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Behind the terms: contract — Articles

The word "contract" appears in almost every legal dispute — yet what makes an agreement legally binding is frequently misunderstood. People assume that a verbal agreement is unenforceable, or that a signature on a document automatically creates a contract, or that small print always governs. None of these is reliably true. This article explains the six elements of a valid contract in English law and what happens when one is absent. For the formal definition, see the contract glossary entry.

1. Offer

An offer is a definite proposal to enter into a contract on stated terms, which if accepted will create a binding agreement. It must be communicated to the offeree. An offer is different from an "invitation to treat" — a display of goods in a shop window, a price list, or an advertisement is not an offer; it is an invitation to make an offer. The key case is Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401, which established that a supermarket display is an invitation to treat, not an offer. An offer lapses after a reasonable time, or when expressly withdrawn before acceptance.

2. Acceptance

Acceptance is an unconditional agreement to all the terms of the offer. A counter-offer (accepting some terms but changing others) is a rejection of the original offer, not an acceptance — it destroys the original offer. Acceptance must be communicated: silence is never acceptance. The "postal rule" is an exception: acceptance by post is effective when posted (not when received), provided posting is a reasonable method of acceptance (Adams v Lindsell (1818)). In modern practice, contracts formed by email or electronic signature are fully valid under the Electronic Communications Act 2000.

3. Consideration

Consideration is the element that distinguishes a binding contract from a gift or a gratuitous promise. Each party must provide something of value: money, goods, services, or a promise to do something (or refrain from doing something). Consideration need not be adequate (equal in value) but must be sufficient (have some value in the eyes of the law). Past consideration — something already done before the contract is formed — is not valid consideration. This is why a promise to pay a bonus after an employee has already done the work is often unenforceable: the work is past consideration.

This article is for general information only and is not legal advice. Always check the official source and consult a qualified lawyer for your situation.

1. Offer

2. Acceptance

3. Consideration

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