Elements of a Contract

For as long as we can remember, things have been accomplished by some form of an agreement. At one time, a person’s handshake was good enough to cement that agreement. In these more hectic times, that is not longer the case.

A contract is a binding agreement made between two or more parties that can be written, verbal or implied. The purpose of a contract is to create an agreement that can be supported by the law (Clarkson, et. al, 2006). For a contract to be formed, there are six requirements that must be met before a valid contract exists. If one of these elements is lacking, a contract will not be formed. These requirements are offer, acceptance, consideration, capacity and legality, genuiness of assent, and the statute of frauds.

An essential element for contract formation is an agreement. Both parties must agree on the terms of the contract and understand the agreement, making sure no misunderstandings or mistakes exist between them. An agreement is evidence by two events: an offer and an acceptance.

An offer is the “critically important step in the contract formation process” (Mallor, et, al, 2010, pg. 308). It is a promise or commitment to be bound, provided the terms of the offer are accepted. This means that there must be acceptance of precisely what has been offered.

Acceptance is a “voluntary act by the offeree that shows an agreement to the terms of an offer” (Clarkson, et, al, 2006, pg. 248). However, a person can withdraw the offer that has been proposed before that offer is accepted. For a withdrawal to be effective, the person who has proposed the offer must communicate to the other party that the offer has been withdrawn.

An exchange of consideration must be included in any valid contract. Both parties must exchange something of real value, whether it is cash, tangible objects, the performance of an act, an agreement to refrain from performance of an act, or a promise of future consideration. An example...