1. Contract Law
2. Offer
3. Accepting an Offer
4. Consideration
5. Intention

Common law contracts are agreements between two or more parties that fall under the common federal and state laws.

Contract Law

A contract is a legal agreement between at least two competent individuals or parties that benefits both sides. Most contracts contain some type of offer that is made by one party and accepted by the other. An agreement can be implied, oral, or written, as well as informal or formal. An example of an implied contract might be in a long-term business relationship.

Some of the most common contract examples include:

  • Rental agreements
  • Leases
  • Promissory notes

In order to qualify as a legal contractual agreement, it must contain four components:

  • An offer
  • Acceptance by the other party of the offer
  • Intent to enter into an agreement with legal repercussions
  • Consideration

Offer

An offer in a contract is conditional and voluntary, submitted by one party to the other. The party receiving the offer must accept it before a contract exists. An offer is not the same as an invitation to treat. An invitation to treat occurs when a party is seeking to start negotiations but not willing to implement specific terms. Many advertisements and items displayed in stores are invitations to treat, not offers.

Accepting an Offer

After the offer has been extended, the next step toward creating a contract is acceptance of that offer. Acceptance can be communicated in several ways, including in writing, inferred by conduct, or orally. A handshake would be considered an acceptance inferred by conduct. When a party makes a counteroffer, this is not accepting the offer. A counteroffer occurs when one party suggests a different offer in response to the other party, based on what was offered initially.

When a counteroffer is made, this typically serves as a rejection of the first offer. The acceptance then must be made by the party receiving the counteroffer. For example, Jason makes an offer to sell his car to Jane for $600. Jane comes back with a counteroffer of $500 for the car. Jason's original offer of $600 is not valid anymore because the counteroffer serves as a rejection. Jason can now choose to accept Jane's counteroffer of $500 or not.

Consideration

Consideration is the third vital component of a legally enforceable contract. If a contract has consideration, something that is viewed as valuable by both parties is offered within the agreement. The parties must be enticed to enter into the legal agreement in exchange for mutual benefits or performances. In order to qualify as consideration, the contract must have value that can be determined objectively.

Examples of consideration include promises to perform specific tasks, such as fixing a damaged roof, or promises not to perform certain tasks, such as building an addition that would block the view of the neighbor. Regardless of the specifics, consideration in a contract must provide something of value to both parties.

Intention

The last required component of a contract is the intention. Both parties must have the intent to enter into a legally binding contractual relationship. This pillar of contract law protects the involved parties since they are choosing to enter into an agreement that creates obligations. Domestic arrangements don't necessarily have the intention to create a relationship that is legally binding. When separated or divorced couples make agreements to divide their property, these actions are exceptions to this rule.

A contract is only legally enforceable and valid if it contains all four of these elements. When drafting contracts, it's critical to make sure all are included.

The growth of online shopping and e-commerce has required some changes to be brought about in contract laws. For example, if a customer wants to buy a computer online from Dell, the contract to purchase that computer would still need to include all four required elements. When viewing the computers available online, these listings are considered invitations to treat. After the customer selects a computer to buy, they would make and accept an offer when they fill in the page with their personal information and payment details. Before completing the purchase, Dell would need to provide the conditions and terms of the purchase contract. The customer must agree to those terms before the contract is in effect.

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