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In order to form a legally binding contract, you must first have a valid offer. A valid offer must contain definite and certain terms.

This lesson discusses the key requirements of a valid offer.

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Elements of a Contract

Businesses deal with many types of contracts. There are employment contracts, service contracts, supply contracts, and many other types of contracts.

A savvy businessperson will know how to make and enforce a legally binding contract.There are six main elements necessary to form a legally binding contract. These are:

  1. An offer
  2. An acceptance that is identical to the terms of the offer
  3. A legal purpose or objective
  4. Mutual assent, or a meeting of the minds
  5. Consideration
  6. Competent parties

Let’s take a closer look at the requirements of a valid offer.

Offer

A formal offer is the main, and first, element in a contract. It should contain all of the key factors of the contract.

An offer can be communicated in any way. I can write out my offer, I can verbally speak my offer, we can meet in person or speak on the telephone. I can even email or text my offer.There are countless ways to communicate an offer, but there are certain requirements of a legally valid offer:

  1. It must indicate a clear intent to form a contract.
  2. It must contain a definite proposal that is certain in its terms.
  3. It must be communicated to the other party.

If any of these elements is missing, there is no offer and no resulting contract.

For example, let’s say I make a formal offer to you. I ring your doorbell and tell you that I’m willing to wash all of the windows in your house next Saturday for $25. I’ve expressed my clear intent to form a contract with you. I’ve sufficiently defined the terms of my offer, since I said I’ll do the work on Saturday, and I’ve told you how much I charge.

I’ve also communicated the offer to you in such a manner that you can now accept or reject my offer.

Definite and Certain Terms

In order to form a legally binding contract, the offer must contain definite and certain terms. This means that terms must be stated so that a reasonable person is capable of readily understanding the terms. In order for a court to enforce the contract, the court must be able to determine the terms of the contract.

This means that the terms must be stated in such a manner that the court can determine the intent of the parties. The court must be able to determine what was promised.For example, let’s say that I ring your doorbell and tell you that I’m willing to wash all of your windows next Saturday. I tell you that I’m not sure how much I’m going to charge you because I don’t know how long this task will take.

However, I do tell you that it will be a reasonable fee. Is this an offer with definite and certain terms?No. This promise isn’t sufficiently definite. A court can’t enforce this payment because we don’t know what the payment is. Also, there can’t be a mutual assent, or a meeting of the minds, for a term that is not defined.

In the Texas Supreme Court case of Fort Worth Independent School District v. the City of Fort Worth, the court stated that, ‘In general, a contract is legally binding only if its terms are sufficiently definite to enable a court to understand the parties’ obligations. The rules regarding indefiniteness of material terms of a contract are based on the concept that a party cannot accept an offer so as to form a contract unless the terms of that contract are reasonably certain.

‘ This is a Texas case, but other states also follow this law.

Essential Terms

All essential terms of a contract must be defined in the offer. When a court determines whether the terms are definite, it will look at four key elements of the offer. These are:

  1. The parties
  2. The length of time for performance or the term of service
  3. The price
  4. The subject matter or scope of services

These four elements must be definite and certain so that a reasonable person can understand the terms, and a court can enforce the contract. The famous Texas Supreme Court case of T.

O. Stanley Boot Company v. Bank of El Paso tells us that all essential terms of a contract must be agreed upon before a court can enforce a contract. A court must examine each contract separately in order to determine that contract’s material terms.

This is a rule that is similar in all states.Let’s take another look at my offer to you. The parties of this contract are you and I. I’ve defined the length of time for performance, because I told you that I’d complete the work on Saturday. I’ve defined my price, because I told you I’d charge $25.

We also know the scope of services, because I told you that I’d wash all of the windows of your home. This is a valid offer because the essential terms of the offer are certain and definite. Once you accept this offer, we have a legally binding contract.

Lesson Summary

Let’s review.

A formal offer is the main, and first, element in a contract. It should contain all of the key factors of the contract. There are certain requirements of a legally valid offer. These are:

  1. It must indicate a clear intent to form a contract.

  2. It must contain a definite proposal that is certain in its terms.
  3. It must be communicated to the other party.

All essential terms of a contract must be defined in the offer. When a court determines whether the terms are definite, it will look at four key elements of the offer. These are:

  1. The parties
  2. The length of time for performance or the term of service
  3. The price
  4. The subject matter or scope of services

These four elements must be definite and certain so that a reasonable person can understand the terms and a court can enforce the contract.

Learning Outcome

After completing this lesson, you should be able to:

  • List the six elements needed to form a legally binding contract
  • Describe the three requirements necessary for a valid offer
  • Determine whether or not an offer contains definite and certain terms
  • Name the four essential terms that must be definite and certain in order to make a valid offer

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