Elements of a Valid Contract

Why This Matters

Contract formation is the foundation of everything you'll study in this course—and it's where exam questions love to test your precision. Every contracts essay or multiple-choice question assumes you can quickly identify whether a valid contract exists before analyzing breach, remedies, or defenses. You're being tested on your ability to spot missing elements, distinguish enforceable agreements from mere promises, and recognize when apparent agreements fail due to capacity issues, illegality, or lack of mutual assent.

The seven elements work together as a checklist, but understanding why each element matters will help you analyze edge cases. Don't just memorize "offer, acceptance, consideration"—know what each element protects against and how courts evaluate whether it's present. When you can explain why past consideration fails or when social agreements become enforceable, you're thinking like a lawyer.

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The Formation Triad: Offer, Acceptance, and Mutual Assent

These three elements establish that the parties actually agreed to something specific. Without a clear offer, valid acceptance, and shared understanding, there's no agreement to enforce—just negotiations or misunderstandings.

Offer

• A definite proposal communicated to the offeree—the offeror must manifest willingness to enter a bargain, with terms specific enough that a court could determine what was promised
• Offers can be revoked anytime before acceptance—but watch for exceptions like option contracts, detrimental reliance, or firm offers under UCC § 2-205
• Distinguished from invitations to deal—advertisements, price quotes, and catalogs are typically invitations to negotiate, not offers (unless they specify quantity and invite specific action)

Acceptance

• Unqualified assent to the offer's terms—the offeree must agree to exactly what was proposed, communicated to the offeror through words or conduct
• The mirror image rule requires acceptance to match the offer precisely; any variation constitutes a counteroffer that terminates the original offer
• Method of acceptance matters—if the offer specifies how to accept, the offeree must comply; otherwise, any reasonable method suffices under the mailbox rule

Mutual Assent (Meeting of the Minds)

• Both parties must share the same understanding—objective theory asks whether a reasonable person would believe agreement was reached, not what parties secretly intended
• Defects destroy mutual assent—misrepresentation, fraud, duress, undue influence, or material mistake can make contracts voidable even when offer and acceptance appear complete
• Ambiguous terms create problems—if parties attach materially different meanings to a key term and neither knew or should have known of the ambiguity, no contract forms

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The Bargain Requirement: Consideration

Consideration is what distinguishes enforceable contracts from gratuitous promises. Courts require a bargained-for exchange to justify using legal machinery to enforce private agreements.

Consideration

• Something of legal value exchanged by both parties—can be a promise, act, or forbearance; the key is that each side gives something they weren't already obligated to give
• Adequacy doesn't matter, but sufficiency does—courts won't police whether the deal was fair, but the consideration must be legally sufficient (not illusory, not past, not pre-existing duty)
• Past consideration is no consideration—a promise made in exchange for something already performed lacks the bargained-for element and won't support a contract

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Protective Requirements: Capacity and Legality

These elements ensure contracts serve legitimate purposes and that vulnerable parties aren't exploited. The law won't enforce bargains made by those who can't protect themselves or agreements that violate public policy.

Capacity

• Legal ability to understand and be bound—requires being of legal age (usually 18), of sound mind, and not so intoxicated that comprehension is impossible
• Contracts with incapacitated parties are voidable, not void—the protected party (minor, mentally incapacitated person) can choose to disaffirm or ratify the contract
• Necessaries exception—even minors can be held liable for reasonable value of necessaries (food, shelter, clothing, medical care) to prevent unjust enrichment

Legality

• Subject matter must be legal when the contract forms—agreements to commit crimes, torts, or acts against public policy are void ab initio (from the beginning)
• Illegality can be substantive or regulatory—some contracts are entirely void; others may be enforceable minus the illegal portion if severable
• Courts refuse to assist wrongdoers—even if one party fully performs an illegal contract, courts typically leave parties where they stand rather than ordering restitution

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The Intent Requirement: Creating Legal Relations

Not every agreement is meant to be legally binding. This element separates enforceable contracts from social promises, family arrangements, and casual commitments.

Intent to Create Legal Relations

• Commercial agreements presumed enforceable—business deals carry a strong presumption that parties intended legal consequences; explicit disclaimers can rebut this
• Social and domestic agreements presumed non-binding—promises between friends or family members typically lack intent unless circumstances suggest otherwise
• Context and formality provide evidence—written documents, formal negotiations, and significant subject matter all suggest intent; casual language and minor stakes suggest the opposite

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Quick Reference Table

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Self-Check Questions

1. A party signs a detailed written agreement but later claims they were "just joking." Under the objective theory of contracts, what evidence would a court examine to determine whether mutual assent existed?

2. Compare and contrast a counteroffer and a rejection. How does each affect the offeree's power to later accept the original offer?

3. An adult promises to pay $1,000 to their nephew "because you graduated last year." Is this promise enforceable? Identify which element is problematic and explain why.

4. Which two elements protect parties who may not fully understand what they're agreeing to? How do the legal consequences differ when each element is missing?

5. A freelance designer and a client shake hands on a $10,000 website project but never sign anything. The client later refuses to pay, claiming there was no "real" contract. Analyze whether the elements of a valid contract are likely satisfied.