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In order to create a valid contract, there must be a `lawful offer` by one party and `lawful acceptance` of the same by the other party.

01 / 10 / 2021 Assignment

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All agreements are not contracts. Only that agreement which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is more wider in scope than contract. All Contracts are agreements but all agreements are not contracts.

An agreement, to be enforceable by law, must possess the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.

The following are the essential elements of a valid contracts:

1. Offer and Acceptance.  In order to create a valid contract, there must be a `lawful offer` by one party and `lawful acceptance` of the same by the other party.

2. Intention to Create Legal Relationship.  In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
   Case :- Balfour vs. Balfour(1919)

3.Lawful Consideration. Consideration has been defined in various ways. According to Blackstone, "Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of the another is brought."
consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Miners,                 (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.

5. Free Consent. `Consent` means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or                   (2) Undue influence, or          (3) Fraud, or
(4) Mis-representation, or         (5) Mistake.
An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.

7. Certainity of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable of being made certain are void."

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.


Home / Education / Online Training / Contract Law Tutorial / Elements of a Contract

Elements of a Contract

When Does a Contract Exist?

When a party files a suit claiming a breach of contract, the first question the judge must answer is whether a contract existed between the parties. The complaining party must prove four elements to show that a contract existed:

1. Offer - One of the parties made a promise to do or refrain from doing some specified action in the future.

2. Consideration - Something of value was promised in exchange for the specified action or non action. This can take the form of a significant expenditure of money or effort, a promise to perform some service, an agreement not to do something, or reliance on the promise. Consideration is the value that induces the parties to enter into the contract.

The existence of consideration distinguishes a contract from a gift. A gift is a voluntary and gratuitous transfer of property from one person to another, without something of value promised in return. Failure to follow through on a promise to make a gift is not enforceable as a breach of contract because there is no consideration for the promise.

3. Acceptance - The offer was accepted unambiguously. Acceptance may be expressed through words, deeds or performance as called for in the contract. Generally, the acceptance must mirror the terms of the offer. If not, the acceptance is viewed as a rejection and counteroffer.

If the contract involves a sale of goods (i.e. items that are movable) between merchants, then the acceptance does not have to mirror the terms of the offer for a valid contract to exist, unless:

(a) the terms of the acceptance significantly alter the original contract; or
(b) the offeror objects within a reasonable time.

4. Mutuality - The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

When the complaining party provides proof that all of these elements occurred, that party meets its burden of making a prima facie case that a contract existed. For a defending party to challenge the existence of the contract, that party must provide evidence undermining one or more elements.

Does a Contract Have to be Written?

In general, there is no requirement that a contract be in writing. Although the Statute of Frauds requires certain types of contracts to be in writing, New Mexico recognizes and enforces oral contracts in some situations where the Statute of Frauds does not apply.

One important difference between oral and written contracts is the statute of limitations that creates deadlines for filing lawsuits concerning the contract. For oral contracts, the statute of limitations is four years. NMSA §37-1-4. For written contracts, the general statute of limitations is six years. NMSA §37-1-3. However, if the written contract is for the sale of goods, the statute of limitations is four years unless the parties contract for a shorter period. NMSA §55-2-725. The shorter period cannot be less than one year.




How Is a Contract Interpreted?

The court reads the contract as a whole and according to the ordinary meaning of the words. Generally, the meaning of a contract is determined by looking at the intentions of the parties at the time of the contract’s creation. When the intention of the parties is unclear, courts look to any custom and usage in a particular business and in a particular locale that might help determine the intention. For oral contracts, courts may determine the intention of the parties by considering the circumstances of the contract’s formation, as well as the course of dealing between the parties.

Home / Education / Online Training / Contract Law Tutorial / Exercise 1

Exercise 1

This exercise is about offer and acceptance.

Description: Contracts Ex. 1John, a homeowner, answers the telephone and listens to a solicitor make a five-minute sales pitch for Weed Gardening Services. John responds, “No, thank you,” and hangs up. Two days later, John returns home from work to find a crew gardening in his yard and a bill for $200 sitting on the porch. When John tells the Weed representative that he never asked for this service, Weed responds by saying, “It looks much better, doesn’t it? You got the service, now pay for it.” John agrees that the work was of good quality, but refuses to pay for it. He is later served with a summons to appear in magistrate court because of this dispute.

How should the judge rule?

A. For Weed Gardening Services, because Weed performed good quality services for John.

Sorry, but that`s not the correct answer. Please select another.

B. For John, because he did not accept Weed`s offer.

Yes, the correct answer is B. John never accepted Weed`s offer. Without acceptance, no contract was formed. John does not have to pay for the yardwork, regardless of quality.

Home / Education / Online Training / Contract Law Tutorial / Exercise 2

Exercise 2

This exercise is about offer and acceptance.

Description: Contracts Ex. 2Harry drops by Mack’s house and finds him working on his old pickup truck in the driveway. Mack kicks the truck and exclaims to Harry, “This piece of junk isn’t worth a tank of gas – you can have it.” Harry says thanks and the next day comes by with his SUV to tow away the pickup. Mack stops him and says the truck is working now. Harry goes to court and claims that the truck Mack promised him was worth $500 and Mack should pay him that amount.

How should the judge rule?

A. For Mack, because there was no consideration for the transaction.

Yes, the correct answer is A. Mack offered the truck to Harry, and Harry indicated his acceptance by saying thanks and attempting to tow the truck away. But Harry did not provide any consideration in return for the truck. Without consideration, no contract was created.

B. For Harry, because Mack promised him the pickup truck, and that created a contract.

Sorry, but that`s not the correct answer. Please select another.

C. For Mack, because Harry never accepted his offer.

Sorry, but that`s not the correct answer. Please select another.

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