In order for any "deal" to be recognised as a contract, there must be:

1. obvious signs that all parties have finished negotiating or bargaining and a "deal" has been done - this is called "Offer and Acceptance".
2. a common feeling that all sides have received some value from the bargain - this is called "Consideration".
3. a sense of seriousness behind the makers of the "deal" - we say that they must show an "Intention To Create Legal Relations".

OFFER AND ACCEPTANCE

Offer and acceptance may happen through what is said by someone (orally), what is written, or what someone did or how somebody else behaved, or even any combination of all the above.

Illustration: Scenario 1 -Offer & Acceptance

You wanted to buy a watch displayed at a shop. The watch has a price tag of $30. If you took the watch and gave the shopkeeper $30, the deal is done. The shopkeeper's offer (for the watch to be sold at $30) was accepted by you paying $30 for the watch).

Illustration: Scenario 2 - An Invitation To Treat

However, imagine if the tag said $30 but the shopkeeper hints that you can bargain the price down. For instance, there may be many signs in the shop saying "CLOSING DOWN SALE" and "EVERYTHING MUST GO". You haggle with the people at the shop to reduce the price to $20 but they would not go below $25. You said you'd think about it. Now there is no done deal.

This tag is regarded only as an "invitation to treat". This means it is an invitation by the shopkeeper to you, as the customer, to make an offer to the shopkeeper. You may then offer to buy it at $20. If the shopkeeper accepts the offer, the contract is made. You can back out if the offer has not been accepted.

Q: Are there confirmed examples of what is an "offer" and an "invitation to treat"?

A: No. People have different ideas of what should be an "offer" or "invitation to treat" in the same situation. [It is more helpful to think of these terms as signals or tools which people use to describe how committed they are to a deal. An "offer" shows greater commitment than an invitation to treat.

Words, gestures, actions or behaving in a certain way can be understood (or misunderstood) as an offer to enter into a contract. Or an acceptance of an offer.

The technical terms like 'offer' and 'acceptance' are used to mark out the situation where the parties have struck a deal and they have a common understanding of the agreement.

Where someone has improperly made threats, used force, pressured or used false information to make the other side offer or accept anything, our sense that there was really no genuine bargain or offer and therefore, such contracts are not valid.

A practical lesson: you can "take back" or withdraw an offer at any time before the other side has agreed to the deal.

Q: What about "terms and conditions" appearing in tiny print on the back of forms and airline tickets?

These fine print are usually considered part of the deal. Exceptions are when they relate to terms which one side uses to avoid responsibility for negligent behaviour while carrying out a contract. Such terms will not be applied where they are considered "manifestly unfair" or "unreasonable". Therefore it is always wise to consult a lawyer before entering into any agreements or contracts.

Another practical lesson: Different people have different ideas of what words or actions would become a situation where there is an "invitation to treat" or an "offer and acceptance". This means they do not always have the same idea of when negotiations are still going on or when a deal is completed. It also means that it is possible that immediately after a contract was made, all the parties also agreed to change a certain term. Strictly speaking, it can be a new contract.

CONSIDERATION

This is the technical name for the part of the contract which has value for each party in the deal. Consideration has been described as "the price for which the promise… is bought". Each party to the contract pays the "price" to the other. The most common example of consideration is money. Another common example is a product or service. i.e.: the employer's consideration for work is wages, the worker's consideration for wages is work.

If no consideration can be found, a contract will not be enforceable in the courts as there is a feeling that no value had been given to a particular party. This creates a suspicion that the contract was obtained by "fishy" means or underhand tactics.

However, there is a "loophole"; a way to get around a situation where you may not be able to find consideration: if the contract is made "under seal" , i.e. in the form of a deed witnessed by a lawyer who confirms that the deed was signed by a party willingly without being forced and that party knows what he is signing.

Sometimes, courts say that there must not be "past consideration". This simply means that the value which is provided by one party to a contract cannot be exactly the same as what that party had already given previously without that contract. Here's an example:

A had agreed to work for B at a daily rate of $10.00.

After 2 days, A refused to carry on unless B agrees to pay A $20 per day. A also insists that the new daily rate must start from 2 days ago.

A should not be allowed to insist that B back pay the additional daily wages. A had not provided any extra value for the additional wages because he had already agreed to put in the work for $10 a day in the past.

Past consideration does not count in making a contract stand up in court. Such contracts will not be supported by the courts.

INTENTION TO CREATE LEGAL RELATIONS

If there was no intent to create legal relations, there is no contract. Most people consider that social and domestic "agreements" are made in private and probably specially meant to be kept out of a courtroom. This is contrasted with business arrangements where going to court is an option that should not be eliminated at the start.