Fundamentals of Contract Law: Formation, Agreements, and Legal Aspects

This assignment delves into the core principles of contract law, examining the essential elements that transform an agreement into a legally binding contract. It explores the requirements of offer, acceptance, and consideration, and emphasizes the importance of legal capacity and the intention to create legal relations. The assignment also differentiates between oral and written contracts, highlighting the challenges of enforcing oral agreements. It further distinguishes between formal and informal contracts and analyzes a scenario involving a group of friends and a lottery ticket, determining whether a legally enforceable contract was formed. Finally, the assignment clarifies the distinctions between agents and independent contractors, focusing on the degree of control and the implications of each role in a business context. The provided answers are designed to enhance understanding of contract law fundamentals.

Question 1
Answer: There are certain elements, the presence of which turns an agreement into a contract.
Due to this reason, it has been said that all contents are agreements, but all agreements cannot be
described as contracts. In this way, if all these elements are present in case of an agreement, such
agreement turns into a contract that is legally binding for the parties. These elements include the
requirement that one party should make an offer to the other. However, an offer can also be
made to a group of persons or even to the whole world (Carlill v Carbolic Smoke Ball Co, 1892).
Similarly, the offer needs to be accepted by the other party (Harvey v. Facey, 1893). The
acceptance should be unequivocal. If new terms are introduced while accepting the offer, such
acceptance is not a valid acceptance and it amounts to a counteroffer (Hyde v Wrench, 1840).
Another requirement is of the presence of consideration. Consideration can be described as the
price paid by the parties in return of the promise made by another party. It is not necessary that
the consideration it always did present in the form of money (Chapple v Nestle, 1959). Similarly
it is also required that the parties should have the intention of entering into a legal relationship.
This requirement distinguishes a legally enforceable contract from a simple promise made in
family or social context. Therefore, some promises made to family members or friends etc. are
not enforceable by law. The parties to the agreement should also have the legal capacity to enter
into the contract. It is also important that the parties entered a contract after they have properly
understood the terms of the contract. The consent of the parties should not be initiated by factors
like undue influence, fraud or duress. In such cases the contract may become illegal and void.
Therefore the elements that are necessary for the formation of a valid contract are:-

offer: one party should make an offer to other. An offer also needs to be distinguished from a
mere invitation to treat, for example, an advertisement.
Acceptance: the offer needs to be accepted by the party to whom it was made. If any new terms
are introduced while accepting the offer, such acceptance is not valid, and it is considered as a
counteroffer. The effect of making a counteroffer is that the original offer can no longer be
accepted.
Consideration: concentration can be described as the price paid by the parties in return of the
promise that has been made by the other party. There are certain rules related with
consideration. For example, past consideration is not treated as a valid consideration (Re
McArdle, 1951).
Capacity: the parties should have the legal capacity. For example, minors, persons of unsound
mind and bankrupts are not allowed to form a legally enforceable contract.
Mutuality of obligations: in case of a valid contract, both the parties should accept the
obligations that have been imposed on them by the contract (Pearce v. Brooks, 1866).

Question 2
Answer: The law does not impose any condition according to which a legally enforceable
contract should always be in writing. Therefore, a valid contract can also be created orally.
However there are certain contracts, which are required to be created in writing. Similarly
although oral contracts are also legally enforceable but generally a difficulty arises in enforcing
the terms of oral contracts. This difficulty arises due to the fact that when a contract has been
treated poorly by the parties, a record is not present regarding the terms of the contract. As a
result, it becomes difficult to establish the terms of an oral contract. At the same time, it is also
important to be aware of the types of contract that required by the law to be created in writing.
Generally, the contracts that are required by the law to be created in writing include the contracts
concerning real property, certain debts or related with money over particular amount. However,
the law does not require that each and every contract should be created by the parties in writing.
Hence, if the elements that the necessity for creating a valid contract are present, even an oral
contract can be enforced by the law. Therefore, while the parties entered into a transaction in
good faith, but a well drafted contract that has been reduced to writing is capable of providing
the best protection to the parties in case a dispute arises between the parties. On the other hand,
when a small sum is involved in the contract or, in case of a simple contract, the need for having
a written contract is also less. Therefore, it can be said that it is not necessary in all cases that a
valid contract should be created in writing. Still, it is a good idea to reduce the contract to
writing, because in such a case. It is easier to establish the contractual terms.
Q 3

