measure of recovery is the reasonable value of work and material provided, whereas in an unjust enrichment action, the inquiry focuses on the benefit received and retained' by the defendant.

Promissory estoppel and equitable estoppel are also similar. Under both theories, one party 'reasonably induces [the other] to rely on his representations, and leads [the other], as a result of that reliance, to change his position to his injury'. The key distinction is that 'promissory estoppel requires proof of an unambiguous promise, [while] equitable estoppel does not'.

All of these claims may be pleaded in the alternative to claims that the defendant breached an express or implied-in-fact contract. But plaintiffs must take great care in how they structure their pleadings. Some Illinois courts have dismissed claims for alternative forms of relief because the complaint incorporated by reference allegations that there was an express or implied-in-fact contract. In one case, for example, the plaintiff incorporated by reference the allegations it used to support a claim for breach of an express oral contract into its claim for unjust enrichment. The court held that it was appropriate to dismiss the unjust enrichment claim under these circumstances because unjust enrichment is available only where there is no express contract (either written or oral) covering the same general subject matter as the performance at-issue. Practitioners in Illinois therefore should think carefully about whether and to what extent a claim should incorporate by reference allegations set forth earlier in the pleading.