An offer is an expression by one of the parties that they are willing to enter a contract under some defined terms. It must be made with an intention to form a legally binding contract as soon as the offer is accepted by the other party or parties. There are multiple forms in which it can be expressed: written, verbal, or even by conduct. A good example to illustrate the last one is shopping in a supermarket - the act of approaching the checkout with a shopping cart is seen as an offer to exchange money for the goods in the cart. An offer needs to be distinguished from an invitation to treat. The latter expresses not the intention to enter a contract, but merely to negotiate one - as such it is basically an invitation for an interested party to make the offer.
Once an offer has been made, in order for a contract to form, it must then be accepted by another party or parties. An acceptance of an offer indicates a willingness to be bound by the terms and conditions expressed in it. The crucial requirement is that both (or all, in cases where there are more than just two) parties have a common understanding when making and accepting the offer. That idea is described as ‘meeting of the minds’. The acceptance must be absolute and unqualified, that is - not even pettiest alterations to the offer can be made, according to the so-called ‘mirror image rule’. If that’s not the case, the contract does not form. At least, as a general principle, but we will go into details on this one in the separate post. Furthermore, the offer can be accepted solely by the person or persons it was made to. The acceptance in theory can be expressed in any form, also inferred from conduct, but not always. For some kinds of offers a specific form is necessary. Additionally, if a specific method of acceptance is requested in the offer, then no less effective form than the one specified must be chosen.
It’s worth noting that offer and acceptance are, so to speak, two sides of the same coin. They are tied together to the point that in the state of California they are treated as merely two parts of a single element of a contract – consent of the parties.
Consideration is a little trickier. It is generally required in so-called ‘simple contracts’, however not in contracts by deed. It can be described as a promise of something of value given by one party in exchange of another thing of value given by another party. That something usually is goods, money or an act. However, as defined by the court in the Currie v Misa case, the consideration can be a “Right, Interest, Profit, Benefit, or Forbearance, Detriment, Loss, Responsibility”. Let’s return to the example of supermarket shopping for a moment. The transaction here is obvious - we exchange money for the wares we are buying. This way both parties are giving something of value – and receiving something else in return. In the common law doctrine, the consideration must be offered by both parties before the contract is considered binding. There are, of course, several legal rules regarding consideration, but we will go through them in a separate post on this topic. In Roman law based systems, consideration is generally not required, sometimes even seen as unnecessary. This is why this element of a common law contract can be somewhat tricky for some.
Last, but not least, all parties involved must act with an intention to enter a legally binding contract. The contract can only be enforced by law if both parties intended for it to be legally enforceable. That means, that a mere acceptance of an offer doesn’t necessarily mean the agreement is a contract. To determine that, rather than asking the parties (who could potentially lie), the court asks, whether a reasonable bystander considers the parties to have been willing to create a legal relation at the time of the agreement. This is a so-called ‘objective test’. Apart from that, there are four groups of cases where the contract or lack of thereof is presumed. In the case of family agreements and collective agreements the presumption is that no contract was formed. For the commercial agreements, on the contrary, a contract is presumed. The case of social agreements, such as one between friends, is more complicated and the objective test has to be used.
If the consideration and the intention to enter a contract are present, the parties enter a legally binding contract as soon as they reach an agreement by making an offer and accepting it respectively.
