There are three general elements of a contract: offer, acceptance, and consideration.
An offer is the first step of forming a valid contract. An offer is a verbal or written promise to do something or a promise not to do something that the he has a legal right to do. The person making the offer is called the offeror.
For example, if a house painting business promises to paint a commercial warehouse for $500, then the painting business has made an offer.
A person to whom an offer has been made (the offeree) has the option of accepting the offer. If a house painting business offers to paint a warehouse for $500 and the warehouse owner agrees to the painting of the warehouse for $500, the offer has been accepted.
The parties to a contract must have a mutual understanding of the contract's subject and terms. This is also known as mutual consent or "meeting of the minds." For example, if a business thought it was selling shingles and the buyer thought it was buying drywall, the contract would likely be unenforceable.
The parties to a contract must exchange something of value, or consideration, in order for a contract to be valid. In the warehouse example, the painting business' consideration is the providing of painting services, and the warehouse owner's consideration is the payment of $500.
When a person responding to an offer attempts to negotiate the terms or pricing, the original offer is considered rejected. The new terms are a counter-offer. If the original party making the offer accepts the new terms, then the counter-offer is accepted and a contract formed.
Other Contract Considerations
A contract must be undertaken in "good faith." If a party to a contract attempts to deceive the other party regarding the terms or subject of a contract, the contract will be held unenforceable for lack of "good faith."
Violation of Public Policy
A contract that violates "public policy" cannot be enforced. For example, a court will not enforce a contract for an illegal act, such as a contract for murder.
Uniform Commercial Code
The UCC is a statute that has been enacted by the states to make certain commercial transactions uniform. The UCC applies to moveable goods, but not real estate. The UCC is important due to the volume and prevalence of interstate commercial transactions.
One of the UCC's functions is to help businesses decide when an offer, acceptance, or a counter-offer has been made. Typically, a business may send a written offer with specific terms to purchase goods from a business (typically, a purchase order). The seller may send a written reply along with its own terms. If the reply specifies that only the terms of the seller can be accepted, then a counteroffer exists under the UCC If the reply has different terms, but does not expressly state that the contract can only be fulfilled under those terms, then the seller is deemed to have accepted the offer.
If performance occurs after a counter-offer and there are conflicting terms, a contract under the UCC exists for the terms to which the parties agree. The UCC provides "gap-filler" terms for the remainder of the contract, meaning that terms based on industry standards will be imputed to the contract.
Business contracts that meet general contract requirements are enforceable. The UCC may apply to determine when a contract has been made and to provide "gap-filler" contract terms.