A contract is a promise or set of promises which the law affords a remedy if the promise is breached. Contracts do not have to be in writing in order to be enforceable; however, contracts must be valid in order to be enforceable. Contracts are enforceable if certain requirements are satisfied, including mutual assent, consideration, and lack of defenses to the formation of the contract.

Mutual Assent

Mutual assent refers to an offer and acceptance. An offer to contract must include an expression of promise to enter into a contract (i.e., not preliminary negotiations), definite and certain in its terms, and communicated to the offeree. The offeror may terminate the offer by directly communicating the revocation to the offeree or, in some instances, by acting inconsistently with the continued willingness to maintain the offer if this occurs before the offer is accepted. An offer may also be rejected by the offeree expressly, by making a counteroffer, or by lapse of time. In some cases, the law may provide that the offer is terminated upon some happening or event – such as the death or insanity of either party.

Acceptance is often made by a communication of acceptance by the offeree. Usually only the person to whom the offer is addressed can accept the offer. The acceptance must be unequivocal. They acceptance may or may not need to mirror the terms of the offer. In some very limited cases, acceptance may made by performance by the offeree.

Consideration

Contracts are only enforceable if they are supported by consideration or a substitute for consideration. Consideration is a legal term that refers to a bargain and legal value. A bargain is a negotiation or process whereby a person agrees to act or not act presently or in the future. This may be expressed in terms of dollars to be paid, property to be delivered, time to be devoted, actions to be taken, etc. The second part of consideration, legal value, refers to the person incurring a detriment or obligation to do something (or not do something) he has a legal right to do.

No Defenses to Formation

There are a number of defenses to the formation of contracts. These defenses include mistakes and lack of capacity.

A mistake by both parties may be a valid defense to the formation of a contract. This is true if the mistake concerns a basic assumption on which the contract was made, the mistake has a material adverse effect on the exchange, and the affected person did not assume the risk.

Lack of capacity can also be a valid defense to the formation of a contract. Capacity involves questions as to the mental state necessary to enter into contracts. Persons under the age of eighteen, insane persons, intoxicated persons, and persons under duress or coercion are said to lack the capacity to enter into contracts.

With this overview, let’s take a closer look at how a contract is formed. We’ll start with the offer to contract.