Key Contract Elements: Offer, Acceptance, Purpose, Obligation, Consideration, and Parties. | Lecture notes Contract Law

Legal Elements of a Contract

The essential elements necessary to form a binding contract are usually described as: i

• An Offer

• An Acceptance in strict compliance with the terms of the offer

• Legal Purpose/Objective

• Mutuality of Obligation – also known as the “meeting of the minds”

• Consideration

• Competent Parties ii

Offer

An offer is defined as the manifestation of the “willingness to enter into a bargain so made as to justify another person

in understanding that his assent to the bargain is invited and will conclude it.”iii

Acceptance

Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation of assent to the terms

thereof made by the offeree in a manner invited or required by the offer.iv An acceptance must not change the terms

of an offer. If it does, the offer is rejected.v A material change in a proposed contract constitutes a counteroffer, which

must be accepted by the other party.vi

Legal Purpose

The objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not

a binding contract because the purpose for which it exists is not legal.

Mutuality of Obligation

This element is also known as the “meeting of the minds”. Mutuality of obligation refers to the parties’ mutual

understanding and assent to the expression of their agreement.vii The parties must agree to the same thing, in the same

sense, at the same time. The determination of a meeting of their minds, and thus offer and acceptance, is based on the

objective standard of what the parties said and did and not their subjective state of mind.viii Unexpressed subjective

intent is irrelevant. In determining whether mutual assent is present, the court looks to the communications between

the parties and to the acts and circumstances surrounding these communications.ix The offer must be clear and

definite just as there must be a clear and definite acceptance of all terms contained in the offer.x Where a meeting of

the minds is contested, the determination of the existence of a contract is a question of fact.xi If the fact finder

determines that one party reasonably drew the inference of a promise from the other party’s conduct, that promise will

be given effect in law.xii

To be enforceable, the parties must have agreed on the essential terms of the contract.xiii However, parties may agree

upon some contractual terms, understanding them to be an agreement and leave other contract terms to be made

later.xiv Full agreement on all contractual terms is the best practice and should be the norm. It is only when an

essential term is left open for future negotiation that there is nothing more than an unenforceable agreement to agree.xv

Such an agreement is void as a contract.xvi

Any contract or mutual understanding between parties that differs materially from the original offer is open to legal

challenge. Should any component of a negotiation tend toward a final result where a contract or agreement differs

materially from the offer, that component of the negotiation should cease. If the component in question is critical to

the provision of a service or goods, the issuance of another offer that incorporates that component should be

considered.

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Legal Elements of a Contract

The essential elements necessary to form a binding contract are usually described as: i

• An Offer

• An Acceptance in strict compliance with the terms of the offer

• Legal Purpose/Objective

• Mutuality of Obligation – also known as the “meeting of the minds”

• Consideration

• Competent Parties ii

Offer

An offer is defined as the manifestation of the “willingness to enter into a bargain so made as to justify another person

in understanding that his assent to the bargain is invited and will conclude it.”iii

Acceptance

Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation of assent to the terms

thereof made by the offeree in a manner invited or required by the offer.iv^ An acceptance must not change the terms

of an offer. If it does, the offer is rejected.v^ A material change in a proposed contract constitutes a counteroffer, which

must be accepted by the other party.vi

Legal Purpose

The objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not

a binding contract because the purpose for which it exists is not legal.

Mutuality of Obligation

This element is also known as the “meeting of the minds”. Mutuality of obligation refers to the parties’ mutual

understanding and assent to the expression of their agreement.vii^ The parties must agree to the same thing, in the same

sense, at the same time. The determination of a meeting of their minds, and thus offer and acceptance, is based on the

objective standard of what the parties said and did and not their subjective state of mind.viii^ Unexpressed subjective

intent is irrelevant. In determining whether mutual assent is present, the court looks to the communications between

the parties and to the acts and circumstances surrounding these communications.ix^ The offer must be clear and

definite just as there must be a clear and definite acceptance of all terms contained in the offer.x^ Where a meeting of

the minds is contested, the determination of the existence of a contract is a question of fact.xi^ If the fact finder

determines that one party reasonably drew the inference of a promise from the other party’s conduct, that promise will

be given effect in law.xii

To be enforceable, the parties must have agreed on the essential terms of the contract.xiii^ However, parties may agree

upon some contractual terms, understanding them to be an agreement and leave other contract terms to be made

later.xiv^ Full agreement on all contractual terms is the best practice and should be the norm. It is only when an

essential term is left open for future negotiation that there is nothing more than an unenforceable agreement to agree.xv

Such an agreement is void as a contract.xvi

Any contract or mutual understanding between parties that differs materially from the original offer is open to legal

challenge. Should any component of a negotiation tend toward a final result where a contract or agreement differs

materially from the offer, that component of the negotiation should cease. If the component in question is critical to

the provision of a service or goods, the issuance of another offer that incorporates that component should be

considered.

