Gunderson Denton & Peterson Logo Sized For Mobile Browsing

480-655-7440

Mesa AZ Business Lawyer
  • 1930 North Arboleda, Suite 201
    Mesa, AZ 85213
    480-655-7440
    40 N. Central Avenue, Suite 1400
    Phoenix, AZ 85004

  • Please leave this field empty.

  • Gunderson, Denton And Peterson Office Locations


    View View Gunderson, Denton And Peterson Locations in a larger map

    Legal Assistance With A Positive ROI

    What Does it Take to Make a Binding Contract?

    Contracts are the building blocks of business. This article addresses the basics of the necessary “elements” to create a legally binding contract.

    When boiled down to the bones, there are really only three elements to a binding contract. A contract consists of an offer, an acceptance, and “consideration” on the part of each party. The problem with boiling contract law down is the possibility that the reader will simply interpret what they think an offer is, what constitutes an acceptance, and what consideration means. The truth is that each of these elements can arise in almost an infinite number of different ways that raise questions as to when they are satisfied. At the risk of discouraging the enthusiastic business person, some words of caution are appropriate. First, it is the courts of each jurisdiction that decide when each element is met, and each court may interpret these requirements at least slightly differently. Second, the past decisions of courts on a particular issue are not always a guarantee that a court will decide that the facts of a particular case are the same as past cases and the reader may be surprised by an outcome that appears to be a change from decisions.

    With that massive disclaimer, the following is a general outline of some commonly-held legal principles in understanding offer, acceptance, and consideration.

    1.      Offer
    An offer is when one party expresses or “manifests” its willingness to enter into a bargain, which then justifies another party to believe that his agreement will conclude the bargain.

    Many problems arise in figuring out whether a particular manifestation or statement is truly an “offer” within the law, meaning that another party may bind the first by accepting. For example, consider a situation in which you and I are friends who have come together for a barbeque. You take the opportunity to show me your beautiful new luxury car and I tell you how much I would love to have it. You laugh and say, “I’ll sell it to you for $20!” Can I bind you to a contract by quickly accepting your offer and handing you a $20 bill? Probably not.  But why? After all, an offer was clearly expressed. Contract law follows the objective theory of contracts. In other words, a party’s intent is what a reasonable person in the shoes of the other party would believe about the offering party’s intent. So, if a reasonable person would believe that the person making the offer intended to create a binding contract by his statement, then the accepting party was justified in believing they could create a contract by accepting. If a reasonable person would believe that the offer was a joke based on the circumstances, an accepting party may not bind the joker.

    2.      Acceptance
    Simply defined, acceptance is a manifestation of agreement to the terms made by the person making the offer. Just as in offers, problems in acceptance arise often because there is such a wide array of ways in which the acceptance arises in the real-world of business and can be much more complex than one may think.

    One common problem with understanding acceptance is the idea that it is only an acceptance if it is an agreement to the exact terms of the offer. If any change is made to the terms of the offer it is NOT an acceptance. Instead, it is a rejection of the initial offer, and a counter-offer. This is very significant because there is no binding contract at that point. Instead, the process has begun again and the contract is only made if the other party accepts the terms of the counter-offer.

    3.      Consideration
    With some exceptions, contracts generally require consideration to be binding. This essentially means that each party gives something of value in the bargain. The courts look at two things that a party must be able to point to in establishing consideration.

    1.  “Detriment”: The party who receives a promise must give up something of value, whether in money or in limiting his/ her liberty in some way.
    2. Exchange: The party who makes the promise makes it in exchange for the thing of value or detriment given by the other party.

    This requirement means that promises to make a gift are usually unenforceable, because they generally do not meet the bargain requirement. However, this does not always hold when the parties can fulfill the bargain requirement in their agreement.

    One element that some people get confused about in contracts, is whether a contract must be in writing to be legally binding. The answer is no, unless it falls within the “statute of frauds” which outlines the kinds of contracts that must be in writing to be binding.

    The world of contracts can be fraught with contradictions. In an effort to create agreements that people can depend on, our courts have created many rules and concepts that govern contracts. Although in reality these rules add to the confidence a business person can have in a properly constructed contract, there are many pitfalls that the unwitting fall into if they are not careful.

    [jetpack-related-posts]

    Leave a Reply

    Meet Our
    Business Attorneys

  • Arizona Business and Franchise Lawyer Brad Denton
    Business Litigation Attorney
    business lawyers and real estate business attorneys
  • GDP Business Blog

    10 Tips to Keep Your Mesa Business Out of Court

    Business With Friends

    Deciding on a Business Structure

    A Rose by Any Other Name Might Not Smell as Sweet: The Process of Choosing and Protecting a Business Name

    Structuring Your Business Sale To Avoid An Unexpected Tax Hit

    Eight Questions to Help You Find the Target Market for Your Business

    Top Mistakes When Launching A Home-Based Business

    How to Plan Your Arizona Business Plan

    Business Startups: How to Pitch Your Idea to a Venture Capitalist

    Six Ingredients to Make Your Startup Business a Success

    Six Qualities to Look for in a Business Lawyer

    Three Steps to Choosing a Name for your New Business

    Seven Steps to Developing a Marketing Plan for Your Business

    How to Protect Your Intellectual Property

    Ways to Failure Proof Your Phoenix Business

    How To Convert An LLC To A Corporation In Arizona

    Does Your Startup Arizona Business Need a Patent?

    Non-Compete Agreements in the Sale of a Business

    Liability of Owners in Various Business Structures

    Small Businesses Feeling the Impact of the Government Shutdown

    Using a Letter of Intent to Reduce Risk in the Process of Purchasing a Business

    What Does it Take to Make a Binding Contract?

    Forming a Startup – Important Questions Co-Founders Should Ask First

    An Exit Plan for Your Business

    General Business Law at Gunderson, Denton & Peterson, P.C.

    Introduction to Gunderson, Denton & Peterson, P.C.

    How Business Owners Can Minimize The Cost Of Divorce

    The difference between a contract that falls under the UCC and one that does not and why it is important to you

    Problems with Decision-Making in an LLC

    Finance Options for Your Business

    Why Should Your Company Not Go Public?

    How do I buy an existing business?

    How Business Owners can avoid Personal Liability if others attempt to Pierce the Corporate Veil

    LLC Publication Requirement – present and future

    • Get Linkedin Mesa Arizona Lawyer
    • Legal counselors Facebook
    • Mesa Arizona Lawyer Twitter Account
    • law feed, legal advice, blogs and more
  • contact@gundersondenton.com
    1930 North Arboleda, Suite 201
    Mesa, AZ 85213
  • Privacy Policy
    Design By Mesa Web Designer MFWD