In order for a contract to be considered legally binding, there are a few elements that must be established. A contract would involve the sale of goods and/or services. These three basic elements are the offer, the acceptance, and the consideration. In this article, we will break these elements down.
The Offer
First, one of the parties will submit an offer. This individual is referred to as the offeror, and in order for a contract to eventually become formed the offeror will need to make his or her proposal which will involve certain terms. The individual receiving the proposal, or offer, is called the offeree. Once the offer has been made, the burden shifts to this individual. Once the burden is on the offeree, he or she can either accept the offer or issue a counteroffer.
The Acceptance
The acceptance of an offer (or the acceptance of the offeree’s counteroffer) is the second element of what makes a contract legally binding. If the parties are not able to come to an agreement, or if in the instance of the offer being rejected outright, a contract is impossible. If the offer is accepted right away, or, after some negotiating, both parties are happy with what is being discussed and reach an agreement, a binding contract is nearly complete.
An offer can be accepted verbally or in writing. In some instances, how the offer is accepted is part of the contract. For example, the offeror may require the offeree to issue a written acceptance in order for them to feel comfortable moving forward with the deal. The Uniform Commercial Code (which has been adopted by the majority of the states in the USA) states that the acceptance of an offer is able to take place in any manner that is reasonable.
The Consideration
Once the proposal has been issued and accepted, there must be what is known as a “consideration” in order for the contract to be binding. This is legal jargon for the exchange of items of value. In other words, whatever was negotiated will take place. This can involve exchanging goods, exchanging services, or exchanging money for a service or a good. Whatever form the consideration ends up taking, it is imperative that it is agreed upon by both parties to the contract. The consideration must also occur for a court to enforce the terms of the contract. In other words, without consideration, there is not a contract.