The requisite elements that must be established to demonstrate the formation of a legally binding contract are
An offer is a promise to act or refrain from acting, which is made in exchange for a return promise to do the same. Some offers anticipate not another promise being returned in exchange but the performance of an act or forbearance from taking action.
Acceptance of an offer is the expression of assent to its terms. Acceptance must generally be made in the manner specified by the offer. If no manner of acceptance is specified by the offer, then acceptance may be made in a manner that is reasonable under the circumstances. An acceptance is only valid, however, if the offered knows of the offer, the offered manifests an intention to accept, and the acceptance is expressed as an unequivocal and unconditional agreement to the terms of the offer.
Each party to a contract must provide something of value that induces the other to enter the agreement. The law calls this exchange of values “consideration.” The value exchanged need not consist of currency. Instead, it may consist of a promise to perform an act that one is not legally required to do or a promise to refrain from an act that one is legally entitled to do. For example, if a rich uncle promises to give his nephew a new sports car if he refrains from smoking cigarettes and drinking alcohol for five years, the law deems both the uncle’s promise and the nephew’s forbearance lawful consideration.
Mutuality Of Obligation
Closely related to the concept of consideration is the mutuality of obligation doctrine. Under this doctrine, both parties must be bound to perform their obligations or the law will treat the agreement as if neither party is bound to perform. When an offered and offer or exchange promises to perform, one party may not be given the absolute and unlimited right to cancel the contract. Such arrangements attempt to allow one party to perform at her leisure, while ostensibly not relieving the other party of his obligations to perform.
Competency and Capacity
A natural person who enters a contract possesses complete legal capacity to be held liable for the duties he or she agrees to undertake, unless the person is a minor, mentally incapacitated, or intoxicated.
Not every contract need be in writing to be valid and binding on both parties. But nearly every state legislature has enacted a body of law that identifies certain types of contracts that must be in writing to be enforceable. In legal parlance this body of law is called the statute of frauds.