While contracts can vary in size and complexity, there are four fundamental elements that must be included in all of them. Think of this as Contracts 101.
Offer: The first element of a contract is the offer. This occurs when one party proposes terms to another party, signaling their intention to enter into a binding agreement. While it does not take much to create the offer, it does require at least the minimum essential information for the other party to weigh their decision. For example, a listing with the sale price for a product in a store's advertisement is typically sufficient to create an offer.
Acceptance: The next element of a contract is acceptance. This occurs when the other party agrees to the offer's terms without significant changes, indicating mutual consent. However, if the other party suggests different terms instead of accepting the original ones, this is now a counteroffer. The original party would now have the option to accept, counter, or reject this new offer.
Mutual assent: Both parties must have a clear intention to create a legal obligation and be bound by the contract. This concept is also called a meeting of the minds. This element also raises the issue of capacity. Simply, the parties must have the legal ability to enter into a contract, meaning they are of sound mind, not minors, and not under duress.
Consideration: This final element of a contract is the requirement that there must be something of value exchanged between the parties, such as goods, services, or money.
For example, an employee gives up certain freedoms, like their time, and performs labor in exchange for a salary. A company gives up money in exchange for the employee’s work product.
