Contract - Elements of a Cont ract

Contract: the elements of a contract

The first step in a contract question is always to make sure that a contract actually exists. There
are certain elements that must be present for a legally binding contract to be in place.
The first two are the most obvious:
• An offer: an expression of willingness to contract on a specific set of terms, made by the
offeror with the intention that, if the offer is accepted, he or she will be bound by a
contract.
• Acceptance: an expression of absolute and unconditional agreement to all the terms set
out in the offer. It can be oral or in writing. The acceptance must exactly mirror the
original offer made.
• A counter-offer is not the same as an acceptance. A counter-offer extinguishes the
original offer: you can’t make a counter-offer and then decide to accept the original offer!
But…
• A request for information is not a counter-offer. If you ask the offeror for information
or clarification about the offer, that doesn’t extinguish the offer; you’re still free to accept
it if you want.
It is very important to distinguish an offer from an invitation to treat – that is, an invitation for
other people to submit offers. Some everyday situations which we might think are offers are in
fact invitations to treat:
○ Goods displayed in a shop window or on a shelf.
 When a book is placed in a shop window priced at £7.99, the bookshop
owner has made an invitation to treat.
 When I pick up that book and take it to the till, I make the offer to buy the
book for £7.99.
 When the person at the till takes my money, the shop accepts my offer,
and a contract comes into being.
○ Adverts basically work in the same way as the scenario above. Advertising
something is like putting it in a shop window.
○ Auctions:
• The original advertising of the auction is just an invitation to treat.
• When I make a bid, I am making an offer.
• When the hammer falls, the winning ‘offer’ has been accepted. The seller now has a
legally binding contract with the winning bidder (so long as there is no reserve price that
hasn’t been reached)
N.B: an offer can be revoked at any time before it is accepted, so long as you inform the person
you made the offer to that the offer no longer stands.
• Consideration: each party to the contract must receive something of value.
This is best illustrated by an example: suppose I promise to give you my watch, but you don’t
give me anything in return. If I break my promise and keep my watch, you can’t then go to court
and make me give it to you. The contract isn’t legally binding: you didn’t give me any
consideration for my promise.
So put simply, consideration is the price paid for the other’s promise.
There are four legal maxims that apply to consideration:
○ Consideration must move from the promisor;
○ Consideration need not move to the promisee;
○ Past consideration is not good consideration;
○ The consideration given must be sufficient, but it need not be adequate.
The detail isn’t necessary here, but there is a separate note on them if you’re interested.
• Intention to create legal relations: if my brother offers me a lift to London, and I say
I’ll contribute to the cost of the petrol and then don’t, there isn’t necessarily a binding
contract that he can sue me under. If the arrangement is an informal, social one, then my
offer to pay for petrol probably wasn’t made with the intention of being legally bound
(see the definition of ‘offer’ above).
In general, arrangements of a social nature are presumed not to be legally binding, whilst
commercial arrangements are presumed to be intended as binding contracts. Of course, these
presumptions can always be rebutted in court by producing evidence to the contrary.

For Reference: Author: Deborah Smithies, August 2007

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FAQs
Regulatory Requirements: Contract Law:
Essential Elements of a Contract
Minimum two parties :- Atleast two parties are needed to enter into a contact. One
has to make an offer and other must accept it. The person who makes the 'proposal'
'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made
called the 'offeree' and the person who accepts the offer is called the 'acceptor'.
Offer and acceptance :- There must be an 'offer' and an 'acceptance' to the offer,
resulting into an agreement. Both offer and acceptance should be lawful.
Legal obligations :- The parties must intend to create a legal obligation.The agreem
sought to be enforced should contemplate legal relations between the parties to it.
Lawful consideration:- A contract is basically a bargain between two parties, each
receiving 'something' of value or benefit to them. This 'something' is described in law
'consideration'. Consideration is an essential element of a valid contract. It is the pric
which the promise of the other is bought. A contract without consideration is void. Th
consideration may be in the form of money, services rendered, goods exchanged or a
sacrifice which is of value to the other party. This consideration may be past, present
future, but it must be lawful.
Competent parties:- The parties making the contract must be legally competent in
sense that each must be of the age of majority, of a sound mind, and not expressly
disqualified from contracting. An agreement by incompetent parties shall be a legal n
Free consent:- The contracting parties must give their consent freely. 'Consent' mea
that the parties must agree about the subject matter of the agreement in the same s
and at the same time. Consent is said to be free if it is not induced by coercion, undu
influence, fraud,misrepresentation or mistake. The absence of free consent would affe
legal enforceability of a contract.
Lawful object:- The object of the agreement must be lawful. An agreement is unlaw
it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would
defeat the provisions of any law (v) causes injury to the person or property of anothe
opposed to public policy.
Not expressly declared void:- An agreement expressly declared to be void under t
Contract Act or under any other law, is not enforceable and is, thus, not a contract. T
Contract Act declares void certain types of agreements such as those in restraint of
marriage, or trade, or legal proceedings as well as wagering agreements.
Certainity and possibility of performance:- The terms of a contract must not be v
 or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cann
enforced. Also,the terms of a contract must be such as are capable of performance. A
agreement to do an impossible act is void and is not enforceable by law.
Legal formalities:- Generally, a contract may be oral or in writing. However, certain
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Client Relationship Management law requires an agreement to be put in writing or be registered, the same must be
complied with. For instance, the Indian Trusts Act requires the creation of a trust to b
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