Elements of a Contract and Intention to Create Legal Relations

Running head: BUSINESS LAW 0
Business Law
Contracts

BUSINESS LAW 1
Answer 1
Following are various elements which are necessary to be fulfilled by the parties of a
contract in order to bring it into existence. Non-fulfilment of these elements makes a contract
void ab initio which means invalid from the beginning.
Agreement
In order to bring a contract into existence, an agreement is necessary to be constructed
between parties. Agreement is a foremost requirement which validates the authenticity of a
contract and brings it into existence (McKendrick, 2014). In order to create an agreement, a
party made an offer to another for doing or not doing a specific activity, and such offer is
required to be accepted by another party without any modifications in its terms. A contract
can be written or oral. The party making the offer is called ‘Offeror’, and the party who
accepts such offer without any changes is called ‘Offeree’. In Carlill v Carbolic Smoke Ball
co (1893) 1 QB 256 case, it was held that it is necessary that offeror has the intention to
bound by the terms of the contract (Poole, 2014). For example, A points a gun at B and
forced him to accept his offer. It will not be a legal contract since B had no intention to bind
to the contract.
Consideration
Consideration means anything which is given by the parties to a contract in lieu of a
promise which is made under the contract. Without a valid consideration, a contract cannot
come into existence, and it is considered as void ab initio. Generally, a consideration is
anything with a monetary value, and it should have a certain worth. In Thomas v Thomas
(1842) 2 QB 851 case, it was held that consideration must have certain worth in the eyes of
the law (Giancaspro, 2015). For example, A agrees to give $200 to B for teaching his son
mathematics; it is considered as a valid consideration.
Capability of Parties
In order to bring a contract into existence, it is necessary that parties of a contract are
capable of entering into a legally enforceable contract. The capability of parties to a contract
means all the parties must be of legal age which is 18 or above. A minor cannot enter into a
legally enforceable contract and contract with a minor is void ab initio. As per Hart v
O’Connor (1985) AC 1000 case, the parties who are singing a contract must have a stable

BUSINESS LAW 2
and sound mind which means that they are able to understand what is right or wrong for them
(Phillips, 2010). The contracting parties should be solvent as well because an insolvent
person cannot enter into a legal contract.
Intention
The thinking and intention of contracting parties must be same while entering into a
legal contract. The intention of parties must be free from any force or threat, and they should
provide their intention without any external influence. As per Balfour v Balfour (1919) 2 KB
57 case, social contracts cannot constitute a valid contract since parties do not intend to bind
each other legally (Saprai, 2017). For example, A asked B to come to dinner at his house on a
specific day, and B agrees. A contract has not been created between them since both of them
did not have the intention to bind each other legally.
Certainty
The terms of a legal contract must be certain since changeable or flexible conditions
cannot form a valid legal contract. The terms of a legal contract can only be changed with the
prior approval of all the contracting parties (Chen-Wishart, 2012).
Answer 2
In order to bring a contract into existence, the intention of all the contracting parties is
a crucial requirement. While entering into a valid legal contract, all the parties must have a
similar intention of binding themselves with the terms of the contract. The intention must be
free from any external influence, force or threat. Whether or not parties have a legal intention
to enter into a contract is determined by the circumstance which exists at the time contract’s
execution (Skyrms, 2014). Therefore, the contracts which are created in a social setting and
between family and friends are not legally enforceable in the court because the parties lack
the intention of enforcing the agreement over other parties. As per Jones v Padavatton (1969)
2 All ER 616 case, there is a general presumption that contract between family and friends
did not create legal relations since they did not have legal intention to bind themselves or
others into a legal relationship instead they intend to rely solely on trust and affection
(Young, 2009).
The Simpkins v Pays (1955) 1 WLR 975 case is a good example in which the court
defined legal enforceability of a contract. In this case, three friends purchased a lottery ticket
together, but only one of them had the money, so they decided that they will buy the ticket