Contract law concepts must be properly understood before you enter into a contract with an individual or organization. A contract is a legally-binding agreement that obligates two or more parties to complete certain tasks. In order for a contract to be legally enforceable, it must contain certain elements and comply with contract law. Knowledge of contract law concepts can help you create a proper contract more efficiently and avoid unnecessary issues in the future.

What Is a Contract?

A contract refers to an agreement between two or more individuals or organizations to perform or refrain from performing some acts in the present or future. In other words, it is a legally-binding exchange of promises.

Contract Law in General

In general, contract law is a set of state-imposed laws, not federal laws. Each state, unincorporated territory, federal district, and Indian reservation in the U.S. has its own body of common and statutory law that governs the formation and enforcement of contractual obligations. Laws pertaining to contracts can differ from one jurisdiction to another. However, there are broad similarities between the contract laws of different states because they are all derived from English common law.

Other than state statutes and case laws, contract law can also be found in the Reinstatement of the Law of Contracts. This American Law Institute publication seeks to present the “black letter law” for contracts in easy-to-understand terms. While it is not enforceable in court, the Reinstatement has great persuasive value when it comes to helping courts decide how to apply the law in specific cases.

Elements of a Contract


In order to establish a contract, the participating parties are required to make clear their intention to be legally bound by their agreement. The agreement must be specific and certain enough for the court to enforce. The terms of the contract must be specific enough for the court to know exactly what is being promised.

Also, there must be some mechanism of enforcement or something that enables the court to ensure that the contracting parties will honor their respective obligations. While there is no need for the parties to foresee every contingency or specify every possible term, the contract must at least specify the following:

  • Identities of the parties
  • Promise of each party
  • Price for the performance of each party
  • Time limit for performance, in some cases

Offer, Revocation, and Acceptance

An offer is made when the offeror promises something to the offeree in exchange for the promise to do or refrain from doing something. It generally must be a definite statement and made in such a way that a reasonable person will think that responding to it in a certain manner will lead to the creation of a contract. If the offeree rejects the offer, it means that the offer is terminated. On the other hand, if he or she accepts the offer, the acceptance must be unconditional and completely correspond with the terms of the offer.

Counter Offer

Other than accepting or rejecting an offer, the offeree may also opt to make a counter offer. A counter offer serves as a rejection of the initial offer and a simultaneous offer with similar but modified terms.


Consideration refers to something valuable that is promised or offered to convince a party to enter into a contractual agreement. It can come in any of the following forms:

  • Significant expenditure of effort or money
  • Promise to perform a certain service
  • Agreement to avoid doing something
  • Reliance on the promise

Contractual Capacity

The parties entering a contract must be competent enough to do so. They must be of legal age, which is usually 18 years old, and possess the ability to clearly understand the nature of the agreement and its implications.


The purpose of the contract must be to fulfill a goal that is lawful and not against public policy.

Genuineness of Assent

The parties to a contract are required to show genuine consent. They must reach a meeting of the minds in regard to the contract, meaning that they have clearly understood and agreed to the fundamental substance and terms of the agreement.

Two Parties

A contract must involve at least two parties: the offeror and the offeree. The parties are the individuals or organizations that are offering or accepting the opportunity to enter into an agreement.

If you need help understanding contract law concepts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.