Contract formation is a process that involves different elements and specific procedures. To get a detailed insight into the formation of a contract and other related processes, we must first take a look at the different elements of a contract.
Generally speaking, contract formation can be divided into 3 different elements:
‘Offer’ and ‘acceptance’ can be used in the literal context. Typically, one party makes a contractual offer and the other party must make a decision as to whether or not it wants to accept the offer. It is only after acceptance that the given parties enter into legally bound agreement. This means that once an offer has been accepted, it cannot be withdrawn.
Let us now take a look at the third element in detail:
It is a legal term that refers to an exchange bargain. It is given by one party to another in return for the promise of agreeing to the contract. As an example, one of the two companies in a contractual agreement can pay the other to use their name on common products and services. The consideration value must be enough so that the contract is acceptable and thereby, becomes enforceable.
Consummation of Contract
‘Consummation’ literally means fulfillment. In legal terms, this translates into accomplishment of all the tasks related to the contract. It is important to understand that consummation is not the same as termination. In order for the parties to claim their rights and for these rights to be ascertained in the court of law, it is important to know when the contract is consummated. It is also of significant importance to know where the contract has been consummated so that it can be decided which law governs the contract. Most of the time, a contract should delineate what jurisdiction applies. Jurisdiction is a term used to denote location and choice of law. Two parties can in theory agree to designate the location to be one State, but to use the law of another. If the contract is silent on which Jurisdiction governs, then the location of the parties or where the contract is entered into, are facts which are used to determine where the contract terms may be enforced.
Assent of Contract
Mutual Assent or, more simply, assent of contract means a mutual agreement that both parties have come to. For a contract to be fair and effective, it is important that all parties agree to the terms stated in the contract, and understand the meaning of the words. Oftentimes words or phrases can be interpreted in various ways, so the assistance of an attorney to form or explain contract terms is highly recommended. This means that all the parties must derive a common meaning from the terms of contract. Sometimes, this is also called ‘Meeting of the Minds’. As an example, in a contract between a plumbing company and a client, the phrase ‘completion of work’ may mean different things to both parties. In order to facilitate mutual assent, ‘completion of work’ is described explicitly so that there is ‘Meeting of the Minds’ and both parties are on the same page.
Oral vs. Written Contract Formation
Just like written contracts, oral contracts are also bound by the court of law. When a contract is oral instead of being in writing, the issue of the existence of particular terms or even whether the contract even exists, becomes a primary issue. Where a written contract is proven by showing the written instrument; however, an oral contract does not have any physical proof and must be established through other extrinsic evidence including by looking at how the parties have performed during the period of the oral contract. Therefore, it may become considerably difficult to prove that a contract existed, in case there is a dispute. However, there are ways to overcome this issue. Additionally, witness testimony can be used to confirm the existence of a contract. This is done by allowing for the presence of external parties who witnessed all or part of the transactions or performances while the contract is being made.
In sum, in contract formation law, a written contract is always better than an oral contract and a well written, professionally drafted written contract is always better than a written contract which is vague, or ambiguous.