Certainty of Subject Matter

In general, a contract is legally binding only if its terms are sufficiently defined to enable a court to understand the

parties’ obligations.xvii^ The rules regarding indefiniteness of material terms of a contract are based on the concept that a

party cannot accept an offer so as to form a contract unless the terms of that contract are reasonably certain.xviii^ Thus,

the material terms of a contract must be agreed upon before a court can enforce the contract.xix^ Each contract should

be considered separately to determine its material terms.

As a general rule, an agreement simply to enter into negotiations for a contract later also does not create an enforceable

contract. Parties may agree on some of the terms of a contract and understand them to be an agreement, and yet leave

other portions of the agreement to be made later. xx

Sometimes terms are omitted from contracts and assuming the omitted term is not an essential term, the courts have

implied terms to preserve the enforceability of the contract should a legal challenge arise. A court may uphold an

agreement by supplying missing terms.xxi^ Historically, Texas courts prefer to validate transactions rather than void

them, but courts may not create a contract where none exists and they generally may not insert or eliminate essential

terms. Whether or not a court will imply or supply missing contract terms will depend on the specific facts of the

transaction. An example of terms that have been implied or supplied are time and place of performance.xxii

Consideration

Consideration is an essential element of any valid contract.xxiii^ Consideration consists of either a benefit to the

promisor or a detriment to the promisee.xxiv^ It is a present exchange bargained for in return for a promise. It may

consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or

responsibility that is undertaken or incurred by the other party.xxv^ It is not necessary for a contract to be supported by

a monetary consideration.xxvi

Competent Parties

Parties to a contract must be competent and authorized to enter into a contract.

i (^) See Buxani v. Nussbaum, 940 S. W. 2d 350, 352 (Tex App.-San Antonio 1997, no writ); and Hallmark v Hand, 885 S.W.2d 471, 476 (Tex.App.-El Paso 1994, writ denied): see also McCulley Fine Arts Gallery, Inc. v “X” Partners, 860 S.W.2d 473, 477 (Tex. App. - El Paso, 1993, no writ). ii (^) See Roark v. Stallworth Oil and Gas Inc., 813 S.W.2d 492,496 (Tex. 1991); and see also Federal Sign v. Texas Southern University, 951 S.W.2d 401,408 (Tex. 1997) rehearing of cause overruled (Oct 02, 1997). iii (^) Restatement (Second) of Contracts §24 (1981). iv (^) Restatement (Second) of Contracts §50 (1) (1981). v (^) United Concrete Pipe Corp. v Spin-Line Co., 430 S.W.2d 360, 364 (Tex. 1968). vi (^) Antonini v. Harris County Appraisal Dist. 999 S.W.2d 608, 611 (Tex.App.-Houston [14th (^) Dist] 1999, no pet.) vii (^) Weynand v Weynand, 990 S.W.2d 843, 846 (Tex. App.-Dallas 1999, pet. denied). viii (^) Copeland v Alsobrook, 3 S.W.2d 598, 604 (Tex. App. - San Antonio 1999, pet. denied). ix (^) Wiley V. Bertelson, 770 S.W.2d 878,882 (Tex. App.-Texarkana 1989, no writ). x (^) Gulf Coast Farmers Co-op v. Valley Co-op Oil Mill. 572 S.W.2d 726, 737(Tex. Civ. App. - Corpus Christi 1978, no writ). xi (^) Runnells v. Firestone 746 S.W.2d 845, 849 (Tex. App. - Houston [14th (^) Dist.] 1988), writ denied per curiam, 870 S.W.2d 240 (Tex. 1988). xii (^) Copeland, 3 S.W.3d at 605 xiii (^) T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). xiv (^) Komet v. Graves, 40 S.W.3d 596, 602 (Tex. App.-San Antonio 2001, no pet.); Hardin Constr. Group, Inc. v Strictly Painting, Inc. 945 S. W. 2d 308, 313 (Tex App. - San Antonio 1997, orig. proceeding): Texas Oil Co. v. Tenneco Inc., 917 S.W.2d 826, 830 (Tex. App.-Houston [14th^ Dist.] 1994), rev’d on other grounds sub nom. Morgan Stanley & Co., Inc. v. Texas Oil Co., 958 S.W.2d 178 (Tex. 1997). xv (^) T.O. Stanley Boot Co., 847 S.W.2d at 221; Scott v. Ingle Bros. Pac., Inc. 489 S.W. 2d 554, 555 (Tex. 1972); Texas Oil Co, 917 S.W.2d at 830; Komet, 40 S.W.3d at 602. xvi (^) Texas Oil Co, 917 S.W.2d at 830.

