Requirements to Form a Contract

Cite this article as: Jason Mance Gordon, "Requirements to Form a Contract," in The Business Professor, updated January 10, 2015, last accessed April 8, 2020,
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Elements of a Valid Contract
This video explains what are elements of a valid contract - offer, acceptance, and consideration.

Next Article: Enforceable vs Valid Contract


What elements are required to form a valid contract?

As previously discussed, a contract is a specific promise to another and also a specific demand of that person. The demand could be a promise of future action (bilateral contract) or immediate performance of an act (unilateral contract). The promise and demand is an “offer”. Meeting with the offeror’s demand is known as “acceptance”. Both parties must give or exchange something of value with the other. The thing of value is known as “consideration”. Consideration is the promise to give, or actual giving, of a requested benefit or the incurring of a legal detriment (i.e., doing something one does not have to do.). Both parties must be of a legal age and sound mind, and the purpose of the agreement cannot be illegal or against public policy.

•    Example: One person offers to sell a product, service, or offers something of value (money, goods, etc.) in exchange for someone else’s product, service, or other thing of value. This constitutes a valid offer. The things of value constitute consideration. A second person accepts the offer by either agreeing to the offeror’s request to trade things or actually trading those valuables.

•    Note: An important thing to remember is that each party must provide something of value to the other. It does not matter how much value or even whether anyone else in the world would consider it valuable.

•    Discussion: Why do you think that the law requires an agreement to have all of the elements to be enforceable? Can you think of situations where any of these elements are not present, but you believe the agreement should be enforceable anyway?

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