In this video, you get answers to these questions:

  • How do you create a contract in Minnesota?
  • Can you have an oral contract or does it have to be in writing?
  • What provisions have to be in the contract?
  • What three elements are involved in a contract?

Contracts are agreements that are formed between or among two or more parties. In order to create a contract, there must be a mutual agreement of all parties to the contract.

How Courts Determine if There Was Mutual Agreement

Courts will determine whether there was mutual agreement by looking at the works spoken or written by the parties or the conduct of the parties. Courts view these things objectively, looking at the outward conduct of the parties, rather than the subjective intent of the parties.

The question is: Did one party, through his or her actions, lead the other party to reasonably believe they had an agreement? Parties may mutually agree and create a contract orally, in writing, or both.

Elements of a Contract

All contracts have the following three elements:

1) Offer

An offer is the communication by one party to another party of a willingness to enter into a bargain, and invites the other party to accept the offer. An offer may only be accepted by the party to whom the offer was made. Once an offer is revoked, it may not be accepted.

2) Acceptance

Acceptance of an offer is a communication by one party to the offering party of agreement to enter the bargain and comply with its terms.

An offer may only be accepted by the person to whom the offer was communicated, and not by a third party. Generally, acceptance is only valid if communicated to the party making the offer.

Once an offer is rejected, it cannot be later accepted unless a new offer is made. Once an offer is revoked before it is accepted, it may not be accepted.

3) Consideration

“Consideration” is required in order to have a valid contract. Consideration requires a bargained for return promise. Basically, both parties have to actually do something or give something up. A contract is not a free ride for either party, because consideration is required.

Consideration may be a benefit to one party or a detriment to that party. However, the obligations of each party do not need to be equal in value. Consideration is found when one party is obligated to do something in exchange for the act or promise not to act by the other, regardless of value.

Courts will not make determinations as to the adequacy of the consideration, as long as it is something the law recognizes as having a value of some kind. The requirement of consideration is intended to prevent accidentally or gratuitously entering into a contract.

Video Transcript

How do you create a contract in Minnesota? That’s the question I’m answering today. I’m Aaron Hall, an attorney in Minneapolis, Minnesota. I typically work with business owners, and we often come up with questions around contracts. Can you have an oral contract, or does it have to be in writing? What provisions have to be in a contract? Well a contract quite simply are these elements, first there has to be an offer, second, there has to be an acceptance, and third there has to be consideration. I’ll talk about each one of those.

An offer for example would be I will pay you $5 if you will sell that shirt to me, or maybe the offer is I will sell this shirt to you if you pay me $5. That could be oral, it could be on a price tag at a store, so in other words, a contract or an offer, it can be an oral or writing or even implied.

Now acceptance is where a person says, I accept that offer. Maybe you accept the offer by bringing the clothing item with a price tag up to the counter and paying for it, that would be the acceptance of the offer. Or maybe you accept an offer by saying here is $5, and you’re holding the shirt or the clothing item in your hands with a price tag of $5. Acceptance can be oral, it of course could be in writing. It could even be implied by the circumstances.

Now consideration, what is that? Consideration is sometimes referred to as, this for that, or an exchange, or a quid pro quo. Basically what it is, is when one person is giving something, and another person is giving something or giving up something. For example, if I pay you to do work for an hour, you’ve given up the freedom of doing something else for an hour and you’ve agreed to provide work. I have given up the freedom of spending money on something else and I’ve agreed to give it to you. We both gave something, or gave up something, that is a consideration also known as quid pro quo, this for that, or an exchange of some sort.

The bottom line is, as long as you have an offer, acceptance, and consideration, you have a contract. That means it could be oral. Of course, if I say, hey, I’ll give you $5 if you paint this little chair for me, and you say, sure, and you say, I accept, or you say, oh here, let me paint that. Either way you’ve accepted. We have offer, acceptance, and consideration. We’re each giving or getting something, that is the essence of a contract. Now, typically, a contract in writing is going to have a lot of other provisions, but those aren’t necessary for a contract to be formed. Other provisions, or other terms are there to help avoid problems, avoid confusion, et cetera.