6.1 The Agreement

In this Chapter, we begin the inquiry into how to tell when parties have created a valid contract. The answer is not always obvious, but since businesspeople frequently conduct contract negotiations without the assistance of a lawyer, it is important to attend to the legal requirements of a valid contract at the outset. Whether a contract has been formed depends in turn on whether

• the parties reached an agreement (the focus of this Chapter)
• consideration was present
• the parties were legally capable of contracting
• the agreement was legal, and
• the parties entered into the contract of their own free will, with knowledge of the facts.

The Significance of Agreement

The core of a legal contract is the agreement between the parties. As the great student of contract law Samuel Williston put it, “It was a consequence of the emphasis laid on the ego and the individual will that the formation of a contract should seem impossible unless the wills of the parties concurred.” Accordingly, we find at the end of the eighteenth century, and the beginning of the nineteenth century, the prevalent idea that there must be a “meeting of the minds” (a new phrase) in order to form a contract. Although agreements may take any form, including unspoken conduct between the parties, they are usually structured in terms of an offer and an acceptance.   These two components will be the focus of our discussion in this Chapter. In future Chapters, the discussion will turn to the other major functions of the law of contracts: to sort out the agreements that are legally binding—those that are contracts—from those that are not.

The Objective Test

As we learned in the last Chapter, courts generally apply an objective standard to interpret contracts. This is true in interpreting each of the components of a contract as well. The Restatement (Second) of Contracts defines agreement as a “manifestation of mutual assent by two or more persons to one another.”   The Uniform Commercial Code (UCC) defines agreement as “the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance.” As evidenced by both of these definitions, the critical question is what the parties actually said or did, not what they thought they said or did nor not what impression they thought they were making. The objective test will apply throughout this Chapter.

Student Video on Agreement