Overview

Contracts are legally enforceable promises that allocate risk and define obligations in business transactions. This topic introduces essential contract vocabulary—offer, acceptance, consideration, and capacity—and explains how these elements combine to create binding agreements.

Key Concepts and Terms

• Offer: A promise to do (or refrain from) something, communicated so that a reasonable person would believe assent creates a bargain.
• Acceptance: Unconditional assent to the terms of the offer; mirror-image rule applies under common law.
• Consideration: Legal value bargained for and given in exchange for a promise—can be a benefit or detriment.
• Capacity: Legal ability of parties to contract (age, mental competence, authority).
• Mutual Assent: “Meeting of the minds” evidenced by offer and acceptance.
• Legality: Subject matter must be lawful; contracts for illegal acts are void.
• Statute of Frauds: Certain contracts (land, goods ≥ $500, suretyship) must be in writing to be enforceable.

Step-by-Step Example

Scenario: Alice emails Bob: “I’ll sell you my laptop for $800; please confirm by Friday.” Bob replies Tuesday, “Deal—$800. I’ll pick it up Friday.” Is there a valid contract?

Step 1 – Offer: Alice’s email constitutes a definite offer—price, item, and timeframe stated.

Step 2 – Acceptance: Bob’s timely reply mirrors terms exactly (“Deal—$800”). Acceptance is effective when sent (mailbox rule) via same medium.

Step 3 – Consideration: $800 exchanged for laptop—both parties incur bargained‑for detriment.

Step 4 – Capacity & Legality: Assume both adults and laptop sale is legal; capacity satisfied.

Answer: All elements—offer, acceptance, consideration, capacity, legality—are present; a binding bilateral contract exists.

Quick Tip