Elements of a Valid Contract and Liability of Exclusion Clause

Business and Company Law

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ANSWER 1 (A)
In order to determine whether a valid contract has formed between two or more parties
or not, it is important to assess whether certain elements are present or not. Without
the availability of these elements, parties did not enter into a legal relationship that is
enforceable on them. Thus, these are considered as the essential elements without
which a contract cannot be formed. The evaluation of these elements is important in
order to assess how a contractual relation is constructed and whether it is enforceable
on the parties to determine its legality. These elements are necessary to be present to
ensure that the steps taken by Avinash while he visited his local café resulted in creating
a contractual relationship between the parties.
The evaluation begins with the first crucial element which is also the starting point of
formation of a contract: an offer. However, whenever parties made an offer, it did not
lead to creating a contract between them. The key part of this element was provided by
the court in Harvey v Facey.1 When it comes to determining the validity of an offer, the
provision given in this judgement can be applied by parties. It was held that a valid offer
is the one in which the party who is making such offer have the intention to create a
legally binding relationship with another party.2 This intention can be to do certain
thing, or no do a particular thing. This intention was further elaborated by the court by
providing that after receiving the acceptance, the party who had made the offer must be
bound by the terms. The goods or products which are offered by people in shops are not
considered as a valid offer. They are not considered as an offer because the element of
the intention of the party is missing without which it cannot be constituted as valid as
provided in Fisher v Bell.3 When evaluating the given scenario, it can be seen that the
offer was made by Avinash. He went to the local café and selected the coffee and pastry
options which were available on the self-service system, and he took the receipt to the
cashier to pay for his order. The coffee and pastry options are not offer given by the
café; instead, they are goods on display, and an offer was made when Avinash selected
one of the options and agreed to pay the price.
1 [1893] UKPC 1
2 Tracey Hough and Kathrin Kuhnel-Fitchen, Optimize Contract Law (Routledge, 2017).
3 [1961] 1 QB 394

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Moving forward, an offer itself cannot form an agreement without the availability of
acceptance which is the second element. It is the approval which is given by a party to
form an agreement in order to comply with the terms of the offer.4 There are specific
criteria which must be present without which the acceptance is not considered as valid.
The communication of acceptance is a general rule to consider it as valid; however, the
communication need not be in writing or orally as it can be given by the conduct as held
in Butler Machine Tool v Ex-cell-o Corporation.5 It is only considered as valid when it
exactly matches the terms which are included by the parties in the offer or else it did
not constitute as valid. Lastly, it must be certain in nature rather than ambiguous. In the
given scenario, the offer of Avinash was accepted by the café through conduct rather
than in writing or orally. The act of collecting the money and giving the Danish pastry is
constituted as a valid acceptance.
The presence of these two elements is not enough to create a legally enforceable
contractual relationship since the presence of consideration is necessary. It is a crucial
element which is the bargain that is made between contractual parties because one
party receive a benefit while at the same time another party suffers a detriment. There
are principles which must be present for a valid consideration in the contract such as it
must have a value in the eyes of the law.6 It is also necessary that the consideration must
move from the promisee and the parties have to ensure that it is present or future
because past consideration is not valid. These are the key elements which are necessary
to be present when parties decided to form a contract without which they cannot form a
relationship that allows them to legally enforce one another.7 The promisee in the given
scenario is the café, and the consideration is the pastry which was given to Avinash. Due
to this bargain, it can be established that the element of consideration is present in this
case.
All these elements can be made present; still, parties cannot be enforced to comply with
the terms which they agreed to accept if they did not have valid intention in the first
place to comply with them. Unless the parties forming a contract did not have the
intention to make sure that they bind themselves into the terms, they cannot form any
4 Jill Poole, Textbook on contract law (Oxford University Press, 2016).
5 [1979] 1 WLR 401
6 Thomas v Thomas (1842) 2 QB 851
7 Matthew Stubbins, ‘The gratuitous transfer and Petrodel: reform or no reform?’, (2016) 22 (5) Trusts &
Trustees 516-524.

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legal relationships based on contracts.8 Due to this element, the contracts that are
formed between parties when they are in social or domestic settings are not considered
as valid since these individuals did not want to actually create a legal obligation on one
another which they intend to legally enforce. 9 However, in commercial relationships,
parties have the motive to make sure that they create legally enforceable contracts
which are not violated by another party or else they could suffer a loss. Thus, a contract
is business context is considered as valid because the parties have the intention to
legally bind it upon themselves.10 There is a commercial relationship between Avinash
and the café since he has paid $7.50 in order to receive the pastry due to which both
parties are intended to create a legal relationship. Thus, the presence of this element is
also present; however, it is also essential that the parties have the legal capacity to
create a legal relationship in the first place. Not everyone has the capacity to create a
legal relationship, and there are specific parties who cannot form a legally enforceable
contract which includes insolvent, minor or unsound mind person. Thus, in this
scenario, both Avinash and the café are capable of creating a legal relationship.
Each of these steps highlighted different elements of contracts and their presence in this
scenario due to which it can be concluded that a valid contract is indeed formed
between Avinash and the café.
8 Renata Grossi, ‘Love as a Disadvantage in Law’, (2018) 45 (2) Journal of Law and Society 205-225.
9 Balfour v Balfour [1919] 2 KB 571
10 Edwards v Skyways Ltd [1964] 1 WLR 349