Legal Elements of a Contract

In order that an agreement between two or more persons be a legally binding contract, it must have certain fundamental elements:

1.  Offer

An offer is a proposal to do a thing (or pay an amount), and usually includes the expectation of acceptance, a counter-offer, return promise, or act. An offer is, more or less, exactly what it seems: 

“The College will pay $1000 for Vincent Van Gogh to paint the Wren Building.”  OR   “I, Vincent Van Gogh, will paint the Wren Building if the College will pay me $1000.”

2.  Acceptance

Acceptance is a demonstration of assent to the offer. This could be by complying with the terms and conditions of the offer, but acceptance of an offer need not amount to much. A simple “OK” can do.

Actions can also demonstrate acceptance of an offer. Examples of this are using goods, or clicking “I accept”. Inaction can also demonstrate acceptance, as where goods are not returned.

The offer and acceptance must match. “The College accepts Van Gogh’s offer to paint the Wren Building, but will pay $750” is not acceptance, but a counter-offer.

3.  Mutual Consideration

“Consideration” helps distinguish a legally binding contract from a mere (unenforceable) promise. Consideration exists when each party to a contract gives up something of legal value. Typically, this involves doing do something that the party is not otherwise required to do, or agreeing not to do something that the party could do. In the example above, the College does not have an obligation to pay Van Gogh any money. Van Gogh does not have to paint the Wren Building. When the College agrees to pay Van Gogh $1000 and Van Gogh agrees to paint the Wren Building, there is mutual consideration.

 4.  In Writing – Not Necessarily

In order to be enforceable, certain contracts must be in writing.  In general, these are:

a. Contracts for the sale of goods over $500
b. Contracts for the sale of real property 
c. Contracts that are incapable of being performed within a year 
d. Promises to answer for or discharge the debts of another (guarantee) 

Be aware: Although College practice demands that ALL contracts be in writing, courts can – and do – enforce contracts that are not in writing.

Be very aware: A written contract is presumed to contain all the terms of the contract.  Any prior oral understanding will not be regarded as part of the contract.  Other written understandings will not be part of the contract unless the contract expressly incorporates those writings. There are very limited exceptions to this requirement. The best approach is to make sure that: (1) there is a written contract signed by both parties; and (2) the contract contains all the terms. Anything not written in the contract (or incorporated by reference to another specific, written document) will not likely be an enforceable term.

5.  Not Required: Any Special Name

There is no requirement that a contract be designated as “Contract”. If there has been an offer and acceptance, if mutual consideration exists, and if the contract is in writing, it is a binding commitment, regardless of whether the document terms itself an “Agreement” or “Memorandum of Understanding”, etc. In addition to the foregoing, examples of several of the many names given to university contracts include:

License
Statement of Intent
Covenant
Lease
Understanding
Arrangement