What Are the Fundamental Requirements to Create a Contract?

What Constitutes a Valid Offer to Enter into a Contract?

There’s a common misperception that, in order to be binding, a contract must be in writing. In fact, many types of oral agreements are fully enforceable in a court of law, but that’s a topic for another blog. However, if an oral contract can be binding, how can you know if you make an enforceable promise during a conversation?

Minimal Requirements for Creating a Contractual Relationship

To take the form of a binding legal commitment, your communications with another person must include, at minimum, three things:

• an offer,
• acceptance of the specific offer made, and
• consideration.

What Is an Offer?

An offer is a promise or assertion to either perform an act or refrain from doing something, with the performance of your obligation contingent on a return promise from the party to whom your promise is made. Your promise must be made or delivered in such a way that a reasonable person, knowing all the facts and circumstances, would perceive an intention to be bound by the terms of the offer. Accordingly, certain statements that might, on their face, appear to be offers, are generally not recognized as such in a court of law:

• Offers made in jest—Statements that a reasonable person would conclude were tongue-in-cheek or so unreasonable as not to be taken seriously—a promise of “a billion dollars” for your car or home, for example—are not binding.
• Offers that are clearly part of a negotiation—The statement “Would you take $3,000 for your stereo?” is not a binding offer but only part of a negotiation. A reply of “Yes, I would,” still doesn’t create a binding contract. It’s merely an answer to the question.
• Advertisements—Ads are typically considered invitations to make an offer. As a general rule, no contract exists until the seller agrees.

Contact Attorney Howard N. Sobel

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