A contract might be defined, in simple terms, as a legally binding agreement between two or more parties. There are fundamental circumstances or elements of an agreement which must exist for a legally binding contract to be created. The information contained under the following sub headings identify the elements which must exist before contract can be created. 

An offer and an acceptance of that offer

A person cannot enter into a contract unless that person has either accepted an offer made to him or her or has made an offer to another person who has accepted that offer. 

Offer

A contractual offer must communicate the offeror’s intention, upon acceptance, to be contractually bound and what the offeror requires from the offeree in exchange for that which is offered. An offer may contains conditions as to the way in which the offer might be accepted or for how long the offer is open for and capable of acceptance.

Sometimes what might appear to be an offer is in fact no more than an offer to negotiate business (sometimes called an ‘offer to treat’). In such cases the so called offeror does not intend to be bound but merely expresses a willingness to transact business. An example of this is the practice of shopkeepers displaying items for sale on shelves: the display of the items by the shopkeeper is merely an offer to treat and not an offer to sell. 

Acceptance

Acceptance of a contractual offer must be in the mode and within the time, if any, specified by the offeror. Accordingly, depending upon the nature of the particular offer, acceptance may be express or implied form the acceptor’s conduct.

Acceptance must be unconditional and therefore anything less, including a counter-offer, operates as a rejection of the offer, thereafter rendering the offer incapable of being accepted. Further, acceptance must occur before the offer lapses or is withdrawn by the offeror.

Examples of offer and acceptance:

• Purchasing goods in a shop - a contract is formed when the shopkeeper accepts your offer to buy the goods.
• Provision of services - you offer to cut your neighbour’s lawn if your neighbour prunes your trees. In the absence of special conditions as to how the offer might be accepted, your neighbour can accept your offer by pruning your trees and you are contractual bound to cut your neighbour’s lawn.

Read on about Understanding Contracts.