What Constitutes an Agreement?

"Pacta sunt servanda"--Latin for "agreements must be kept"--is the governing principle of contract law. It means that the terms of an agreement between two parties are law between those parties. Three elements are present in an agreement: an offer, an acceptance and a consideration.

Offer

An offer is an indication from one party to another that he is willing to be bound under a specific set of terms. A mere "invitation to treat," such as advertising goods in a window or printing a price in a real estate listing, is not enough: a reasonable observer would have to be able to conclude that the party making the offer is not just expressing an interest in negotiating an agreement.

Acceptance

An acceptance is a clear and unconditional indication on the part of the person receiving the offer that she agrees to its terms. An objective, reasonable bystander should be able to tell that the offer has been accepted. If the person receiving the offer applies conditions or tries to adjust the terms, then the parties are merely negotiating and there is not yet an agreement.

Consideration

Consideration is anything of value exchanged in an agreement. For instance, if Ed buys a refrigerator from Mary for $300, Ed's consideration is the $300 and Mary's is the refrigerator. A valid agreement requires that some new promise or benefit be exchanged as consideration. An agreement in which one party provides no consideration to the other may be ruled unconscionable by a court.

References

• E-Law: Essentials of a Contract
• Law.com Dictionary: Agreement
• Virginia Journal of International Law: Pacta Sunt Servanda