Offer and acceptance — collectively called mutual assent — is the most basic building block by which every contract is formed. Without a valid offer and acceptance, no contract will be made. There are many different legal constructs that lead to mutual assent of two parties and the formation of an agreement, but the guiding principle is always a communication of ideas that lead to a “meeting of the minds.” Though an offer and acceptance are necessities in the formation of a contract, they are not the only requirement. Additionally, the both parties must receive some sort of benefit from the formation of the contract, called consideration.
An offer is said to be made when there are words or actions by the offeror that create a reasonable expectation in the offeree that the offeror is willing to enter into a binding agreement based on the articulated terms. In order for an offer to be valid, there must have been a communication, through words or actions, that express a promise or intent to commit to terms that have been concretely defined. Though some situations dictate that an offer and acceptance be in writing, such as in sales of land, an offer may be communicated verbally and still held to be as valid as a written offer.
As long as the offer remains open, the party to whom the offer was communicated may accept the offer and effect a valid contract. Generally, an acceptance must be unequivocal in order for it to be deemed a valid offer and acceptance. For example, if an offeror communicates to the offeree to make repairs on a house for a stated amount of money, a valid offer has been made. If the offeror responds by saying “I accept as long as the job is completed within one week,” it is not an unequivocal acceptance. Rather, in this case, the response is deemed a rejection of the original offer and the presentation of a counter offer that includes the term that the job is completed within a week.
Aside from offer and acceptance, the final basic building block to contract formation is consideration. Consideration refers to the conferring of a benefit to both parties, and the absence of consideration in an offer to either party is merely a promise and no contract may be formed. Continuing the previous example where the offeror suggested that he or she complete repairs on the offeree’s house in exchange for a stated amount of money, the repair work and the money are the two parties’ respective considerations. Were the offeror to state in his or her offer that he or she would complete the repairs on the offeree’s house for free, then even if the offeree were to explicitly agree, the absence of consideration to the offeror prevents the formation of a valid contract despite the existence of a clear offer and acceptance.
