• David Manes

How to Know when a Contract has been Formed?

What is a contract?

A contract is an agreement or promise between two parties that is legally enforceable. Contracts are essential to modern life and business transactions. They are created countless times every single day and sometimes they are formed without the people involved even knowing. For example, when you buy a candy bar at the convenience store, a contract has been formed and executed between you and the store.  So how do I know when a contract has been formed?

Elements of a contract

Under United States laws generally there are generally three elements that should let you know that a contract has been formed : 1) Offer, 2) Acceptance, and 3) Consideration.

Offer

An offer is a communication by one party to another showing a desire to enter into a contract.  Offers can come in many forms. For example, an offer can be created when you verbally tell someone that you will sell your car to him or her for $400.00. It also can be created by including such language in a letter or an advertisement. Signs on storefronts can serve as offers as long as they are specific enough. In short, any communication expressing the intent to enter into an agreement may be construed as an offer.

Acceptance

The party receiving the offer must unambiguously accept it. Acceptance can come in many forms including words and actions.  For example, you can simply tell someone that you accept the $400.00 price to buy the car and this would work. You could also mail that individual a check for the car, and this would act as the necessary acceptance. The important thing to remember is that any action, whether words or conduct, can lead to the acceptance of the offer.

Consideration

The final element to form a contract under U.S. law is the presence of consideration. A quick definition of consideration is anything of value promised to the other party when making an agreement. If nothing of value is exchanged, no contract is formed. Consideration can take the form of money, physical objects, promises of future actions or promises not to perform future actions. For example, if you promised to pay me $400.00 for my car, there would be sufficient consideration on both sides because you promised to pay $400.00 and I promised to give you my car in exchange.  However, if you signed a contract to buy my car for $0.00, the contract would be invalid because you would not be giving up something of value. Although the concept of consideration can be slippery, as long as the exchange of some of value occurs on both sides, it will be present.

What to look for to know when a contract has been formed?

To know when a contract has been formed, look for the above three elements: 1) an offer, 2) acceptance, and 3) consideration. In order to truly be sure that a contract has been formed, contact an attorney with the appropriate expertise who can help you gain a better understanding of your rights.

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