Answer:
A formal contract is a contract that has been created by the parties and the document is sealed
using the seal of the parties (Miller, and Cross, 2012). As compared to the situation, when the
parties have entered into an informal contract, the document is not signed under seal of the
parties. In this regard, the seal can be any impression created on the document by the parties to
the contract. In the past, generally, this was done in wax, which mentioned the intention of the
parties to be bound by the terms of the contract. It also needs to be noted that the law of contract
provides that only the parties to the sealed documents are considered as having certain rights
under the contract. As a result of this position, only the parties to the contract are considered by
the law as being liable under the contract. But these days, most of the contracts created between
the parties are informal contracts. But it needs to be mentioned that the legitimacy of the contract
is not decided by the fact if it is a formal contract or an informal contract. Therefore in both the
cases, a contract can be legally enforceable if the other essential elements required for a valid
contract are present. Generally, greater authorities like corporations or government entity into a
formal contract. The former contract needs to be signed under seal. The examples of formal
contracts can be given in the form of letter of credit and negotiable instrument.
Q 4
Answer: On the basis of the facts that have been provided in this question, the issue arises if the
group of friends have entered into a legally enforceable contract or if it was merely a social
agreement, which could not be enforced by the law. In this case, a group of friends used to
contribute $2 each for the purpose of purchasing a lottery ticket. One of the friends was given the
responsibility to actually purchase a lottery ticket. When the winning ticket was purchased by

them that particular friend refused to share the prize money. He claimed that the group of friends
did not have the intention of entering regulations when they decided that the prize money will be
distributed among them. However, the law of contract provides in such cases that in order to
create a valid contract, among other elements. It is also necessary that the parties to the contract
should have the intention of entering legal relations (Jones V Padavattan 1969). Therefore in
such cases it is necessary that the party should have the intention that the terms of the contract
should be enforced by the law (Merritt V Merritt, 1970). For this purpose, it is required that the
contract should be interpreted for the purpose of giving effect to the intention of the parties as it
has been mentioned in the agreement. In order to achieve this objective, usually, the court
ascertains the intention of the parties objectivity. Therefore, for this purpose, the court considers
the actual words that have been used in the agreement by the parties as well as the actions of the
parties according to the agreement and all the circumstances concerned with the agreement. If it
can be decided by any reasonable person, often considering all the above facts that the parties
intended to create a legally enforceable contract, the court will enforce the terms of such a
contract. The plain meaning rule is also used by the courts in this regard. Therefore, this rule
provides that if a clear and unequivocal contract exists, such contract will be enforced by the
courts. The plain meaning of the terms of the contract as mentioned in the contractual document
will be considered and the court will not consider any extrinsic evidence or interpret the
language of the contract. Under these circumstances, in this case also, a group of friends had
contributed $2 each for purchasing a lottery ticket. This clearly shows that in this case, the group
of friends had the intention of entering into a valid contract that can be enforced by the law.
Therefore, they intended that the prize money would be distributed among all of them even if
one person has been given the responsibility to purchase the ticket. Therefore in this case, the

friend who had purchased the lottery ticket is under contractual obligation to share the prize
money.
Q 6
Answer: It is possible for the owner of a business to hire agents and independent contractors.
Although in both cases, it appears that there is a simple matter of delegation. However, from a
legal perspective, a number of implications are present regarding the difference between an agent
and an independent contractor. Therefore the employees who have been hired by the business to
work under the command of the owner fall under the purview of agents. But when help is hired
to complete recurring or temporary tasks, such persons are considered as independent
contractors. For the purpose of differentiating agents from independent contractors, the court
basically looks at the level of control that a particular employer enjoys over the person who has
been hired to do the work. In case the owner of the business has outsourced some work to a
person or to another company that specializes in that work, generally it is conceded that such
person or company is an independent contractor.
However, a fine difference is present between an agent and an independent contractor. Due to
this reason, this issue has been the subject of a number of lawsuits. Generally speaking, an
independent contractor can be described as a distinct and separate business. The independent
contractor is required to provide services, but there is one direction and control. Similarly, the
independent contractor has to decide itself the details, means and the manner of doing a
particular task. On the other hand, anything can be described as a person or an entity that can be
either an employee or an independent contractor who provide services to the principal one

continuous basis. However, a completely independent third party can only be considered as an
agent and nothing else.
Therefore the difference that exists between an agent and independent contractor can be
understood on following grounds.
Agent: an agent has to work according to the control and supervision of the principal. Similarly,
the agent is also under an obligation to follow the instructions that have been provided by the
principal while performing a task. The law provides that the acts of the agent are considered to
be binding for the principal.
Independent contractor: The law requires that an independent contractor has been followed the
terms mentioned in the contract. Similarly, while performing the task, the independent contractor
uses his own equipment, material and labor. Another difference is that the independent
contractor does not have the capacity to bind the employer by his acts.

References
Miller, and Cross. "Chapter 11: Contract Law." Business Law: Text and Cases. By Clarkson.
12th ed. Mason: Cengage Learning, 2012. 210
Case Law
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1
Harvey v Facey [1893] UKPC 1
Hyde v Wrench [1840] EWHC Ch J90
Jones v Padavatton [1969] 1 WLR 328
Merritt v Merritt [1970] EWCA Civ 6
Pearce v. Brooks (1866) 1 Exch 213
Re McArdle (1951) Ch 669