Mutual assent, or offer and acceptance, is necessary for contract formation. An offer must be communicated and include concrete terms, while acceptance must be unambiguous. Consideration, or benefit to both parties, is also required. Written offers are not always necessary.
The offer and acceptance – collectively called mutual assent – are the most basic building blocks by which any contract is formed. Without a valid offer and acceptance, no contract will be concluded. 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 leading to a ‘meeting of minds’. While an offer and acceptance are necessities in forming a contract, they are not the only requirement. In addition, both parties must receive some kind of benefit from the formation of the contract, called consideration.
An offer is said to be made when there are words or actions of the offerer that create a reasonable expectation in the recipient that the offeror is willing to enter into a binding agreement based on the terms articulated. For an offer to be valid, there must have been a communication, by word or deed, expressing a promise or intention to commit to terms that have been concretely set out. While some situations require an offer and acceptance to be in writing, such as in the sale of land, an offer may be communicated orally and still be deemed as valid as a written offer.
As long as the offer remains open, the party to whom the offer has been communicated can accept the offer and conclude a valid contract. Typically, an acceptance must be unambiguous in order for it to be considered a valid offer and acceptance. For example, if a proposer tells the recipient to make repairs to a house for a certain amount of money, a valid offer has been made. If the bidder responds by saying “I accept as long as the work is completed within a week,” it is not an unequivocal acceptance. Rather, in this case, the response is considered a rejection of the original offer and the submission of a counter offer that includes the deadline that the work be completed within one week.
Aside from the offer and acceptance, the last building block of contract formation is consideration. Consideration refers to giving either party an advantage and the absence of consideration in an offer to either party is only a promise and no contract can be entered into. Continuing the previous example where the bidder suggested completing repairs on the recipient’s home in exchange for a specified amount of money, the repair work and the money are the two parties’ respective considerations. If the offeror stated in his offer that he would complete the repairs to the debtor’s house free of charge, then even if the latter explicitly agreed, the absence of consideration for the offeror prevents the formation of a valid contract despite the existence of a clear offer and acceptance.
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