Basic Elements of Contracts

When determining whether or not you have entered into a valid contract, you must take into account the four basic elements of a valid contract. Without understanding these elements, one can never comprehend whether one has entered into a valid contract or not.

The first element of a valid contract is that it must contain at least two parties. These parties can be individuals or companies. Without entering into an agreement, a contract can never be valid. This agreement can be made between two people, two companies, or one individual and a company.

The second element of a valid contract is to know whether a party is qualified to enter into an agreement. Either party needs to understand the terms and conditions of the contract. Both parties must be of legal age and have a comprehension of what the contract is about and the details in which the contract outlines.

The agreement that both parties are receiving a value from the contract is another element to a valid contract. Most commonly, money is exchanged for a good or service. However, there are other methods of consideration, mainly in the business environment.

Lastly, a contract is created from legal happenings. Contracts are not considered legally valid, or binding, when they promote illegal activities or violate laws in any way.

Modern legal concept that a binding agreement exists between two (or more) parties if a reasonable person would judge that an offer has been made and accepted. It dispenses with the subjective notion of intention of the parties advocated under the older subjective theory of contract as being too hazy (Business dictionary, 2010.)

Based on the explanation of objective theory, no sensible or rational individual could have taken the advertisement that PepsiCo, Inc. displayed involving the Harrier-Jet seriously. The commercial was meant as a comical stunt and not to have been serious. However, it is my opinion that PepsiCo, Inc. should have had a disclaimer in the commercial stating that actual jets were NOT for sale and meant as a mere stunt to obtain more sales.

Since the commercial was evidently created to be humorous, the court determined that there was no binding contractual agreement between the two parties. As per two of the four elements of a valid contract, there was no shared agreement between PepsiCo, Inc. and John D. R. Leonard. This contract also wasn't allowed by law as PepsiCo, Inc. could never offer a $23 million military jet for a mere $699,985 in lieu of Pepsi Points, as well as an additional 15 Pepsi Points earned in purchasing products sold by the company.

In most circumstances, advertisements are not considered offers. In contract guidelines, an offering person must direct his or her offer at a particular individual. The person doesn't have to be just one person; it can be a group of people. The advertisement must also establish specific terms that will be necessary if accepted