Contract Formation

Concept

Elements of a Valid Contract

A valid contract requires: (1) Offer — a definite proposal. (2) Acceptance — unconditional agreement to the offer. (3) Consideration — something of value exchanged by both parties. (4) Capacity — both parties must have legal ability to contract. (5) Legality — the purpose must be lawful.

Example

Consideration

Consideration must involve a bargained-for exchange. A promise to make a gift is NOT enforceable because it lacks consideration. However, "I will paint your house if you pay me $500" has consideration on both sides.

Key Point

Statute of Frauds

Certain contracts MUST be in writing to be enforceable: sale of land, contracts that cannot be performed within one year, sale of goods ≥ $500 (UCC), promises to pay another's debt, and prenuptial agreements. Remember: MY LEGS (Marriage, Year, Land, Executor, Goods ≥ $500, Surety).

Contract Performance & Remedies

Ready to test your knowledge?

Practice questions from this module to reinforce what you learned.

Practice Questions