Contracts 101: What is a Contract, and How Does It Operate?
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Step 1: The Offer
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First, the offer. An offer is some type of promise or commitment to enter into a contract that is communicated to the person you want to contract with. When you make an offer to a person, the terms of the offer must be so certain and definite that it creates a sense of expectation in the other person that you are truly looking to enter into a binding agreement. If your offer is wishy-washy or vague, it will likely not be enough to create a binding contract, even if it is communicated to the other party. Let’s use a hypothetical to illustrate the difference between definite and indefinite terms.

Let’s picture Amy and Bob, two neighbors in a suburban area. Amy approaches Bob and says that she’ll paint Bob’s house on Saturday at 9:00 a.m. and have it finished by 5:00 p.m. that evening, IF he will pay her $500 on that same day. This is an example of a clear and definite offer. If Bob accepts Amy’s offer, and she performs as she promised to do, he’ll be legally obligated to pay her $500 on Saturday.

Now, let’s picture Amy and Bob, but this time let’s say that Amy agrees to paint Bob’s house soon at a price between $300 and $500. This is not a valid offer because it is too indefinite. Amy has not listed an exact price, nor has she established a clear date for the performance. This is merely the potential beginning of negotiations between Amy and Bob. Legally, this is referred to as “preliminary negotiations” as between Amy and Bob because no actual offer has been made.

Next, we’ll tackle the second step in creating a contract.