The requirements for binding contracts will vary among jurisdictions. In most common law jurisdictions, a binding contract requires three elements: offer, acceptance, and consideration. A valid contract may be oral or in writing in most jurisdictions; however, preference is given to written contracts that are signed by all the parties to the contract.
An offer must be made in all binding contracts. An offer is generally something of value, such as money, but it can also be an offer to do something or refrain from doing something that the person has a legal right to do or not to do. An example of an offer would be the purchase price in the sale of a property. The purchaser makes an offer to the seller to purchase the home for a specific amount of money. Another example of an offer is an offer of employment in an employment contract.
The next element found in binding contracts is acceptance of the offer. Once the offer has been made, in order for the contract to be binding on both parties, the offer must be accepted. Acceptance may be made in writing or verbally, but enforcement of a contract is much easier when the acceptance is made in writing. In most cases, acceptance is accomplished by the party signing the contract showing acceptance of the terms.
Consideration is the final element needed for binding contracts in most legal systems. Consideration is something of value given by the person making the offer to the person who accepted the offer. In many cases, consideration consists of making a monetary payment. In the purchase of a property example, consideration may be the down payment.
Although written contracts are easier to interpret and enforce, they are not the only contracts that can form a binding contract. Many legal systems also recognize verbal contracts. A verbal contract must contain the same elements with the only difference being that they are made orally instead of in writing.
Some contracts cannot form binding contracts. For example, contracts that require one of the parties to do something illegal are considered void and therefore are not binding on either party. Other contracts are voidable, meaning they are legally binding on one party, but may be voided by the other party. A contract entered into with a minor, for example, is voidable in many jurisdictions because minors do not have the legal capacity to contract. As a result, the adult is bound by the terms of the contract, but the minor has the option to void the contract or to adhere to the terms of the contract.
