How is a Contract formed?

What are the 4 requirements for a binding promise or agreement?

  • Mutual Assent (Offer and Acceptance) – this element is sometimes referred to as “a meeting of the minds”.  It requires that the offer have been communicated to the offeree and its acceptance communicated to the offeror within the applicable time constraints.
  • Consideration – to be valid, consideration requires legal sufficiency.  A legal detriment or a legal benefit must exist for consideration to be legally sufficient.  Legal sufficiency has nothing to do with dollars or adequacy of consideration.  It requires that the parties have agreed to an exchange and that with respect to each party, the subject matter exchanged, or promised in exchange, must either impose a legal detriment to the promisee or confer a legal benefit upon the promisor.
  • Legality – the subject matter of the contract cannot be illegal.
  • Capacity – the parties to the contract must have capacity.  Individuals whom the law views as lacking capacity to contract are:  minors (infants), incompetent persons and intoxicated persons.

If all four elements are present, a valid contract will have been formed.  After establishing formation, one must determine whether there are any defenses to enforcement.

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