In order to explain the elements of legal contracts, you must first understand what a contract entails. Each and every contract must include some key pieces of information in order for it to be valid. For example, a document will not be legally binding if it does not include an offer, acceptance, and other key elements. Being able to explain these features will help you better understand your role prior to signing.

Elements of a Contract

When forming a legal contract, there are key pieces of information that must be included, such as:

  • An offer
  • An agreed acceptance of that offer
  • Two or more parties who are competent and able to contract
  • Lawful subject matter
  • Mutuality of agreement
  • Consideration

What is an Offer?

When referring to the Contracts Act, 1950, the first element within a contract should be related to the offer. An offer is defined as a promise, outlined by specific terms and conditions. Demonstrated by a willingness to enter into an agreement alongside another party. There are key elements of an offer that form the basis of a contract, including a definite proposal and a statement of intent.

Preliminary Negotiations, Advertisements, Invitations to Bid

A preliminary negotiation is clearly distinguished from other offers in that it does not include any intent to form a contractual relationship. Instead, an invitation for an offer is sent. In many cases, these invitations are intended to increase awareness about a specific product or service.

This means that a price quotation, an advertisement, or catalog is often considered to be an invitation to make an offer — not a specific offer in itself. When there isn't sufficient stock to satisfy the potential demand, the courts do not generally consider a response a binding contract. For example, if the seller posts an advertisement and a potential buyer responds, this does not mean that a legal contract has been formed.

As stated by the courts, an advertisement is simply a unilateral contract or offer, that may be revoked by the seller or business before any terms are solidified. However, there are select circumstances when there is an exception to the rule. For example, if a seller states the quantity of items for sale, followed by promise words, such as "first come, first served."

When an offer is clear and does not leave room for negotiation, an acceptance of that offer essentially completes the intended contract. In this case, new terms cannot be imposed after the initial offer has been accepted. Sellers may also accept bids. When accepted, the submitted bid becomes a valid contract.

Termination of an Offer

An offer remains open until its specified expiration or time period. When there is no specific time limit, an offer will remain open for a reasonable amount of time. Of course, this time period is subjective and will depend on the circumstance. If a death occurs after an offer has been accepted, the contract would still be legally binding.

In other cases, the offeror will state that the offer is no longer open. At this point, the offer would be considered invalid. If an offer is made to the public, it can be revoked by publicizing its termination.

Agreements to Agree

When referring to an "agreement to agree" — this is not considered to be a contract. Instead, this type of agreement is typically implemented in industries that require long-term contracts. In turn, this helps to ensure there is a consistent and constant source of supplies, in addition to an outlet for production. In terms of the courts, it is important to determine whether the parties expressed their intentions.

Regardless of the type of agreement you are entering, whether it be in business or within your personal life, it is imperative that you understand the basic elements of a contract. If for whatever reason, your contract was presented to the courts, they would read it as a whole. By determining the intentions of each party when the contract was created, they can better determine the best course of action. That is why you must understand each and every aspect of your agreement before you sign.

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