A contract can be simply defined as a legally enforceable agreement made between two or more parties. They can be oral or in written form (Ryan, 2005). There are three essential elements present in any valid contract. Any agreement falling short of these fundamental concepts would not be considered valid and neither will it be “legally binding”. These vital concepts are offer, acceptance and legal consideration.
Parties in a contract must be in agreement, and this can be determined from the existence of the offer made by one party and accepted by the other (Mead & Sagar, 2006). The offer has to be definite and stated clearly in regard to the action to be undertaken; one that would require a mutual obligation and agreement between the two parties involved. It expresses and outlines the willingness or readiness of a “party to enter into the bargain or contract” as illustrated by Mead & Sagar, (2006). Offers usually factor in time in their consideration (smallbusiness.wa.gov, 2011).
If the stipulated time elapses without the offer being accepted by the other party, it will be regarded invalid unless it is offered again. It can also be invalid if withdrawn before consent is extended. The extension of an offer by one party followed by its acknowledgment and subsequent acceptance by the other party defines consent and agreement between them. A new offer referred to as a counteroffer can arise after variations are made on the initial offer accepted by the receiving party (smallbusiness.wa.gov, 2011). This if agreed upon would form the valid contract, legally binding the two parties, and considered irrevocable when the accepting party performs its obligation.
What is offered is what would be accepted. The offer can only be received by the other party and accepted in its exact form without any alteration to its original format. With this perspective, the offer can only be accepted without conditions. However, new terms can be suggested before accepting and as discussed earlier, lead to the formation of a counter offer; they may be accepted or even rejected, requiring further negotiations. Such a situation may in essence lead to many offers and counteroffers being traded between the parties before any agreement can be reached.
The important issue will be that the offer is found acceptable between the parties at the end and not which side makes the final offer. At this point of acceptance, all “the terms and conditions” applying to the contract would have been established (smallbusiness.wa.gov, 2011). Acceptance can be given in varied forms, including verbal and writing; it however has to conform to the method proposed by the offering party in the contract. The concept of “reality of consent” as pointed out by Mead & Sagar (2006), applies in this case outlining that acceptance has to be commensurate with full understanding of the conditions in the contract.