Most professional dealings begin with the formation of a contract between two or more parties.

The Elements of a Contract: Understanding Contract Requirements

What separates a simple promise from a binding agreement? Let's explore all the key elements of contract that make it legally enforceable.

Most professional dealings begin with the formation of a contract between two or more parties. Whether a company is hiring an employee or closing a deal, a contract sets out the conditions, obligations, terms, and liability of all the parties involved.

This article explores the essential elements of a contract that must be present for it to be binding and enforceable in specific jurisdictions, highlighting the key differences between the US and the UK.

What Elements Are Required for a Legally Valid Contract?

The elements of a legal contract vary around the world according to jurisdiction.

So, what elements are required for a legally valid contract? The elements of a legal contract vary around the world according to jurisdiction. However, some common elements persist across different legal systems. This post will focus on contracting in the United States (US) and the United Kingdom (UK), as well as the essential elements a business contract needs to be valid.

Elements of a Contract in the UK

  • Offer and Acceptance
  • Consideration
  • Intention to be Legally Bound
  • Contractual Capacity

The contract law of England and Wales is historically influential, and many of its principles have been incorporated or reflected across the English-speaking world, particularly in Commonwealth countries like Australia and Canada.

Elements of a Contract in the US

  • Offer and Acceptance
  • Awareness
  • Consideration
  • Capacity
  • Legality

All these elements must be present for a contract to be binding. If just one of them is missing, the agreement may not be legally enforceable.

Looking At Each Element of the Contract

To form a contract, one party must make an offer that another party accepts.

1. Offer and Acceptance

To form a contract, one party must make an offer that another party accepts. After the offer is made, goods and services are exchanged between the two parties in most cases.

  • Offeror: The party making the offer who owns the goods or services being offered.
  • Offeree: The party willing to compensate the offeror to use or acquire the goods or services.

An offer generally consists of two parts: the expression and the intention. The expression can take many forms, ranging from a verbal discussion to a formal letter describing the basic terms. The intention is a presumption by both parties that the agreement will be legally binding.

An offer has technically been made once the offeree receives it. Upon receipt, the offeree can decide to accept, revoke, alter, or terminate it. The offeree can also extend the offeror a counter-offer, which terminates the initial offer, leaving the parties free to negotiate the terms of the newly made proposal.

Acceptance of an offer can occur in several ways:

  • Signed Contract: The most common form, either through a wet or electronic signature.
  • Conditional Acceptance: Acceptance is contingent on certain terms being met.
  • Action-Based Acceptance: For example, a buyer orders goods online at a certain price, and the seller ships these goods.

Silence and inaction do not constitute acceptance under most laws. Therefore, not rejecting an offer doesn't necessarily mean that the offer has been accepted.

2. Intention to Be Legally Bound

In the UK, a legal doctrine known as the “intention to be legally bound” states that a contract is only legally enforceable if the parties intended it to be a binding contract.

The process a court uses to decide whether the parties intend to be legally bound consists of two tests:

  • The Objective Test: Determines whether a reasonable person knowledgeable of the circumstances would believe that the parties intended to be bound.
  • The Rebuttable Presumption: Establishes a burden of proof regarding whether a valid contract exists.

3. Awareness

For a contract to be binding in the US, both parties must have a “meeting of the minds,” meaning they must both be aware of what they are getting into. The parties must:

  • Be active participants in the agreement
  • Recognize that a contract exists
  • Clearly, decisively, and mutually establish that the agreement is genuine
  • Consent to its contents
  • Freely agree to be bound by its obligations

If awareness cannot be established, a contract can be voided. For example, if one party can prove duress, undue influence, fraud, or misrepresentation, the contract will be deemed invalid.

4. Consideration

Consideration represents the agreed-upon value in goods, services, property, or even protection from harm resulting from the agreement.

For a contract to be legally enforceable, there must be a “mutuality of obligation.” This means both parties must meet their obligations, and consideration represents the commitment the parties make to each other.

Consideration only sometimes involves money. It can include:

  • Services
  • Personal property
  • Real property
  • Promise to act
  • Promise to refrain from acting

Certain things do not meet the definition of consideration, such as:

  • The promise of a future gift
  • An illusory promise with no actual obligation to fulfill
  • A pre-existing legal obligation
  • Lack of mutual agreement regarding consideration

5. Capacity to Contract

Only parties with legal capacity are allowed to enter a contract. This means individuals must understand the terms, responsibilities, and consequences of the contract before they sign. Those lacking capacity include minors, certain felons, and individuals of unsound minds. If it turns out that the parties lack capacity, the agreement will be void.

6. Legality of a Contract

All contracts are subject to the laws of the jurisdiction where they are signed. However, US federal and state laws do not always agree, and in those instances, the Contract Clause of the US Constitution prevails.

A contract is no longer legal if:

  • A party signed the agreement due to coercion, threats, false statements, or unsuitable persuasion.
  • Oppressive obligations or results are triggered.
  • The contract violates public policy or endangers the general welfare.
  • An error in the contract has a material effect on the initial terms.
  • Circumstances beyond the control of the parties make performance impossible.
Legally Binding Contracts

If all the required elements of a contract are in place, under the requirements of the jurisdiction in question, then once agreed, the contract becomes legally binding on the parties.

What Makes a Contract Enforceable?

The fundamental elements required to make a contract legally enforceable.

The fundamental elements required to make a contract legally enforceable in the US include a valid offer and acceptance, sufficient consideration, capacity, and legality. The requirements for the UK are set out above, and other jurisdictions vary in their approach to contract law, too.

The US Statute of Frauds typically requires that contracts involving the sale or transfer of land or those that cannot be performed within one year be put in writing and formally executed to be enforceable. However, parties may only enter into a binding agreement if they sign a formal written document.

Is a Verbal Contract Valid and Enforceable?

Verbal contracts can be enforceable if they are provable in court, meet the requirements of contract formation, and are not in violation of laws prohibiting oral agreements. Although many verbal contracts are legally binding, there is always a possibility that a party won’t fulfill its obligation, which is why many people prefer written agreements.

Understanding the elements of a contract is crucial for ensuring that agreements are legally binding and enforceable. By recognizing and including these elements, businesses can safeguard their interests and maintain compliance with legal standards. Optimizory can provide additional insights and tools to streamline your contract processes and ensure all necessary elements are present.


Does a contract have to be in writing?

A contract does not have to be valid in writing. It just needs to include the basic elements of a contract.

What are void contracts?

Void contracts are formal agreements that are fundamentally unenforceable because they still need to fulfill the requirements to be legally binding.

At what point does a contract become legally binding?

A contract becomes legally binding as soon as all the contract elements have been met.

Are emails legally binding contracts?

Emails can become legally binding contracts as long as the essential contract elements are met within the email chain.

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