Consideration is legalese essentially meaning “thing of value.” The promises made by the parties need to be supported by consideration, by something of value. In a lot of situations, this is not a difficult barrier. For example, purchasing a computer involves the consideration of (1) the computer and (2) the payment for the computer. Instead, the complication comes with promises to act. The typical example of this is the social contract. Promises to attend a party or hang out with friends has personal value, but it is not consideration.
Next an offer is needed. An offer is a verbal or written communication suggesting the exchange of promises and consideration between the parties. The party making the offer is going to outline all of the rights, duties, and promises between the parties, allowing the other side to determine if the contract is acceptable and appropriate. In essence, the offer is the contract before it becomes enforceable.
When an offer is received, the party can accept the offer, reject and propose a new offer, or reject the offer completely. If the offer is rejected, the parties go their separate ways with no binding legal relationship between them. If there is a counteroffer, the rejection and proposal of a new offer, the roles flip and the party who made the initial offer must decide what to do with the new proposal. Finally, if the contract is accepted the contract becomes binding upon the parties according to the terms of the contract.
Acceptance can occur in a number of ways, including through a signature on the written contract. Signatures on a writing have a special meaning, specifically, a signature indicates an individual’s intention to be bound to the contract and permission for the contract to be enforced against the individual. Signatures are not the only way to signal an intent to be bound, but signatures are among the most common.
Thus, for a contract to be formed, there must be an exchange of value in the form of consideration, an offer must be made, the offer must be accepted, and there must be some affirmation of intention to be bound including by signature.
Next week, we will delve further into the Offer.