Contract Formation in the United States

Although it has countless wrinkles and nuances, contract law asks two principal questions: did the parties create a valid, enforceable contract? What remedies are available when one party breaks the contract? The answer to the first question is not always obvious; the range of factors that must be taken into account can be large and their relationship subtle. Since people in business frequently conduct contract negotiations without the assistance of a lawyer, it is important to attend to the nuances to avoid legal trouble at the outset. Whether a valid enforceable contract has been formed depends in turn on whether:

• The parties reached an agreement (offer and acceptance);
• Consideration was present (some “price was paid for what was received in return) (Consideration is the quid pro quo (something given or received for something else) between the contracting parties in the absence of which the law will not enforce the promise or promises made);
• The agreement was legal;
• The parties entered into the contract with capacity to make a contract; and
• The agreement is in the proper form (something in writing, if required). (1)

Therefore, a contract requires mutuality—an offer and an acceptance of the offer; it requires consideration—a “price” paid for what is obtained; it requires that the parties to the contract have legal capacity to know what they are doing; it requires legality. Certain contracts—governed by the statute of frauds—are required to be evidenced by some writing, signed by the party to be bound. The purpose here is to avoid the fraud that occurs when one person attempts to impose upon another a contract that did not really exist. (2)

Resources

Notes

1. “Business and the Legal Environment”, by Don Mayer, Daniel M. Warner and George J. Siedel.
2. Id.

See Also

Remedies
Damages
Contracts