The five essential elements to a contract are offer, acceptance, consideration, mutuality, and legality. The process of negotiating a contract starts with the offer, an invitation to enter into a binding contract. The person making the offer is the offeror, and the person receiving the offer is the offeree.
The contract process starts when the offeror makes an offer to the offeree. Each party offers consideration for the deal, value that supports their promises. If the offeree accepts the offer, the parties mutually agree to the terms of the deal, and if the subject matter of the contract is legal, you have a contract.
“Acceptance” occurs when the offeree states either that the offer is accepted or takes action that indicates acceptance. Typically, you want to accept in an unambiguous manner. If you want to accept an offer but you’re unsure how to do so, simply use the same mode of communication that was used to convey the offer. For example, if the offer came by mail, accept with a letter.
The offeror may limit the amount of time the offer is open. If no time limit is set, the offeree has a reasonable time to accept. An offer usually can be withdrawn (“revoked”) at any time before it’s accepted. Here are two common exceptions:
- Contractual limitations: your contract requires you to keep the offer open. For example, the offeree pays to keep the offer open for a specified time.
- Legal restrictions: the law requires you to keep the offer open. For example, certain restrictions are imposed on merchants under the Uniform Commercial Code.
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