Offer, acceptance, and mutual assent
Contract formation requires three essential elements: offer, acceptance, and consideration. An offer is a manifestation of intent to be bound by specific terms, made with the understanding that acceptance creates a contract. The offeror must express the intent to be legally bound, not merely to negotiate. An invitation to bid at an auction is typically not an offer; the auctioneer is the offeror and the bidder makes the offer when raising their paddle.
Acceptance is a manifestation of assent to the terms of the offer made in the manner specified or invited by the offer. Mirror-image rule requires acceptance to match the offer exactly; a response with different terms is a counteroffer, not acceptance, and revives the bargaining. Modern commercial practice, especially under the UCC, is more flexible, treating conflicting terms as accepted unless they materially alter the bargain.
Capacity, legality, and formalities
Beyond the core elements, a valid contract requires that both parties have capacity to contract (not a minor, not lacking mental competence, not drunk). The contract's purpose must be legal; an agreement to commit a crime is void. Some jurisdictions require writing for certain contracts under the statute of frauds, including those involving land, marriage, or goods above a certain price.
Mutual assent is judged objectively: what a reasonable person would understand by the parties' words and conduct, not their secret intentions. This protects commerce by making contract rights and duties predictable. Consideration, discussed separately, ensures both parties gave something of value. Without all these elements, no enforceable contract exists, and a party claiming breach must prove the contract first.