Key Contract Elements: Offer, Acceptance, Purpose, Obligation, Consideration, and Parties., Lecture notes of Contract Law

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Download Key Contract Elements: Offer, Acceptance, Purpose, Obligation, Consideration, and Parties. and more Lecture notes Contract Law in PDF only on Docsity!

Legal Elements of a Contract

The essential elements necessary to form a binding contract are usually described as: i

• An Offer

• An Acceptance in strict compliance with the terms of the offer

• Legal Purpose/Objective

• Mutuality of Obligation – also known as the “meeting of the minds”

• Consideration

• Competent Parties ii

Offer

An offer is defined as the manifestation of the “willingness to enter into a bargain so made as to justify another person

in understanding that his assent to the bargain is invited and will conclude it.”iii

Acceptance

Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation of assent to the terms

thereof made by the offeree in a manner invited or required by the offer.iv^ An acceptance must not change the terms

of an offer. If it does, the offer is rejected.v^ A material change in a proposed contract constitutes a counteroffer, which

must be accepted by the other party.vi

Legal Purpose

The objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not

a binding contract because the purpose for which it exists is not legal.

Mutuality of Obligation

This element is also known as the “meeting of the minds”. Mutuality of obligation refers to the parties’ mutual

understanding and assent to the expression of their agreement.vii^ The parties must agree to the same thing, in the same

sense, at the same time. The determination of a meeting of their minds, and thus offer and acceptance, is based on the

objective standard of what the parties said and did and not their subjective state of mind.viii^ Unexpressed subjective

intent is irrelevant. In determining whether mutual assent is present, the court looks to the communications between

the parties and to the acts and circumstances surrounding these communications.ix^ The offer must be clear and

definite just as there must be a clear and definite acceptance of all terms contained in the offer.x^ Where a meeting of

the minds is contested, the determination of the existence of a contract is a question of fact.xi^ If the fact finder

determines that one party reasonably drew the inference of a promise from the other party’s conduct, that promise will

be given effect in law.xii

To be enforceable, the parties must have agreed on the essential terms of the contract.xiii^ However, parties may agree

upon some contractual terms, understanding them to be an agreement and leave other contract terms to be made

later.xiv^ Full agreement on all contractual terms is the best practice and should be the norm. It is only when an

essential term is left open for future negotiation that there is nothing more than an unenforceable agreement to agree.xv

Such an agreement is void as a contract.xvi

Any contract or mutual understanding between parties that differs materially from the original offer is open to legal

challenge. Should any component of a negotiation tend toward a final result where a contract or agreement differs

materially from the offer, that component of the negotiation should cease. If the component in question is critical to

the provision of a service or goods, the issuance of another offer that incorporates that component should be

considered.

Certainty of Subject Matter

In general, a contract is legally binding only if its terms are sufficiently defined to enable a court to understand the

parties’ obligations.xvii^ The rules regarding indefiniteness of material terms of a contract are based on the concept that a

party cannot accept an offer so as to form a contract unless the terms of that contract are reasonably certain.xviii^ Thus,

the material terms of a contract must be agreed upon before a court can enforce the contract.xix^ Each contract should

be considered separately to determine its material terms.

As a general rule, an agreement simply to enter into negotiations for a contract later also does not create an enforceable

contract. Parties may agree on some of the terms of a contract and understand them to be an agreement, and yet leave

other portions of the agreement to be made later. xx

Sometimes terms are omitted from contracts and assuming the omitted term is not an essential term, the courts have

implied terms to preserve the enforceability of the contract should a legal challenge arise. A court may uphold an

agreement by supplying missing terms.xxi^ Historically, Texas courts prefer to validate transactions rather than void

them, but courts may not create a contract where none exists and they generally may not insert or eliminate essential

terms. Whether or not a court will imply or supply missing contract terms will depend on the specific facts of the

transaction. An example of terms that have been implied or supplied are time and place of performance.xxii

Consideration

Consideration is an essential element of any valid contract.xxiii^ Consideration consists of either a benefit to the

promisor or a detriment to the promisee.xxiv^ It is a present exchange bargained for in return for a promise. It may

consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or

responsibility that is undertaken or incurred by the other party.xxv^ It is not necessary for a contract to be supported by

a monetary consideration.xxvi

Competent Parties

Parties to a contract must be competent and authorized to enter into a contract.