Ask any first year, first semester law student, “What are the elements of a contract?” He or she will (or should) answer, “Offer, acceptance, consideration.” It is generally not required that contracts be written or that every element of the contract be discussed in exhaustive detail, but you have to have those three elements (offer, acceptance, consideration).
The three elements of a contract
What do they mean? An “offer” is just that – an offer to perform a service, to refrain from some action, to transfer some property rights, or something similar. For example, “I will paint your fence if you pay me $10” is an offer (and probably one too good to pass up).
“Acceptance” is some sort of communication that the offer is accepted. It could be that you say “I accept,” but it could also be that you give me $10, or possibly even that you give me the key to your fence without saying a word.
If you instead responded, “I will pay you $5 to paint my fence,” then you have refused my original offer, but also made me a counter-offer. If you make a counter-offer, then I have to accept your counter-offer somehow before we can continue.
The final required element is “consideration.” Black’s Law Dictionary (7th Edition) defines consideration as “[s]omething of value (such as an act, a forbearance, or a return promise) received by a promisor from a promisee.”
Consideration has to be received in fact. In the above scenario, if you actually paid me the money, or if I painted the fence, there is consideration. One of us has taken an action that actually transferred value from one party to another.
After the basic contract
The lack of any of the three elements indicates that there is no contract. If you ask a second year law student what else can go wrong in contract formation, he or she will likely collapse into an incoherent mass of burned out humanity. You can remember, though, that the three elements are offer, acceptance, and consideration, and be wary of any agreement that doesn’t include all three.