What elements are required for an offer to be effective under the common law choose three answers?

When Does a Contract Exist?

When a party files a suit claiming a breach of contract, the first question the judge must answer is whether a contract existed between the parties. The complaining party must prove four elements to show that a contract existed:

1. Offer - One of the parties made a promise to do or refrain from doing some specified action in the future.

2. Consideration - Something of value was promised in exchange for the specified action or nonaction. This can take the form of a significant expenditure of money or effort, a promise to perform some service, an agreement not to do something, or reliance on the promise. Consideration is the value that induces the parties to enter into the contract.

The existence of consideration distinguishes a contract from a gift. A gift is a voluntary and gratuitous transfer of property from one person to another, without something of value promised in return. Failure to follow through on a promise to make a gift is not enforceable as a breach of contract because there is no consideration for the promise.

3. Acceptance - The offer was accepted unambiguously. Acceptance may be expressed through words, deeds or performance as called for in the contract. Generally, the acceptance must mirror the terms of the offer. If not, the acceptance is viewed as a rejection and counteroffer.

If the contract involves a sale of goods (i.e. items that are movable) between merchants, then the acceptance does not have to mirror the terms of the offer for a valid contract to exist, unless:

(a) the terms of the acceptance significantly alter the original contract; or
(b) the offeror objects within a reasonable time.

4. Mutuality - The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

When the complaining party provides proof that all of these elements occurred, that party meets its burden of making a prima facie case that a contract existed. For a defending party to challenge the existence of the contract, that party must provide evidence undermining one or more elements.

Does a Contract Have to be Written?

In general, there is no requirement that a contract be in writing. Although the Statute of Frauds requires certain types of contracts to be in writing, New Mexico recognizes and enforces oral contracts in some situations where the Statute of Frauds does not apply.

One important difference between oral and written contracts is the statute of limitations that creates deadlines for filing lawsuits concerning the contract. For oral contracts, the statute of limitations is four years. NMSA §37-1-4. For written contracts, the general statute of limitations is six years. NMSA §37-1-3. However, if the written contract is for the sale of goods, the statute of limitations is four years unless the parties contract for a shorter period. NMSA §55-2-725. The shorter period cannot be less than one year.

How Is a Contract Interpreted?

The court reads the contract as a whole and according to the ordinary meaning of the words. Generally, the meaning of a contract is determined by looking at the intentions of the parties at the time of the contract’s creation. When the intention of the parties is unclear, courts look to any custom and usage in a particular business and in a particular locale that might help determine the intention. For oral contracts, courts may determine the intention of the parties by considering the circumstances of the contract’s formation, as well as the course of dealing between the parties.

Contract law is one of the oldest and most established areas of jurisprudence, yet the elements for a contract are simple. All that is required is an offer, acceptance of the offer and consideration. Within that simple framework, complicated issues can arise. For example, a common question is whether there was a valid offer. If there is no offer, there can be no contract. Offers at common law required three elements: communication, commitment and definite terms.

Communicated

The person making the offer (the offeror) must communicate his offer to a person who may then choose to accept or reject the offer (the offeree). Often, this is not a serious issue to analyze, as the offeror is free to communicate his offer in any means, whether orally (spoken offers) or in writing.

Committed

Whether the offeror is committed requires an analysis of whether the offeror, in his communication of the offer, intended to be bound by the offer. An intent to be bound may arise through course of conduct, such as explicitly stating “That is my final offer.” There may be a question as to whether the alleged offer is an actual offer or merely an invitation to receive offers. Auctions are a common example of invitations to receive offers, rather than a contractual offer in itself.

Definite Terms

All offers must be definite and specific in their terms. The essential terms of the deal, such as price, manner of acceptance and timing, must be stated. An example is “I offer you my grandfather’s antique watch for $200. You must tell me that you accept this offer in writing, and I must receive it before 2 p.m. on Tuesday, or I will offer it to my brother.”

Other Issues

If the offer contains the three necessary elements, once that offer is accepted a contract arises. Acceptance must also be analyzed, however, and acceptance requires some form of expression of agreement with the terms of the offer. If one element of a contract is missing (offer, acceptance or consideration), there is no contract. If there is no contract, there may not be a valid remedy if one party believes the other party has somehow caused him harm.

References

• Cases, Problems and Materials on Contracts; Thomas D. Crandall, et. al
• Tutor2u.net: Contract Law

Writer Bio

Based in Traverse City, Mich., George Lawrence has been writing professionally since 2009. His work primarily appears on various websites. An avid outdoorsman, Lawrence holds Bachelor of Arts degrees in both criminal justice and English from Michigan State University, as well as a Juris Doctor from the Thomas M. Cooley Law School, where he graduated with honors.

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