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Question: How is a Contract formed in  Pennsylvania?


In Pennsylvania, a contract is formed by and (1) offer and acceptance, (2) consideration, and (3) meeting of the minds.  This creates a contract. Although there may be certain defenses to the contract (such as the statute of limitations, or failure to get the contract in writing, etc.) once the contract is formed, let’s take a closer look how the contract is formed.



(1) The Offer and Acceptance

An offer is any outward  manifestation or gesture that suggests a  willingness to enter into an agreement  through some form of acceptance. An offer can be accepted two ways: either by a return  promise or by an act. If, for example, I say: “I will give you two hundred dollars if you deliver  to me your motorcycle.” Your act of  delivering the motorcycle will constitute  acceptance. In other instances, one party  exchanges one promise for another promise: for example, I promise not to sue you, if you promise not to sue me, via a mutual release of all possible claims, a promise for a promise. In this example, there is no “act” that constitutes acceptance. Neither party is “doing” something.  Rather, the offer  can only be accepted through a return promise, not an act.

Contrast that with the situation where, I go to a deli to buy a bagel.  I hold up a five dollar bill and point to a particular bagel for the clerk to see.  The offer of money is accepted by the clerk handing me a bagel; there is no understanding that I’ll pay money now, to get a bagel on some other day in the future.



(2) Consideration

Another key element of a contract is a  validating device, such as consideration: i.e.,  something of significance. If I say, I will give  you a million dollars if you do nothing. Then,  you do nothing. This has not created a  binding agreement because there is no consideration for the original promise of  paying money. Contact one of our attorneys  to determine whether the circumstances in  your case rise to the level of an enforceable  contract.



(3) Meeting of the Minds

The final requirement for a valid contract is a meeting of the minds, sometimes referred to as mutual assent or intent.  What does this mean?  It simply means that, one party’s subjective understanding of the agreement does not matter, unless there is mutuality.  You are allowed to enter into a bad deal, or one that makes no sense, but the must have a core understanding of the arrangement.  If, for example, I walk into a bagel shop, stand in the area where people place orders, and hand $5.00 to to the clerk, this is an offer, of sorts, because I’m standing in the place where people buy bagels (not where they get change for a 5 dollar bill, a few feet down) to be accepted by the trade of money for a bagel, plus there is consideration (the money for the bagel), but what kind of bagel?   The deli has 50 plus kinds.  So far, there is no meeting of the minds until I point at the bagel I want.  Otherwise, the clerk could just retrieve a stale bagel from the room, hand it to me, and say, “we have a deal!”

All of that said, the Fourteenth Amendment to the United State Constitution has been interpreted to guarantee the right to enter into contracts, even bad ones.  The Courts will not set aside a contract, just because the outcome went against the subjective intent of one of the parties.  For example, if I agree to buy stock in a company, on the mistaken belief that the stock will rocket in value, a contract will still exist even if the price of the stock plummets, absent some knowingly false representation by the stock broker. Such a promise by the stock broker could create a mutual understanding that, as a condition of the deal, the stock price must go up.  Otherwise, the understanding is that both sides are taking risks (which is a cornerstone of our economy).

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