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What are the Requirements of a Contract?

On Behalf of | Jul 26, 2022 | Firm News

What are the Requirements of a Contract?

The Basics

We have all been in a situation where we tell ourselves “but we had a deal!” What is it that makes that deal legally binding? In this article we will break down the basics of a contract and how to protect yourself while making deals, whether you are mowing your neighbor’s lawn or buying a Fortune 500 company.

The Big 3

Specifics of contract law vary by state to state, but the overarching requirements are the same. Every contract needs:

  1. Offer
  2. Acceptance
  3. Consideration


An offer is exactly what it sounds like. You are offering to either perform a service or sell/buy goods. To keep things simple, we will use a real world example. Say you want a neighborhood kid to cut your grass. You may offer him $20 for him to complete the job. It is important to note that the governing law is different whether it is a contract for services or a contract for the sale of goods. The offer is the first step towards having a valid contract.


Acceptance comes after the offer. Simply put, this is the other party accepting your offer. In the example above, the neighborhood kid agrees to mow your lawn. He performs the service you requested in anticipation of being paid the $20 afterwards. Once we have an offer and acceptance, an obligation or duty is created.

Once there is an offer and acceptance, we have mutual assent. Two parties have agreed to terms on a service to be performed and the parties have agreed on payment. This is not technically enough in the eyes of the law, though. We also need to satisfy one more major element.


Consideration is the benefit each party is receiving from the agreed upon terms. In our example, you are getting your lawn mowed. This is your benefit or consideration. The neighborhood kid is getting $20 for performing the act. The $20 is his benefit or consideration. Both parties must be getting some sort of benefit in order for there to be a valid contract.

If all three of these elements are satisfied, you have a basic contract in the eyes of the law. Although, that is just the beginning. As we know contracts are long, confusing, and filled with legal jargon. So what else should we look for?

The Terms of the Contract

As a basic note, the two other major elements we need to ensure are in the agreement are capacity and legality:

Capacity means that the person you are contracting with is actually able to understand that they are creating a legal obligation to perform. For example, pretend you tried to make a sales contract with a 4-year-old to buy her American Girl Doll for $1. Even if she agrees and takes your dollar, we do not have a binding agreement. This is to protect incapacitated indivdiuals from being taken advantage of.

Legality involves product, good, or service the contract is actually being created for. You cannot have a legally binding contract for something that is illegal. For example, in some states the sale of marijuana is illegal. In those states, an agreement to purchase marijuana would not be enforceable in a court of law.

Common Questions and Terms

These are some common questions we encounter in our day-to-day operations as contract negotiation attorneys,

  1. Does the contract have to be in writing?

There is no simple answer for this. In theory, there are unwritten contracts that will be enforceable. Oral contracts do exist, but there are so many difficult factors involved. It is always best practice to have any agreement in writing. This is essentially necessary to have hard evidence of the agreement.

  1. Does the contract have to be signed?

Similar to the contract being in writing, this is not a simple answer. The governing law and the type of contract matter. There is a complicated statute called the “statute of frauds” that has certain requirements for specific types of contracts. For this reason, it is always best practice to have your contract signed and dated by both parties. It is an extra layer of protection for both of you.

  1. What do all of these clauses mean?

There are clauses common in almost all contracts. These range from indemnification, choice of law, severability, and many more. Each clause has its own specific purpose and its important to make sure you understand each of them. Discuss this with your lawyer and they will be happy to break each section down for you to make sure you fully understand your rights and obligations. If you want to do a little more learning on your own, there is a helpful chart going into a little more detail on the next page.

Common Contract Clauses


If you are entering into a contract, most likely it is because you are about to make a major life decision. It could be a major purchase such as a home or car. You may be starting a business with a partner or family member. You may be accepting a new job. No matter what the case is, it is important to make sure you are protected. You want to thoroughly understand the rights and obligations you have under the contract. If you feel that you want someone to help you look over your contract and guarantee you maximum protection, feel free to contact us to schedule a 1-hour consultation with one of our attorneys who can answer any questions you may have.

The information included in this blog post is for educational purposes only and is not intended to confer legal advice. Tarshus Law Firm – 86 The Commons, Grand Island, NY 14072.