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Have We Got A Deal? Essential Elements For Any Contract

What's A Contract?

A contract is simply an enforceable agreement, meaning it represents a promise or a set of promises for which the law provides remedies if breached, or which the law can compel to be honored as a recognized obligation. That’s all it is; it’s what every contract boils down to, and it’s what every contract has in common with every other contract. Beyond that, contracts come in all kinds of sizes and shapes and scopes. A contract can take the form of a written agreement (and sometimes it has to) or an oral one, or it can simply be implied by virtue of the parties’ conduct towards each other. The tests for whether any particular agreement is enforceable, i.e., a contract, may vary in their precision depending on the jurisdiction but there generally three essential elements that courts everywhere will look for: whether or not there was mutual assent to the agreement; whether or not there was consideration for the agreement; and whether or not there are any legal defenses that preclude the agreement’s enforceability.

Mutual assent is understood to mean, for example, an offer and an acceptance…a question and a response…a clear expression of participation between two parties. In order to constitute an offer, the words or conduct at issue must first express a promise or a commitment or an undertaking to enter into a contract, must be definite and certain, and must be communicated by the offeror to the offeree. An offer, once made, can be terminated at any time prior to its acceptance by either of the parties, say for example if the offeror communicates its revocation to the offeree, or if the offeree instead outright rejects it, or fails to respond within a specified period of time. An offer can also be terminated prior to its acceptance by operation of law, for example if one of the parties dies or becomes insane. Alternatively, an offer can be accepted in which case there will be deemed to be mutual assent.

An offer may only be accepted by the person to whom it was addressed, or by a member of the class of persons to whom it was addressed, and the acceptance must be clear and unequivocal in words or conduct. An acceptance must be in response to each and all of the offeror’s terms; otherwise, it may be considered by the courts as merely a counter-offer. Unless the offer clearly and unambiguously specifies the precise manner in which an acceptance must be communicated back to the offeror, any reasonable means will suffice and become effective upon its receipt by the offeror. In certain instances, the offer’s acceptance may even be construed simply by the offeree’s completion of some form of requested performance.

Consideration involves some element of bargaining…a quid pro quo, a this for that…as well as some element of legal value. Aside from thinking in terms of a reciprocal swap, the “bargain” concept further implies a present exchange of something for the benefit of the promisor at the time of the agreement, as opposed to merely acknowledging or relieving a past obligation. As for value, absent a showing of suspected fraud, courts will not generally inquire into the adequacy, or even the fairness, of consideration as long as it amounts to the promisee either doing something they are under no legal obligation to do or refraining from doing something they have a legal right to do.

If the promises exchanged when the agreement is formed lack these essential elements of bargain and legal value, there is no consideration; the absence of consideration means that the agreement is not enforceable, so that no contract exists. Various other defenses to the formation of a contract include the parties’ mutual mistake or misunderstanding. If one party misrepresents a material fact to the other, there can be no assent and hence no contract, because courts are reluctant to bind parties to agreements to which they never meant to be bound.

Similarly, if one party points a gun at the other or threatens physical harm causing the agreement to have been made under duress, that agreement also becomes unenforceable. Parties also cannot make enforceable agreements to engage in illegal conduct (such as robbing a bank), or if one of them lacks the capacity to contract because of their age or states of mind. Subject to exception in various jurisdictions, persons under a certain age will be construed as incapable of entering a contract, as will someone who is intoxicated or insane. Certain other contracts must be in writing (rather than merely oral) in order to be enforceable, and this too will vary depending on the jurisdiction. And finally, adhesive “take it or leave it” agreements may in some cases be unenforceable.

Beyond all of this are other, more nuanced contractual concepts not discussed in this article including the assignment of rights or the delegation of duties under the contract to third parties, novation (meaning the outright substitution of an altogether different party to the contract), evidence going to a contract’s construction, restrictive covenants, and contractual interpretation and enforcement among others. Those concepts all concern things that arise after a contract is already in place. Whether or not a contract exists to begin with is what most clients need to know first.

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