Offer

• A contract exists only if there are at least two parties. One of those parties must make an offer, which displays a willingness to act or abstain from acting in exchange for something from another party.
  
  

Consideration

• Consideration is the benefit and detriment that an agreement outlines. A valid contract must include a promise. It must also include a benefit upon execution of the promise or consequence for not fulfilling the promise.
  
  

Acceptance

• A contract is legally binding and enforceable only if one party accepts the offer of another. One party cannot be bound to an agreement without his consent. Note that an acceptance is unconditional consent to the offer. If one party considers the offer and is interested in making an agreement but bases consent on altered terms, this is known as a counteroffer. A counteroffer then requires unconditional acceptance from the opposite party.
  
  

Forms of Contracts

• When two people make a spoken agreement, an oral contract forms. Paul has a pile of gravel in his yard and Brian offers to buy it for $100. If Paul agrees and Brian returns but Paul has sold the gravel to someone else, Paul has violated a contract and Brian can sue.
  
  A written contract is an agreement in which the terms are outlined in print. Written contracts are more effective than oral contracts because agreement and the terms of the agreement are easier to prove.
  
  An implied contract arises when the terms are suggested. A transaction in a retail store constitutes an implied contract. Although the merchant and customer never directly discuss the terms of the transaction, the fact that an item is for sale and that a customer purchases it establishes a contract.
  
  

Legality

• A contract does not exist if the agreement involves illegal activity or illegal gain. One party, for example, cannot sue another that has agreed to rob a bank but does not do so.
  
  

Mutual Understanding

• A contract is valid and enforceable when the parties have the same ideas regarding the important terms of the contract. Courts do not require parties to agree to the meaning of every slight detail. However, agreement upon the meaning and intent of all essential terms of a contract is necessary.
  
  

Capacity

• Each party to a contractual agreement must possess the mental capacity to enter it. Each party must have the authority to fulfill the terms that he agrees to.