Basic Contract Principles

To make a valid Contract, you must have an Offer, an Acceptance and Consideration. 

Let’s start with basic contract law. In order to have a Contract, there must first be an Offer. The "Offer" can be an offer for a good or a service or almost anything else for that matter. In Example 1, A offers to by a car from B for $1,000. In example 2, X says to Z "If you pay me $50 I will paint that room". Clearly both of those statements are Offers. For the most part, the Offer will be along the lines of someone promising to do something, buy something or give up something.

The next step in Contract formation is called an Acceptance. The Acceptance regarding the above scenarios would be B’s reply "Yes, I will sell you my car for $1,000" or Z’s reply "Yes, I will pay you $50 to paint the room". Take note that a Counter-Offer will not act as an Acceptance, but rather as a Rejection. Referring to the above scenarios, B says "I will sell you my car for $1,200 instead of $1,000". This is a rejection of the initial offer, and becomes a Counter - Offer to A. A must now choose to Accept or Reject B’s Counter - Offer. If A rejects the Counter - Offer, the Original Offer is no longer on the table. The process must begin again.

The third aspect of Contract formation is called Consideration. Consideration means that something of value must be exchanged. The Consideration in the car scenario for A would be receiving the car. The Consideration for B would be receiving the $1,000. Consideration in a Contract must be mutual, that is, both parties must receive something of value. Take note, that the value need not be equal or necessarily fair. A can offer to buy B’s new Corvette for $1,000. If B Accepts, then a Contract will be made, even though it should be obvious that this is not a fair deal. That sums up Basic Contract Principles.

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